Deflation Made Simple II
The Story of Real Money (Entry 187)
Once it became clear to the state how easy it was to misrepresent real money with counterfeit currency, there would be no end to the state’s inventive subterfuge. So much so, in fact, that after more than three centuries of relentless contrivance and dissimulation most people believe today that money could not exist without the state, and that we owe our economic prosperity to the state’s control of nation’s money supply. Hopefully, the brief history of the Wisselbank has already demonstrated — at least, in part — that nothing could be farther from the truth.
And, it is, of course, the explicit purpose of this book to put an end to this deception so that we can finally return to real money and the obvious blessing that it once bestowed on all of humanity, however, troubled its history has been. That only we would shed our ignorance of the deception!
The German poet, Joseph von Eichendorff, once wrote:
Schläft ein Lied in allen Dingen,
Die da träumen fort und fort,
Und die Welt hebt an zu singen,
Triffst du nur das Zauberwort.
In everything that dreams
There is asleep a song.
Find the magic word, and
Singing, the world awakens.
Wünscherute (Divining Rod), 1835
It is in this spirit that I would like to introduce two new terms — namely, cambitas and promeritum. These are single words that substitute well for the expressions money-in-exchange and money-in-use, respectively. Each refers to real money. This substitution and simplification of expressions is useful, because it allows us more easily to distinguish between counterfeit currency that is spent into existence and counterfeit currency that is lent into existence. For, we can now distinguish between cambitas (real money-in-exchange) and cambitas-ex-nihilo (fake money-in-exhange) and between promeritum (real money-in-use) and promeritum-ex-nihilo (fake money-in-use).
The word cambitas is Latin for exchange, and the word promeritum is Latin for credit — what, in effect, real money-in-exchange and real money-in-use, respectively, are all about. The word promeritum is particularly meaningful for it contains the root meritum that translates into English as merit. In effect, only those with merit should be lent money, for it is only those with merit who are likely to keep their promise and return what they have borrowed. So, in quick summary and by way of future reference:
cambitas = money-in-exchange
promeritum = money-in-use
cambitas-ex-nihilo = money-in-exchange-ex-nihilo
promeritum-ex-nihilo = money-in-use-ex-nihilo
Accordingly, when the state or a bank lends statutory counterfeit into existence we can call it promeritum-ex-nihilo, and when the state spends statutory counterfeit into existence we can call it cambitas-ex-nihilo. And, moving forward we can now use the expression money-ex-nihilo to mean any form of statutory counterfeit (counterfeit money made legal by statutory law) no matter how it is issued, owned or used.
Also, to be absolutely clear about the travesty of the state in matters of money-ex-nihilo, never lose sight of the role of real money in its most rudimentary form. When person A gives cambitas to B in exchange for some good or service — say, a loaf of bread or a gun, A releases his ownership of his cambitas to B, and B releases his ownership of his loaf or gun to A. The exchange is consummate. A can do whatever he wants with his new gun or loaf of bread so long as, with its use, he does not harm anyone who is not trying to harm him. And, B becomes the new owner of A’s cambitas that can be used anywhere in the world without interference on the part of the state.
And finally, in the absence of money-ex-nihilo no merchant in Kuala-Lumpur can suddenly be made bankrupt by money-changers in London who with simple, but very large monetary trades can bring about the financial destruction of entire national economies.
Having completed our brief poetic, but crucial interlude, let us now return to late 17th and early 18th century Paris.
When Le directeur de la monnaie de Paris gave cambitas-ex-nihilo to a Parisian merchant in exchange for the merchant’s wares, Le directeur made a promise to the merchant that he would redeem the paper at some later date for specie. What should have been a simple, consummate exchange of property in the moment of exchange, now included a promise that obligated the merchant to return to the state at some future date to obtain what he was owed, but was not paid. Not only was the transaction made far more difficult, but what were the chances that the city would even honor its promise?
Indeed, was the promise to redeem in specie what the city had given in exchange for the merchant’s labor not empty from the outset? After all, Le directeur would not have had the need to offer paper, had he had the specie necessary to cover the transaction in the first place! No, his paper was not cambitas sine-nomine (Entry 129-134); it was cambitas-ex-nihilo. And, the merchant had no way of knowing the difference until he attempted redemption.
In the end, the merchant could have simply said, “Non, Monsieur”. For surely, it would have been easy for the city to have found someone else to say, “Mais, oui!”. There was no need for the city to impose its will, force a trade that the merchant did not want, and alienate the city’s entire citizenry. After all, Parisians were not cowards. They had stood up during La fronde, and they would surely have stood up again against Le directeur. What is more, by saying, “Non”, the merchant would lose not only one trade, but likely many future trades with the city. And, in the end, was the paper promise not more easily carried around than what the city was claiming that it owned, but did not?
