Gold & Silver, STAFF NEWS & ANALYSIS
Iceland vs Banksters
By Philippe Gastonne - April 08, 2015

Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". In Iceland, as in other modern market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.

Under the so-called Sovereign Money proposal, the country's central bank would become the only creator of money. "Crucially, the power to create money is kept separate from the power to decide how that new money is used," Mr Sigurjonsson wrote in the proposal. "As with the state budget, the parliament will debate the government's proposal for allocation of new money," he wrote. – Agence France-Presse via London Telegraph, March 31, 2015

Tiny Iceland, best known for its volcanos, seafood and tongue-twisting language, is thinking big. The government is apparently taking seriously a proposal that could shake the global banking system to its core.

Daily Bell readers will quickly see the flaw in this "Sovereign Money" idea. Transferring the power to create money from the banking system to the elected parliament would simply trade one form of manipulation for a different one.

This system might be a small improvement over the status quo, since citizens can throw politicians out of office. The process might be somewhat more transparent. However, the bankers would not take kindly to losing their golden goose, and would no doubt use all their influence to regain control. History suggests they would succeed.

The real flaw is the assumption that someone should control the money supply. No. Money isn't money if some earthly creature can create more of it ex nihilo. That power is not safe in human hands. Natural scarcity is an essential element of money. This is why early humans adopted gold, silver and copper as media of exchange.

It is why so many see bitcoin as real money, too. The maximum number of bitcoin is mathematically fixed. People can "mine" it but they can't create it. Imagine if some kind of political body could vote to create more bitcoin. It would render the whole idea pointless.

The Icelandic proposal still has some merit, though. As AFP says above, banks "would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders."

While this might be honorable work, it is far beneath the lofty status of today's banking superstars. Coming down from the throne to "manage accounts and payments" sounds so menial. Jamie Dimon of JPMorgan Chase doesn't want to intermediate. He wants to create and thinks it is his natural right to do so.

Forcing bankers to find honest work would be a huge step in the right direction. A remarkable number of Americans mistakenly equate Wall Street with capitalism. In fact, Wall Street as currently structured is a giant pyramid scheme. It would not exist under true capitalism.

All modern banks would collapse if they lost the ability to create money. Iceland's "Sovereign Money" idea would prove this to everyone. The lesson would be a big step toward truly sovereign money.

For this reason, the proposal isn't likely to get very far. The fact that legislators are even entertaining it is a positive sign. They may disagree on the answer, but at least they've admitted the current structure is untenable. That's progress and we ought to welcome it.

Posted in Gold & Silver, STAFF NEWS & ANALYSIS
  • Daily Bell readers will quickly see the flaw in this “Sovereign Money” idea. Transferring the power to create money from the banking system to the elected parliament would simply trade one form of manipulation for a different one.
    Jct: Daily Bell readers must miss how transferring that power to create money also transfers who gets the interest on the new money, private banks or us. Duh!

    • Bruce C

      At least one other Daily Bell reader is confused by this as well. Iceland’s central bank is not governed by its elected Parliament, nor is it owned by them. The interest earned would belong to the central bank, not Parliament and certainly not “us.”

      • If you owned a money printing machine, not fake money but real money, would you ever be broke again? Only if you were really very stupid. And would you give that machine away on the agreement that you will instead pay interest for any of the money the machine printed. Only if you were very stupid again. Or fundamentally corrupt.

    • Fabian

      Do you really think that government is us?

      • Jct: I know private banks are not us. If government is not us, whom would you say is?

        • Fabian

          Nobody Sir, you’re basically on you own with your family. I personally prefer banks because I can invest in them and governments always end up in disarray because they don’t face competition.

