Simple Liberty  



Monetary Reform

Chapter 7

Alternate Infrastructure

Written by Darrell Anderson.


Epigraph source

Despite the many engaging debates about how to create a state-free world, I am convinced that the most important remedy lies in dismantling the current monetary exchange system. Once the current monetary system is transformed, statists and tyrants lose their primary means of terrorism and oppression.

Understanding how to transform the monetary exchange system is a challenge for many people. Only by understanding exchange systems without the use of a common medium of exchange tends to shed light on resolving the so-called paradox.

The statist political system is best defeated by atrophy, not bloody revolution. To bypass the statist political system of stealing under the color of law means creating an alternate infrastructure. This is hardly a new idea. Author J. Neil Schulman proposed such an idea in his novel Alongside Night. Schulman understood the requirement for an alternate exchange system and also understood the need to have an infrastructure in place. When the statist political system collapsed liberty-minded people proceeded as though nothing had happened.

However, within the infrastructure Schulman proposed, he also proposed an alternate monetary exchange system. The problem with Shulman’s monetary system is a commodity was used as a common medium of exchange — gold coin.

I think both technologically and philosophically the time has finally arrived to abolish common mediums of exchange. No paper; no gold, silver, or clad coins; nothing but trading wealth directly for wealth. For many people such a concept is difficult to accept, although not difficult to understand.

For thousands of years people directly exchanged wealth for wealth. Those exchanges today are typically called barter and trade. Those people did not exchange wealth for currency — a common medium of exchange. Wealth is anything tangible derived from labor that satisfies individual happiness. Because people primarily exchange wealth for wealth, currency is a token symbol of debt — an unfinished exchange of wealth. Currency is simply a symbolic token or placeholder representing an unfinished exchange of wealth.

Although I have studied monetary theory for many years, I began to coordinate my years of study after I read Eric Frank Russell’s classic 1951 science fiction novelette . . .And Then There Were None. The inhabitants of the planet in that story used “obs” to monitor wealth exchanges. As explained in the story, “obs” was verbal short hand for obligations. That exchange system was an unwritten IOU system — physical currency was not used. Obs were neither tangible nor physical IOUs, but “recorded” only in each individual’s mind. Obs were another way of declaring a debt was owed. Each individual was responsible for tracking personal exchanges of wealth. In Russell’s story, an individual who accepted community help to build a house owed several years’ worth of obs to those who helped. The concept is not so ridiculous; people plant obs on one another on a regular basis — you help your neighbor build his porch deck and then your neighbor helps you. Such a system is merely exchanging without a common medium of exchange.

In times past when commodity currencies were popular, one could argue that wealth was being exchanged for wealth because even if circulated in the form of a coin, those commodities nonetheless could be consumed. In today’s world of electronic and paper currency, that argument no longer holds. Humans have evolved a complicated exchange system and more than 90% of the currency in circulation today is nothing more than digitized information.

Yet, even with a digitized currency system, politicians are easily able to inflate that medium of exchange and erode the future exchange power of the currency. All they do is create new currency using their central banking system. Unlike the currency created locally through bank loans, the currency created by the politicians seldom is backed by any wealth.

Now, a general social rule preventing politicians and bureaucrats from borrowing would be helpful, but that still would leave a centralized political system in place. The inability to borrow also does not prevent individual counterfeiters from inflating the currency. That social rule also would not prevent politicians from levying taxes or stealing assets under the color of law.

Consider the difficulty of corrupting a self-sufficient community of people by debauching their exchange system. Being self-sufficient means there is no currency system; those people are concurrently producers and consumers. In other words, they consume much of what they produce and within the confines of their community, trade and barter with one another to exchange their wealth.

In such a community no inflation of the currency is possible because no currency exists, and even if an outside conqueror invaded, that conqueror cannot borrow what does not exist like modern politicians pretend to do with the central banking system. True, that small community of people would become slaves if they did not resist, but their exchange system cannot be corrupted through inflation. The conqueror can steal or borrow only what is physically produced.

Many people argue that barter and trade grows more inefficient as the division of labor increases. Thus, some common medium of exchange is necessary to grease the wheels of exchange and facilitate the trading and exchanging of wealth. In today’s global economy, barter and trade would seem most difficult and eliminating common mediums of exchange would seem nonsensical.

Barter and trade are not inefficient, but only a slower process with respect to time. Consider that even within the context of using currency, few humans expect exchanges to be consummated immediately or instantaneously. For example, people are paid weekly or every two weeks, yet they buy electrical power and telephone services monthly. In other words, usually there is a time delay in most exchanges.

Adding currency to the exchange process means there still is a time element of delay. By definition, currency is a token symbol of debt representing an unfinished exchange of wealth. Holding currency mean an individual is content not to immediately possess wealth, and is willing to own that wealth tomorrow. Thus, even with a currency there is an element of “inefficiency.”

Barter and trade eliminates the element of using a currency. In a world of barter and trade people must look harder to find exchange partners, but the time domain plays the exact same role as when currency is used.

Consider that today’s monetary exchange system is more than 90% digitized with computers. Additionally, brokers exist in many markets because of the size of the global economy. Brokers are people who help sellers find buyers and vice-versa. Why can’t the monetary and brokerage systems of exchange be merged and therefore eliminate common mediums of exchange?

They can.

