Interest-Free Credit (including MPE!) and the Management of Volume
The management of the volume of money is a very hot potato for all involved in monetary reform. Many in the interest-free credit community seem to think that no management is necessary at all, as long as the credit is asset-backed. And that we can always have all the credit we want. However, we need a stable money supply. It’s immaterial whether the money is asset-backed or not.
‘The issue of money ought to correspond with the growth of population…. The revision of issue is a material question for the whole world.‘ (Protocol 20)
The notion that everybody can have as much credit as he has assets to offer in an interest-free credit environment is quite widespread. Those promoting LETS based schemes and Mathematically Perfected Economy also seem to believe this.
However, with an interest-free credit based money supply, more credit means more money. The money supply grows when new credit is issued and shrinks when debts are repaid.
Their reasoning is, that as long as the credit is backed by assets, it will maintain value as money.
But prices are a function of the volume of money. If volume grows (with constant velocity, supply and demand) prices will rise, if volume shrinks, prices will dwindle.
Once the credit becomes money, it follows the laws of money, no longer the laws of credit.
Easy proof is today’s situation. Our current money is asset backed credit. True, it’s a usurious money supply, but just look at the housing market. We all agree the bubble was created by the FED through low interest rates, leading to a high demand for mortgage credit. With a mortgage one’s credit is basically decided by the market value of the house one is buying and of course one’s income. You’ll get more credit for an expensive house than for a cheap one, as long as you can afford the monthly payments. And this creates a positive feedback loop. The higher prices get, the more demand for credit there will be, the more money comes into circulation, leading to even higher prices.
Until the Mortgage Backed Securities hoax popped and the Bank of International Settlements simultaneously raised the capital reserve requirements for the banks. Overnight there was no credit for anybody anymore. The banks wouldn’t even lend to each other. The money supply collapsed, velocity collapsed and housing crashed catastrophically and devastated the economy.
Simple as that. This would be exactly the same in an interest-free credit environment. Even the deflationary crash would happen with an interest-free credit scenario, as at some point a panic would be unavoidable because incomes would not be able to rise as quickly as the prices of the assets. Which would tell at some point.
The problem is, the value backing the asset is a market function. Price is a result of supply and demand (as classical economics teaches) AND volume of money (as commons sense and experience dictate). If left unchecked, asset bubbles would be unavoidable.
Interest-free credit based money supplies need stable volume to achieve stable prices for the assets backing the credit.
Incidentally, I do not fully agree with the above Protocol quote. It should be slightly fine tuned to adjust not to population, but to the value of transactions in the economy. More transactions (in terms of their monetary value) mean a larger need for money.
An interest-free credit based money supply should be stable compared to the volume of transactions and the available credit should be shared equitably amongst the people and businesses using the money.
So if Volume must be managed, who should do it?
Some kind of monetary authority is necessary. Throughout history it was either the Sovereign and his scribes and priests or the Money Power that managed the volume. Basically history is mainly the struggle between these two forces for control of the money supply. The Sovereign and the people needed each other and the people were better off with him in control. Money would be plenty and non-usurious.
But the Money Power slyly preyed on the all too common misunderstanding that money is wealth, instead of an agreement. In older days senior Government officials knew this, but nowadays don’t.
Saying the ‘market’ should do it is just New Speak for saying the Money Power has been doing just fine over the last few millennia. In the old days it was those owning the mines that circulated specie and beguiled the gullible masses with it. They combined control of specie with fractional reserve banking. It goes back all the way to the ancients. Please read David Astle’s incredibly important and brilliant book on ancient Sovereign money and how it was busted by Gold and Silver racketeering if you still believe Gold has anything to do with ‘freedom’.
Nowadays the Money Power is the banking cartel with the Central Banks and ultimately BIS at its apex. Calling Central Banks ‘statist’ operations is just one other silly joke invented by the Volker Fund and its successors. Many similar stupid jokes have been circulated by the Money Power’s henchmen over the last 5000 years.
On the other hand: Government these days is clearly unfit to do it. They can’t even wipe their own behinds, let alone ours. They don’t know money, are all sell out crooks, corrupt to the core. They’re almost done surrendering sovereignty to supra-national (bankster) entities. Only the mediocre turn to bureaucracy and never has this age old truth been more true than today.
One could argue that Government would look very different if it provided an interest-free, plentiful money supply, as this would free herself from the Money Power too. But the Nation State itself is a very artificial construct. In fact, it’s a product of the Money Power itself. Medieval Europe was highly decentralized. The strong kings that created these European empires in Spain, Italy, France and England in the late middle-ages were already strongly in collusion with the financier class. The Amsterdam Empire of the 17th century was the first undisguised Bankster proxy, later outshone by the British Empire they had taken over through Cromwell and William III, Stadtholder of Holland and Prince of Orange.
Before then regions with their own dialects and customs were highly autonomous, even when part of a larger kingdom.
In the United States too, there was a long struggle to consolidate power with the Federal Government at the cost of regional and State rights, culminating in the Civil War, when Lincoln finally got the bankers their coveted highly centralized government, including national currency.
So the case for regional currencies, in whatever form, remains.
Some kind of monetary authority is necessary. There will always be a greater demand for credit than for money. Therefore additional funding schemes should be available besides the interest-free credit used to create the money supply. JAK Banks come to mind. But also brokerages, where people can invest and share in both profit and loss. This is close to Islamic banking.
Nobody in his right mind wants the ‘market’ to do it, since the ‘market’ is now close to externalizing the hierarchy it has been building for millennia into a full-blown World Government. It’s not a matter of ‘public vs. private’. It’s a matter of non-usurious, stable and plentiful money decentralizing power vs. usurious, unstable and scarce money centralizing power. If private Mutual Credit facilities can deliver stable interest-free credit, then let them do it. If the Government can create a decent Social Credit with Demurrage unit, fine.
Perhaps other forms of governance over these units can be suggested. Or new ways of combating abuse. Wider education about the simple mechanics of money are indispensable for improvement.
Either way, this is a crucial issue. It’s also a divisive one. People are attached to their ideas. In Interest-Free economics this issue is underestimated and that’s a very serious weakness. Many people don’t believe in Interest-Free economics exactly because they don’t see how volume is properly managed.
Answers are available and questions remain too. But the volume always has been and always will be managed one way or another.