  • The suspicion that the ‘money-power central-bank operating international bankers’ would attack an Icelandic government issued ‘Sovereign Money’ is probable especially as the proposed ‘Sovereign Money’ will be backed by a small economy allowing the government scant resources with which to ‘fight back’. Easy prey perhaps. On the other hand, if the local government refused to commit reserves to any such fight, this could represent a fantastic opportunity for speculative investors, outside of the central banking oligarchy, to mop-up everything the attacking bankers invest in such a strategy (sell on boom buy on bust). The question is: who has the deeper pockets; central bankers or everyone else in the world interested in making a buck? Get the value right and it would offer the speculative independent investor a workable balance between risk and profits but the converse side is it would result in a national currency that would endlessly yo-yo to the point of great difficulty for a local economy to smoothly function within.

  • Bruce C

    It’s an interesting proposal, but unfortunately the article doesn’t say why Mr. Frosti thinks that would make for “a better monetary system for Iceland.” It’s true that commercial banks would not be able to choose who gets the cheapest money which could arguably limit cronyism and mal-investments, etc., but given the faulty system itself of money creation on demand a central bank would potentially be just as problematic, and maybe even less transparent (not more).

    Nevertheless, I agree that it’s interesting that such a change is even being discussed but I don’t see how a bunch of politicians (aka “legislators”) are going to figure this one out.

  • As regards the maximum number of BitCoin being ‘mathematically fixed’, that is clearly the fact. But the maximum number of BitCoin lookalikes is not fixed. If BitCoin starts to gain real traction as a means of exchange rather than a speculative geakie investment (which is all that is propping its current value up) the value of BitCoin will inevitably and dramatically rise with demand. That will make it clear there is a demand for such digital means-of-exchange and the market will surely become awash with competing digital coins structured identically to BitCoin – I can see no reason why not. They could even use the same block chain as BitCoin, indeed copy BitCoin in every way except they are just then called BitCoin2, 3, 4 and so on. So to say the volume of BitCoin is ‘mathematically fixed’ is not correct in this respect and shows why currency, to be fundamentally trusted, has to be asset-based to be enduring.

  • Dave redick

    Giving control to Parliament is a tiny and useless step. As others have commented, you can’t trust politicians to not inflate. An axiom is; ‘ALL central banks were created by banksters and politicians to assure that neither ever runs out of money’. The real answer for all nations is to terminate their central banks and use gold as money (not ‘backing’. Paper notes are for convenience in handling but are just claim checks to redeem for metal. See the whole story in my books on Amazon.com ; ‘Monetary Revolution USA’ (it includes a transition plan from fiat paper to gold; with gold weight as the ‘unit of account’), and ‘How to Protect and Grow your Wealth’. Both are also posted free at part 2 in the left margin of my site http://www.Forward-USA.org.They both include the list of ten characteristics that a commodity used as money should have. Gold is always deemed best by the market. There is always enough gold because it’s value by weight APPRECIATES due to more demand against a limited supply when the user economy grows. (Basic supply and demand economics. No gov’t control needed.Als see my site SaferInvesting.org.
    Regards, Dave Redick

  • disqus_QZX8ENhLyb

    L. von Mises had it right. As long as the total stock of currency (“money”) in commerce remains constant, price-levels will remain relatively stable. As the production of more wealth (man-produced, useful products) increases, the price-levels will gradually go lower. Should the currency-stock increase from new mining, etc. price-levels will rise, albeit slowly. Cf. late 19th and early 20th centuries.

    Gold, silver, and other precious metals are relatively rare commodities that can form the basis of such a system. Countries should abandon their jingoist, value-manipulataed nationalistic-currencies in favor of a precious-metal commodity currency, preferably gold. The “grau” [grain of aurum (gold)] could be the international unit for measuring money. [One ISO kilogram equals 15,432.3583529 grains]

    Hard to manipulate and harder to counterfeit.
    David Michael Myers
    cogito01_at_comcast_dot_net

  • 2prickit

    EX NIHILO

    “Actually not so”, said the executive accountant and the real sales-man of the firm when it came to acquiring no-bid defense industry contracts from the war department. “All accounting methods,” he proposed “are analogous to which of the three colors of light to choose from: is it the blue one? Then turn on the blue light; is it yellow one you want? Then turn on the yellow light; but if it is the green one that you must have, then certainly, you’ll have it.” So at the next conference, the lighting is filtered to green which naturally enough is by itself filtered LIGHT; and “wallah” he boasts, “the green light turns the suit green; and that is what they wanted all along.; YES?” And that is something not exactly ex nihilo, save for the green light.”

