Deflation Made Simple (Part II)

A falsely vilified phenomenon (Entry 145)

As promised yesterday, let us today reconstitute Paterson’s proposal — what would become the implemented design of the BOE — in the clear, unambiguous language of money-in-use.

By subscribing to the BOE you bought into a corporation chartered by the English Parliament. In so doing, you surrendered use of your pound-specie to the BOE’s management. Unlike the VOC on the other side of the English Channel, however, you assumed zero risk, because you were guaranteed an eight-percent annual return on your investment.

The nature of this contract was a hybrid between a societas (Images 56-57, 75, 61-63) without risk and a time-deposit (Images 33-35, 44, 61, 67, 72, and 74) in perpetuity. In effect, you relinquished sole use of your subscription to the bank and were handsomely rewarded for your sacrifice. Not only this, but you could sell your share in the bank, if you needed liquidity!

Say, you paid in 1,000 pound-specie. Your share of ownership of the BOE would be 1,000÷1,200,000 = 0.0833 percent, and you would receive, at minimum, an annual payment of 80 pounds-specie for your investment. This payment was backed by the taxing authority of the English Parliament. Whatever the BOE earned in profit from the purchase and sale of bills-of-exchange and lending activity would be distributed in the form of dividends. These were in addition to your guaranteed interest payment!

Unlike, the VOC the BOE produced no tangible good. And, with, but one exception — its loan to the king — all services that the BOE rendered to its specific merchant-clients were ultimately paid for by the English public. This will be explained tomorrow.

Once all of the subscriptions were amassed, 1,000,000 pound-specie of the total 1,200,000 pound-specie was lent to the English Crown as money-ad-prodigo (Images 100-102 and Entries 109-111 and 114-117). The king was obligated to pay back what he borrowed, and Parliament stood as guarantor of the king’s payment.

Two-hundred thousand pound-specie of the total amount invested was retained by the bank.

If the BOE’s member-owners and the English Parliament had been honest, the bank could never have purchased more than 200,000 pound-specie worth of bills-of-exchange or lent out more than 200,000 pound-specie worth of banknotes. This, however, was not what happened. Rather, the bank was authorized by law to lend out 1,000,000 pound-specie in banknotes or purchase 1,000,000 pound-specie worth of bills-of-exchange using some combination of banknotes and pound-specie. And yes, it could mix in any combination these two forms of trade. This 1,000,000 pound-specie worth of banknotes was money-ex-nihilo!

Notice, these banknotes were not deposit-receipts (Entries 129-132, and 141). Not only had what been deposited already been lent to the king in the form of a loan, but the money lent to the king represented shares in the company that one could trade on the open market. In effect, these banknotes were merely a promise to pay out pound-specie to whomever presented presented them to the bank. They were a reflection of contrived money-in-use, money that had already been lent to another!

According to William Paterson and those who ultimately signed on to the creation of the BOE — namely, the whole of the English Parliament and all of the bank’s subscribers,

“[T]his bank will always have twelve hundred thousand pounds, or one hundred thousand pounds per annum over and above effects to answer, whatsoever credit they may have.”

In other words, the bank was claiming that what it had lent to the king as money-ad prodigo belonged to the bank and could be lent out a second time at the same time to its customers in the form of banknotes — namely, contrived money-in-use.

Hopefully, it is clear that you cannot lend the same good-in-use twice at the same time! It would be like Hertz Rental Car renting the same car to different rental drivers simultaneously!

In so doing, the BOE lent or spent into circulation an additional 1,000,000 pound-specie worth of counterfeit currency that, by any law, but the statute created by the English Parliament, was illegal. You cannot lend out to one what you have already lent to another. No court of law would except such a contractual arrangement unless both parties to what was received in-use agreed to be jointly liable for the use of what was lent.

In effect, the king and the people were reduced to one, and the BOE member-owners made off like a band of thieves with Parliament’s blessing. The ramifications of this act would be negatively profound.

In liberty, or not at all,
Roddy A. Stegemann