banking in association with ATMs and EFTPOS is now the most
efficient method of recording financial transactions. We need to establish a sound
money system using this technology. We need a legal framework that will
support a sound money system, regardless of money technology that
prevails. The solution is not in a particular technology, but a
legal framework that will constrain any money technology.
We cannot avoid
some government involvement. The problem with most money systems
is that they allow theft, by banks or by the government. A gold
standard does not automatically eliminate theft, as banks still
have the potential to cheat. Those who do will have to be
identified and prosecuted for theft. One of the few legitimate
roles of the civil government is the punish theft. The only role
of civil government with respect to money is to prosecute and
punish theft. Some government role is inevitable, but it should be
limited to the prosecution of crimes of theft.
The civil government should ensure
that laws against theft and fraud apply to the electronic banking
system. The civil government should commit to prosecuting all
money crimes as theft. Apart from this the civil government should
have nothing to do with banking. If the civil government
prosecutes theft consistently, then a sound money system will
emerge out of the market. What I have tried to do on these pages is show how this
could be done. I believe that if the simple rules that I have
outlined here were implemented in legislation, and if anyone that
broke these laws were prosecuted for theft, then the banks would
establish a sound money system.
government is not responsible for establishing a currency. If the
civil government prosecutes theft consistently, private banks can
establish and maintain the currency. The role of the civil
government is limited to prosecuting and punishing theft through
the dilution of currency.
I am giving an
example of how a sound money system might start, but how it
started is not really important. The important issue is how it
would work now in a modern world, where most financial
transactions are done electronically. We already have a
transaction recording system. The modern electronic banking system
provides a process for recording transactions. I believe that the
main issue is to ensure that the legal framework that supports
this system does not allow theft.
The Value of
There is a
mistaken view that the government determines the value of a
currency. This is not true. Even if the government establishes a
currency as "legal tender" this generally only refers to
notes and coins, whereas most transactions are electronic. Making
a currency legal tender does not determine the value of that
currency. The value of the unit of account is not determined by
the central bank or the government. A currency does not have a
value in itself. The value of the currency is determined by the
people who use it.
Money in the bank
does not have value; it is just a number of digits in a computer.
Digits on a bank file have no value. People only want them,
because they can use them to buy what they need. The value of the
money in a bank account is determined by what can be bought with
it. People have to look at goods and services offered for sale in
the market to see what the currency is worth.
The value of a
currency is decided by people using it to buy and sell goods and
services. Traders who offer goods for sale in the market place are
stating the value they place on the currency. They decide its
value on the basis of what they expect to be able to buy with the
money they get. Purchasers state the value that they place on the
currency when they make purchases at prices expressed in that
currency. People know what the dollar is worth because they see
what it will buy in the market. However, prices can change over
time, so the best indication of the value of a currency is the
last few sales in the market denominated in that currency.
capable of looking at a range of goods and services and assigning
a value to them. They can express the values relative to other
goods and services, or they can express the value in terms of a
currency, provided they can see a range of goods of goods
available for purchase at prices expressed in that currency. A key
attribute and character of God is to evaluate people and actions.
His valuations are perfect. People are created in the image of
God, so they can also make evaluations. However, because we are
finite, we sometimes make incorrect valuations. The fall was a
massive bad valuation of the worth of the serpent’s words, so
even before the fall, humans had the capacity to make incorrect
valuations. One way of looking at freedom is to see it as the
ability to make bad valuations.
The value of a
currency is determined by people, as they denominate the
valuations they have made in terms of the currency. However, it
does not have one fixed value. Different people make different
valuations of the currency depending on their situation; their
valuations are subjective. Traders place a value on the currency
when they offer goods for sale at prices expressed in it.
Purchasers buy goods and services that they consider will be of
value to them. The intersection of all the valuations made by
people in the market determines the value of the currency.
It follows from
this that value is not stored in a bank. Value is stored in the
goods available to for purchase. If there is a surplus available,
then the value stored increases as prices fall. If there is a
scarcity of goods, the value stored decreases as price increase. A
bank cannot store value; gold cannot store value. The store of
value is maintained by producers who keep on producing goods that
people want. If they stop producing, then the value stored
fritters away, regardless of the number of digits on the computer
databases of the bank or gold coins under the mattress. The store
of value is independent of the unit of account.
Paper money is
often called "fiat money". The word fiat means
"decreed". Money is given this name, because governments
decree that their currency will be the only one used. However,
referring to "fiat money" is misleading, because
governments cannot give value to a currency.
The state cannot
give money value. Money is given value by individuals giving goods
and service to another person in society in exchange for money
with the expectation that they can use the money to something of
equivalent value (to them) from some one else in that society. The
state does not give money value. The signature of the Head of the
Central Bank on a banknote does not give me confidence to accept
it. The only reason I accept it is that I know that I will be able
to exchange it for something else. The people of a society give
value to their currency by exchanging goods and services for it.
The state cannot
give value to a currency. A currency that was only accepted by the
civil government would be virtually worthless. Individuals and
businesses give the state’s money value by exchanging goods and
services for it.
Proof of this
principle is that good quality counterfeit money can circulate for
a long time without being discovered. Even thought it is
counterfeit, it has value because retailers are willing to
exchange it in exchange for goods. Likewise, Australian 20c and
10c coins circulate in New Zealand, despite have no legal status
here. People accept them at face value, because they are accepted
by retailers and can be used in parking meters in New Zealand.
Their value does not come from the Australian government, but from
people the people who use them.
are accepted in many places in the world where the American
government has no legal authority. Dollars have value, because
people know they can be used to buy goods and services. People
give a currency value, not the state.
While the state
cannot give value to a currency, it can destroy a currency’s
value. Kings and governments have a long history of debasing coins
and printing bank notes for their own benefit. This inflation
reduces the value of the currency for everyone. People
express their concern about this declining value of their currency
by raising prices to complensate.
State money is
really always fraud. When Government's claim put their
name on a currency, as if they created its value, they are
perpetuating a lie. The people of a society give value
to money by using it. There name should be on it, because if
they stop using it, it will have no value.