  • disqus_QZX8ENhLyb

    Another necessity for a sane economy in a free-market society is individual financial responsibility and governmental non-intervention in business, commercial, and private affairs. There should be no such thing as a “governmental bailout” [out of a government-caused financial mess.] Each actor in the market must be totally responsible for hisorher own activities, meeting hisorher financial and contractual obligations. If not, then bankruptcy. “Too-big-to-fail” is fraudulent financial skullduggery and legalized plunder.

    Government has only ONE legitimate function to thwart crimes: fraud, extortion, theft, and unprovoked, violent physical aggression.

    David Michael Myers
    cogito01_at_comcast_dot_net

  • Danny B

    I’m copying 2 posts that I did earlier;
    “The Central Bank of Iceland is an independent institution, owned by the Icelandic state.”
    http://www.cb.is/bank/about-the-central-bank/

    Private banks loan money into existence and then collect both principle and interest,,, a very lucrative business. In Iceland, they arrested the crooked bankers and put some of them in jail. Now, they are working on a plan to get rid of the private banks. The central bank alone would create money.
    “The proposal is a 110 page PDF called Monetary Reform – A Better Monetary System for Iceland

    Read more at [url=http://globaleconomicanalysis.blogspot.com/2015/04/iceland-ponders-radical-money-plan.html#IGbuvlwsk9iWdFWP.99]Mish’s Global Economic Trend Analysis: Iceland Ponders Radical Money Plan Including Elimination of Fractional Reserve Lending and Deposit Insurance[/url]
    “Aside from the errors regarding the amount of money and who is in control of creating money, the proposal is an excellent starting point for addressing many of the flaws inherent in the existing fatally-flawed fiat currency scheme.’
    There are claims that such a bank would create too much money. If you carefully examine the Bank of South Dakota, you will see that they have great oversight and a VERY good record. They won’t make any loan that doesn’t have an income stream identified for repayment.

    Both Wall Street and the Icelandic banks made HUGE bets that failed. The European banks demanded that the people of Iceland repay the money lost by PRIVATE Icelandic banks. Unfortunately for the crooked bankers, there just weren’t enough crooked people in GOV to make it stick. No shortage of crooked people in America and Europe.

    As I posted twice, Iceland is planning to get rid of private banks and just use the central bank to print money as needed by the economy. 95% of those in the economic profession are talking about how STUPID this plan is. EVERYBODY knows that it won’t work.
    In our current arrangement, the central bank prints a small amount of money to adjust the system. The private banks create the main body of new money in the form of loans. ALL their money is created as debt[B] and the interest flows into the coffers of the bank.[/B]
    Iceland plans to do away with private banks. The CB would create all new money that is needed. [B]The interest would flow into the GOV general fund.[/B]
    The financial community (pack) is claiming that the CB would always create too much money. I haven’t heard a single one of them claiming that the FED has NOT created too much money.
    [B]50% of the cost of everything that you buy is for interest.[/B] Just imagine if that 50% of everything accrued to the GOV general fund.
    The financial community is poo-pooing the whole idea. You can smell the fear in the air.

    “Chinese economy is in a state of perpetual free fall since the mid 1990s. It has to be. From the most respected economist, experts, analysts, and seasoned columnist to the senior treasury and FED officials, all have been predicting the ‘‘unavoidable’ collapse of the Chines economy and the ‘imminent’ ‘bubble burst’ of the Chinese real estate and financial sector for more then two decades.”
    “The Chinese economy has emerged as the unstoppable economic engine that is pulling the entire global economy. ”
    “It was almost the same period (2008) that the high power Treasury and FED officials were visiting Beijing and warning them of an impending financial collapse and systemic failure of Chinese banks unless they fully adopt to the western banking standards and ‘open up’ to the West.”
    “It has been almost a biannual ritualistic indulgence on part of our western experts to launch a media blitz against the Chinese economy – rejuvenating their aging predictions of impending collapse of the entire Chinese economic and industrial system. To their dismay, China is still the world’s fastest growing economy. They seems to be unable to comprehend it.”