On a small scale, several wealth-for-wealth exchange systems already exist. One popular system is known as LETS, the Local Exchange and Trading System. Currently, this computerized exchange system is used only locally, but there is no reason why such a process could not work globally. Brokers would be necessary to coordinate millions of exchanges, and those brokers could charge nominal fees of 0.5 to 1% of every wealth exchange.

Charging percentage fees is common practice, for example, among granary storage proprietors. Farmers who do not own their own silos use local granaries to store feed and grain. The granary owner typically charges a small percentage fee. Typically the fee is not in the form of a common circulating currency, but in the actual grain or feed being stored. Obviously the granary owner later exchanges that excess grain or feed to other farmers for a common circulating currency, but in a globalized wealth-for-wealth exchange system there is no common medium of exchange and the granary owner would exchange the excess grain or feed for other forms of wealth. Other commodity brokers would do the same.

Yes, such an exchange system would need a global computer network, but the infrastructure for such a network already exists in two places. One obvious place is the Internet. The second place is the banking system.

A true wealth-for-wealth exchange system forever eliminates currency inflation, and also eliminates another evil of the modern monetary exchange system — compound interest.

Humans produce linearly — they can act only sequentially and regardless of how efficient, can only produce one thing at a time. Compound interest, however, is debt being created out of debt, not debt being created out of an unfinished exchange of wealth. As any casual observer of mathematical equations will notice, that process of creating debt out of debt is an exponential process. Thus, human production never can maintain pace with the debt created from compound interest — unless they devote tremendous amounts of time to overproducing.

Humans are continually becoming more efficient in their production and with respect to sustaining basic needs and wants, that efficiency should mean people working fewer hours per week. Yet, many people find themselves actually working harder than any previous generation. Their production is linear but their consumption is burdened directly and indirectly with compound interest.

Humans can satisfy those “legal” debts but require many years of overproduction to finally break even. Just like that, one should understand why the current global monetary system is struggling.

Acknowledging that the modern banking system is sustained almost completely through political leverage, bankers nonetheless could convert their services, and profit without that political leverage. Bankers could continue providing storage security services for valuable commodities and personal effects, but without a common medium of exchange would seem to be out of business. However, bankers easily could convert their existing inter-tied computer systems into a global brokerage business. They would charge nominal fees for providing such services. Rather than being a hated component of social systems because of their various politically granted monopolies, bankers instead would have to work for a living like everybody else; but more importantly become valuable contributing productive members of the global community.

Proponents of monetary interest have for years argued that currencies possess rental value and therefore have supported the idea of compound interest. Certainly currencies possess rental value, but that rental value should be linear — just like renting actual wealth. If bankers charged administrative fees instead of compound interest they then would be profiting at a linear pace instead of exponential. Ignoring that bankers create new currency by political privilege, they at least would be providing a true community service. Administrative fees are linear — just like human production.

Notice that a true wealth-for-wealth exchange system eliminates the concept of compound interest because currency is no longer used. Wealth is directly exchanged for wealth and brokers would charge a fee for helping to coordinate those exchanges. The concept of interest would remain because people could loan or lease their wealth to other people. However, with respect to the exchange they coordinate, brokers would collect fees and not interest. The mathematical brutality of compound interest disappears.

A true wealth-for-wealth exchange system does not immediately eliminate the theft otherwise known as taxation because politicians would demand their bribes “in kind” — actual wealth. However, notice the natural limitations and comedy of such taxation in a global market. Even if people accepted such taxation, politicians would have a difficult time creating weapons of mass destruction when the population is trading food staples, lumber, and cell phones. Without a common circulating currency there is no political power, there is only exchange.

Taxation is used for one purpose only: to forcibly transfer wealth from one class of people to another. In a true wealth-for-wealth exchange system, the entire concept of historical taxation is partially defeated because people are already exchanging wealth for wealth — what is there to forcibly redistribute except directly to the politicians? Suddenly the emperor is wearing no clothes.

Yes, in the current statist climate brokers likely would be regulated so that some wealth exchanges are siphoned into politicians’ pockets, but people would need only to employ a non-registered broker to bypass much of that theft. A true wealth-for-wealth exchange system is a perfect “underground” activity and the politicians never could keep pace.

Just as importantly to liberty-minded people, a true wealth-for-wealth exchange system provides an opportunity to create an infrastructure that exists outside the statist political monopolies.

A true wealth-for-wealth exchange system bypasses the current problem of e-currencies in that no precious metal commodities need be stored anywhere, nor is there any need to convert back to the politicians’ scrip to pay taxes. Not storing those precious metals means politicians cannot steal them under the color of law. Simple encryption also impedes the politicians because a global wealth-for-wealth exchange system is nothing but digital information. Unlike a modern bank account, politicians cannot coerce brokers to hand over the actual wealth. By the time the alphabet soup gangs decoded the information, the actual wealth is easily exchanged, moved to another broker, or consumed.

Building an alternate infrastructure is vital to collapse statism, and many people have been yearning for an electronic form of currency that could bypass the politicians. Yet, by understanding that currencies are merely token symbols of an unfinished exchange of wealth, one might wonder why humanity should continue with any form of currency. Especially when history amply proves how easily monetary exchange systems are corrupted by those who seek the political means of satisfying needs and wants.

The technology now exists to return to barter and trade and to eliminate common mediums of exchange. With that paradigm shift, statists lose their primary means of tyranny and oppression.


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Next: Chapter 8 — That Dismal Science

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