    “First: Unlike the West, where the economic model is the sucking blood out of the working class – depriving them of the living wages, China has opted for the Ford model – continuously increasing the purchasing power of the masses to keep the economic engine running full blast. Following on this scheme, China has been able to sustain the highest income growth rate in the world for its masses for more than two decades – no other economy come even close to it.

    Second: China, unlike the West – in particular the US, where the privately owned central banks (the Federal Reserve Bank in the US) hold the economy hostage, owns and controls its central banks. As such, all the interest earned by and through the central bank is recycled back into the economy – it doesn’t end up into the coffers of the major banks.”
    [url=http://viewsandpreviews.com/chinese-economy-in-free-fall/]Chinese Economy in Free FallViews and Previews[/url]

  • jim

    From the proposal’s name, it seems the Iceland government senses it has somehow surrendered monetary sovereignty, and is trying to reclaim it. If that is the case, it’s an excellent first step. Most of the world has unwittingly forfeited its sovereignty in almost all facets of life. Pegging the insidious means and the parties to whom sovereignty has been ceded – and then undertaking the reclamation process – will not be easy for any of us. But globally the natives are stirring, rumblings can be felt everywhere, and a great adventure has begun.

    • Agree entirely, this road toward reform of the financial system will be long and rough because the whole system is utterly complex and those who use and run it have little knowledge of what they do. I am certain that our veritable central bankers and their ‘bought-and-paid-for’ politicians have a poor understanding of what they are actually part of. If they were to find the time to read DB and its comments perhaps they would get a better idea of how fraudulent is their system and how they should be condemned as outright criminals. They would be aghast, I am sure, to find out the truth of their machinations.

      IMHO the Icelandic proposal and report is one important step in this long education process and let us not forget that teachers are poor learners, especially when the tutelage is reversed and is coming from their customers, which compromises and condemns their own belief system. The PTB will fight every inch of the way to maintain the status quo but even now it is clear that forces are at large which will prove unassailable in the long run.

  • TexasJohn

    Won’t people and businesses still need / want to borrow money? I do not see how that will work. Banks originally loaned money they acquired from deposits (i.e. fractional reserve banking) but that will be eliminated? [IMHO that should be their only source of funds today.] This would leave the only lenders as Mario/Luigi/Mick/Dmitry down on the street corner (again Fractional Reserve Banking System)? I am a saver and want to earn interest from my money; how will that work in Iceland?

    • Patrick Watson

      As I understand it, the only way to earn interest would be to sacrifice liquidity. You would buy a 5-year CD and the bank would then extend a 5-year loan to someone. You couldn’t have no-fee demand deposits like we do in fractional reserve systems.

    • In fractional reserve banking banks can lend more than they have on deposit. The theory being that money lent in excess of reserves must be deposited at some other bank if not just back with themselves. Simultaneously other banks are creating credit which will be deposited some other bank too. In general so long as a bank moderates the amount of credit it is creating it will be receiving sufficient credit created by other banks to retain a sufficient reserve and liquidity. When a bank has a shortfall in deposit to loan ratio it calls upon inter-bank lending to balance the books. So long as sufficient reserves are retained from deposits banks can use interbank borrowing to cover the new credit they make. This is the ‘trick’ the Icelandic government want to put an end to. Banks create money as credit ‘out of thin air’ and then earn interest on those loans whilst the governments underwrite the banks by being ‘lender of last resort’.

      If you owned a money printing machine, not fake money but real money, would you ever be broke again? Only if you were really very stupid. And would you give that machine away on the agreement that you will instead pay interest for any of the money the machine printed. Only if you were very stupid again. Or fundamentally corrupt

  • The entire monetary concept as practiced today throughout the world, is so fraught with opportunities for malfeasance, fraud, and embezzlement as to be rendered entirely useless sometime in the not too distant future. Even this proposal from Iceland puts the creation of money in the hands of a few politicians, I cannot imagine a more stupid concept.. It seems inevitable to this reader that we are headed simultaneously in two diametrically opposed directions: the creation of local currency which in many cases may be actual precious metal coins – and money-at-the-point-of-a-gun, which will be the upcoming cashless, global currency. How much strife will accompany the birth (and death?) of these divergent systems will probably be the main story of the 21st century.

  • Jim Johnson

    The rubber is meeting the road in Iceland. We are seeing one of their own trying to create something that will work for now, and people will want to feel this time they have a clue to how that will operate. My prayer is the fine minds we find commenting on such sites as the DB are actually working with others to find an agreed way forward. That this author proposes this is a certain measure of all our viable ideas. I had hoped for better.

  • implicaverse .

    The number of movies filmed in Iceland has doubled in the past couple of years. Time to look at Argo, Icelanders. The movie was pure fiction but maybe it foretells what the CIA has planned for you . . . .

  • Duncan Pugh

    This topic was debated by the UK parliament recently too with cross party support too … it is quite interesting to see the levels of ignorance re money creation of some attendees and judging by how empty it was they were probably more interested than most MPs … or perhaps the rest had a vested interest in maintaining the status quo?

  • saanichtonian

    I am from Canada…
    There is was a an amended statement of claim filed on with the Federal Court in Canada by C.O.M.E.R. (Committee on Monetary and Economic Reform) ( http://www.comer.org/content/AmendedClaimStatement26Mar2015.pdf ). Essentially to return to having our PUBLIC central bank fulfill it’s original purpose, creating credit for the federal government and short term loans to the provinces. Under this system (1938-1972), Canada benefited enormously without accruing enormous debt. Please read the statement of claim!

    IMHO…I believe Iceland is on the right track.
    In order to have a sound sovereign currency, it seems to me that it would

    – be issued by a representative of the people (Public Central Bank?)
    – It must be issued interest free. (What truly sovereign country would borrow it’s own currency at compound interest?)
    – Production must not rest in private hands (no fractional reserve banking)
    – If money is lent for a fixed time, it cannot be still available to the lender. (no fractional reserve banking)
    – There must be some kind of restraint on production, so that inflation does not reduce the purchasing power of everyone’s savings, perhaps a percentage of GDP?.

    As for a gold backed currency, this is what started the whole fractional reserve thing, The gold dealers of London in the late 1600s would store gold, and hand out paper certificates for it. They quickly realized that the certificates were being traded, and the gold rarely collected, so they printed extra certificates for themselves. No problem until everyone wanted their gold all at once.

    Now if there is an actual gold (or silver, or copper, or nickel) coin or bar that has some recognized value, I can see having a complementary currency that people can resort to if the politicians get out of control . They could be marked as to weight and purity, and not a dollar value. These coins or bars would probably be used be for savings and possibly trade settlement, while using the paper note for everyday commerce.

    Regardless of your agreement of the above, to continue with the present system of borrowing our currency substitute (debt) at ever increasing amounts (to pay for the interest that was not created with the loan), at compound interest until the debt overwhelms us all, and the real assets (collateral land, infrastructure and resources) of the country are transferred to the bankers, must end.

    Whoever controls the currency and credit of a country, controls the country, and for a country of free people, that control must rest with the people.

    • Danny B

      Canada has a history of being screwed by banks. “We do not have to explain that one of the GREATEST FRAUDS of all time is the central banking hoax.
      We the people of Canada own the central Bank but it was stolen in 1974.

      In a class action suit filed by Lawyer Rocco Galati on December 12, 2011
      there has been a complete News Blackout regarding the proceedings of this lawsuit.”
      http://www.maxresistance.com/total-news-blackout-in-canada-people-vs-central-bank/
      The Mcmillan report recommended that Canada create a central bank, ” In the article, the author, briefly, provided career background of all the four contributors to the “Macmillan Report”. 2 out of the 4 authors were from England; thus, modelling our banking system heavily based on Bank of England’s style”

      “Grant lays out a brief history of the Canadian banking system,
      referencing obscure historical figures such as former Vancouver mayor
      Gerald McGeer and explaining that the Bank of Canada held primary
      control over government lending until the 1970s.

      Starting then, she says, governments began borrowing from private banks instead
      at considerably higher interest rates than those available through the central bank.

      The result, Grant argues, is a rapidly increasing national debt.”
      http://www.cbc.ca/news/canada/12-year-old-blasts-canada-s-banks-1.1132853

  • paul shawker

    Most economic models miss the most important aspect which is population growth. As humans procreate naturally the monetry base has to increase in some mathematically related way to ensure that there is enough money to meet everyones needs . Most humans need food and houses and the busineses need workers to mine the eaths resources . All the synthetic stuff is created around this to exploit the labour and in the process to enrich themselves .Power comes from having control over the system and all the double speak is just used a tool to fool the masses . Expolitation , security (old fashinoned thuggery ) and laws are then used as a framework to control the bio robots.
    Corrupt and greedy masses will always manipulate people so that they can live off the sweat of others and have a life of luxury for themselves . You dont need to be a economist to work that out.Its so blatantly obvious

  • J K

    So much bull on a single page.
    …if banks could not create money they would fail?
    Yeah, fail to make exorbitant and gross amounts of profit by stealing it from the middle and poor classes.
    Too big to fail = too big to jail. Does not exist. No one should be above the law, and that includes the pedophilic British Royals and many top US and Cdn politicians.

  • davidnrobyn

    Given the current paradigm this is probably as far afield as consensus thinking can go at this time. This is at the very edge of Tom Woods’ “3×5 card of allowable opinion”! But hopefully, efforts by DB and others will expand that.

  • DWARobertson

    I believe the same principles were enunciated in the Monetary Reform Act of 1995 that received the imprimatur of Milton Friedman who suggested that the best way to accomplish this would be via a Constitutional Amendment.

    http://www.themoneymasters.com/monetary-reform-act/

    Personally I had very different ideas on how money is created and envisaged a quite different system that would have left the creation of money where it belonged, in the hands and minds of the people, each individually, manifested through the free market. The present widely held belief in the central creation of money is a result of the rule of an oligarchy for thousands of years. This rule is now ending.

    As has been noted elsewhere a medium of exchange/store of value is only a necessity in an economics of scarcity. What would then be the requirement for such a function in an economics of abundance? Even the act of contemplating such an eventuality will lead one to realise the extent of the present limitation placed upon our thinking on monetary matters by our present system.

    In any event, it is my belief that we are going to experience such a radical change in our state of being and mode of existence that these questions of how money is created and used will become irrelevant and appear merely as quaint anachronisms.

  • Article I. Section 8. Clause 5. of the U.S. Constitution charged our founding fathers with the task of establishing “Standards”.
    “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”

    A Standard Measure was a mile = 5280 feet. A foot was 12″. An inch was the length of a man’s first digit of his index finger. An acre is 43560 square feet. A section was 640 acres, ETC.

    According to the “Coinage Act of 1792”, just a couple of years after ratification a – Standard Money: An “Eagle” is 247.5 grains of pure gold. A “Dollar” is 371.25 grains of pure silver. A “Cent” is 11 penny-weights of pure copper.

    Standard Liquid Measure: A Gallon is 4 quarts. A quart is 2 pints, ETC.

    A bushel of Wheat is 60 pounds. A pound is 16 ounces. An ounce is 437.5 grains. And a grain is the weight of a rice, or wheat, grain. And so on.

    Our founding fathers determined “Standards” in order to facilitate honest trade in free market capitalism. ANY deviation from these standards is criminal theft. Standards can be converted based to other standards such as the Metric Standards, but they can’t be changed without causing great default. Standards govern contracts. If I buy a “pound” of Rib Eye Steak, then I expect to get 16 ounces of beef steak. If I don’t get that from my butcher (governing document), then I expect a court of law to FORCE the butcher to pay me reparations or I can boast they’re cheating people without penalty (First Amendment). If my butcher cheats me, then it is my right to let others know that my butcher is a thief. Standards are critical to free trade. So is honesty.

    The Coinage Act of 1792 determined the penalty for debasing money (cheating people in “free trade” was the death penalty).
    http://www.constitution.org/uslaw/coinage1792.txt

    I don’t agree with that punishment, yet that is what our founding fathers believed to be the proper punishment for counterfeiting money or cheating others in a free trade market.

    The “Gold” Standard in America was defined by Secretary of Treasury Alexander Hamilton and Thomas Jefferson as 247.5 grains of pure gold as an “Eagle” with the Coinage Act of 1792. The “Silver” standard was defined as 371.25 grains of pure silver. And the “Cents” were to be 11 penny-weights of pure copper. Tri-metalism, is price fixing, and doesn’t work, yet the “Dollar”, the “Eagle” and the “Cent” were recognized around the world as an international standard. Copper was not liked but it was clearly defined even though it was a part of trimetalism.

    “The Mystery of Banking” by Murray Rothbard is, IMO, his best work. As an economist, Rothbard clearly understood the origin of money. The “Thaler” which eventually became the “Dollar” (so to speak) was one of the first consistently weighed, defined, and coined metals. It was very popular at the time.
    http://mises.org/library/mystery-banking

    Gregg Fosse’s comment: “I cannot imagine a more stupid concept..” is absolutely correct.

    Money CAN NOT be created out-of-nothing. No matter if a private party wants to counterfeit money or a public concern claims that authority. NO ONE CAN CREATE “MONEY” OUT-OF-NOTHING. Counterfeiters claim that power but counterfeiters should be put behind bars as long as they live, as far as I am concerned.

    It takes energy to make money. Mining consumes energy. Building a car consumes energy. Buying a car requires “Money”, not currency.

    “Currency” can be created out-of-nothing, and, yet, currency does not require very much energy, currency is fiat. mining is not, but currency does not have value without “legal tender laws” and the force of law. By force, it is understood, that it takes guns to force people to pay their taxes.

    If people want to live free lives, then honestly acquired “Money” must be exchanged for trade. Honestly acquired money is only accumulated by expending energy.

    Our politicians CAN NOT create money out-of-thin air anymore than central bankers. They can create currency but their currency requires “legal tender laws” which is FORCE with weapons to make people comply. There is nothing voluntary about “legal tender laws” and FORCE of law.

    A miner can not harvest minerals out-of-thin air. Harvesting minerals takes energy. Growing food requires energy.

    Counterfeiters are thieves. Should they be put to death? I’m not God so I can not make that decision. Should they be put behind bars? I say yes. If counterfeiters are not going to, as Ludwig von Mises stated, ” We call the social apparatus of compulsion and coercion that induces people to abide by the rules of life in society, the state; the rules according to which the state proceeds, law; and the organs charged with the responsibility of administering the apparatus of compulsion, government.” then they should be put where they can cause other people no more harm.

    If some people choose to cheat others, then they should be FORCED to abide by the rules of life in society, or be put behind bars. We no more should tolerate public officials counterfeiting money than we should allow private individuals cheating society.

    Theft is theft no matter who does it.

    • DWARobertson

      This is the definition of “currency” from Dictionary.com:

      “something that is used as a medium of exchange; money; circulation, as of coin.”

      I have noticed elsewhere, in other writings, this effort to change the meaning of “currency”, viz. to separate it entirely from “money”, and it may well be successful, given that language does change over time. However for the time being it still retains the meaning as noted above.

      I do agree with you that “money” is indeed the result of energy, i.e. the focused application of Labour upon the natural gifts present in Land, including the personal Land possessed by each individual in their natural talents, in order to produce something of value that may be exchanged in a free market with the products and services of other individuals created in a similar fashion.

      However I do demur when you state unequivocally that the present monetary system “creates money out of nothing”. The currency of the United States for example is issued against the collateral of the debt obligations of the United States government, corporations and individuals. Therefore the wealth, the faith and credit, of the entire nation stands behind the money so issued. That the system of issuance is engineered to, asymmetrically, benefit the private banks who issue the currency is certainly a cause for concern.

      The additional use of fractional reserves may also be questionable but I believe that the fundamental problem is the a priori assumption that one may lend something one does not possess against the security of a property that the borrower does not own. This concept is, I believe, THE worm in the apple that must be cut out if any system of money/currency creation is to be successful.

  • Praetor

    Seriously, what is the big deal in whom is prints money. Ask, Alex James: Money is Power, or shall we say, The Monopoly to Create Credit Money and Charge Interest is Absolute Power. Ask, Napoleon, when he said, “Terrorism, War, and Bankruptcy are caused by the Privatization of Money, Issued as a Debt and Compounded by Interest, where he promptly, Cancelled all Debt and Interest, in France, and shortly after, had to go to War at a Place called Waterloo. Just ask the guy, who said, I care not who makes the Laws. Seriously, what is the big deal in whom is print MONEY. You, Seriously must to ask yourself this question, if your being serious!!

  • Pilgrim

    Go Iceland!

  • The elephant in the room is … interest on money. People tend to overlook this. Interest on money causes economic cycles, financial instability and moral hazard (because interest is a reward for risk). Economic theory tends to mystify this, so I will simplify matters and take a limited perspective. The example is a bit controversial, but it shows the mechanism of interest on money at work. I know there are arguments that something else could happen, but this is what actually happens.

    Assume that there is a small self-sufficient village that does not trade with other villages. This village only needs € 1,000 to operate its entire economy. The local bank is happy to lend the € 1,000 at a reasonable interest rate of 5%. The lender could also be a wealthy village dweller, or there could be a few wealthy village dwellers. That does not matter for the purpose of explaining the problematic nature of interest on money.

    What happens? After a year the € 1,000 has to be returned, but also a petty € 50 in interest must be paid. There is a slight difficulty, a fly in the ointment so to say. The required € 1,050 simply is not there as there is only € 1,000 to begin with. Then the bank comes up with a clever solution. The economy needs € 1,000 to operate and the € 50 is non-existent money that cannot be repaid, so the bank offers to lend the villagers € 1,050 at the same reasonable interest rate of 5%.

    It is now clear what will take place next. At the end of the next year the debt has grown to € 1,102,50. This may not seem much but it cannot be repaid as there is only € 1,000. After 10 years the debt has grown to € 1,628,89. After 100 years it amounts to the considerable sum of € 131,501,26. There is no way of repaying this debt as there is still only € 1,000 in the economy. Long before that time, the debt level may already have become a cause of some concern, at least by people that can make proper use of a pocket calculator.

    If the villagers are quite dexterous with their pocket calculators and fear the consequences of compounding interest, then nobody in the village may be willing to borrow the extra € 50 in the first year. Then there would be only € 950 in the economy in the second year, while the debt remains € 1000. After two years there would be just € 900 in the economy as another € 50 in interest had to be paid. Because there is less money available, the economy could enter into a crisis. After twenty years, there is no money left at all, only € 1000 of debt. Long before that the economy would have collapsed.

    Of course reality is more complicated. A village is unlikely to be self-sufficient. Banks make expenses, the money that banks lend may come from deposits, depositors can spend their money, and debts do not have to be repaid in one year. Still, the underlying mechanism of interest lets debts grow and makes it impossible to pay them off. This means that we continuously need more debt to keep the economy from collapsing. This is why economies seem to need more and more debt all the time. This is why governments have to go into debt when nobody else is willing to do so. And this is why economies seem to need inflation.

    • Jct: I do the same routine: Debtor comes back to usurer with $100 owing $110! “No problem, says the banker, just pay me the interest now and pay off your $110 next year. Next year, you come back with $90 owing $110. “No problem, says the banker, just pay me the interest now and pay off your $110 next year.” Next year, you come back with $80 owing $110. No problem… Next year you come back with $70 owing $110. No problem.. One day you come back with $10 owing $110. No problem… Next year you come back with nothing. “No there’s a problem.”

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