In the case of La caisse des emprunts matters were not much different. The city of Paris issued promeritum-ex-nihilo — the right-of-use to what it pretended to own, but did not. And, for this dubious privilege one paid a fee (interest payments) and promised to return at some future date the principal.
Returning the principal in the same form that it was received — namely, the promeritum-ex-nihilo that La caisse issued — was, of course, permitted. For, what an embarrassment to La caisse, were it not to accept in return what it, in fact, had lent out. But, from where would the interest payments come? Would these not have to be paid with cambitas (the real thing), if someone else’s paper could not be found? Then too, it must have been easy to find others who were willing to trade their paper for specie provided that you offered a discount that did not exceed the market rate! Surely, no one with any knowledge of the game expected that a discount would not be exacted. And surely, if you were standing before an interest payment due date, you could offer a below-market discount and still come out ahead. Only the uninformed or an utter fool would trade, one-to-one, municipal paper for specie.
So, why would a French merchant even want to borrow such a corrupt form of currency in the first place? Was it not for the same reason that his English counterpart in London did the same (Entry 151)? Was it not because the French merchant-borrower received the same dubious privilege to do the same crooked thing to someone else that he was allowing the city to do to him — namely, use for the purpose of exchange what neither the city, nor the merchant-borrower ever owned? Indeed, these merchant-borrowers were no less criminal than their city fathers who encouraged them.
Let us be clear! You cannot trade in fair exchange the title to a thing that does not exist. No court of common law would entertain such a contractual arrangement.
But, was there some other way to think the matter through that was not so blatantly criminal? After all, had Jean Calvin not, two centuries earlier, used the law to clearly show that, in and of itself, money-in-use (promeritum) was not immoral?
What if, for example, we were to consider cambitas-ex-nihilo as an ordinary promise rather than the misrepresentation of a thing? In other words, when A gives cambitas-ex-nihilo to B for his loaf of bread or gun, he gives it to B with the promise that he will exchange it for cambitas on demand in the future — just not now. Would a court of common law not consider such an open promise contractually binding? Fortunately, no. Promises that are contractually binding have due dates.
But, what if the date of redemption were written on the bill — namely, the redemption date set by the city of Paris? Would there now not be an actionable promise that could be deemed by a court as failed or upheld? Surely, so. But, what if the city were unwilling or unable to keep its promise? Would it rule against itself? This is, indeed, the rub. For, the city is no longer serving in the role of a third-party arbiter to the contract; rather, it is a partner to it.
And, if the matter were taken to an independent court? What then? Who would enforce the decision of the court? Would the city punish itself? It is unlikely — especially when the money-ex-nihilo issued by the city — is the means by which the city officials are fed (Entry 177).
No, it was a racket then, just as it is a racket today, and after three centuries we have all become a part of the crime, for the state no longer even makes a promise of redemption, and still we sit passively by. It is long past time that we put an end to this racket.
So, how does one resolve the problem? The easy answer is not to do business with the city or state unless these non-market, market agents (Do you detect an oxymoron?) pay with cambitas.
What happens, however, if the city or the state allows its citizens to pay their taxes with money ex-nihilo issued by the city or the state? Would there then not be an incentive to do business with the state? Surely, yes, so long as there were no equally priced alternatives for which one could receive cambitas in the end. For as soon as it were realized that the currency issued by the city or the state were not backed by real money, its value in the market place would be discounted relative to whatever was real and remained in circulation. Such discounts would cheapen the value of the government issued currency and cause the government to issue more or raise taxes, or both.
Were the city or state to issue more money-ex-nihilo the size of the discount would simply increase. Were it to raise taxes the size of the discount would diminish as demand for the government’s counterfeit increased, but so too would the government’s burden on citizens, and they would surely complain.
In the end, the whole idea of issuing money-ex-nihilo is to avoid having to tax, for it is generally far easier to spend cambitas-ex-nihilo into existence than it is to raise taxes. The confrontation is less direct. Unfortunately, the appetite of the city or state for its citizen’s wealth is insatiable, and if citizens do not stand up and object there is no end to how much the city or state will take. And, when the city or state is reluctant to tax out of fear of being rejected, it simply confiscates its citizenry’s cambitas and gives in exchange its own phony paper so that it can print ever more with no real check on its ability to do so. This is what FDR did in 1933 (Entry 184)!
Our founding fathers understood these matters well, and it is why they banned the use of money-ex-nihilo altogether. One has only to spend a little time with the US Constitution and the history of money in the United States to understand that this is, indeed, the case. For, according to our founding documents the federal government can only coin and set the standards related to coin, and the States can only deal in species. These matters are all very explicit in the Constitution.
“The Congress shall have power …
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
To provide for the punishment of counterfeiting the securities and current coin of the United States;”
US Constitution, Article I, Section 8, § 5-6
“No State shall … coin money; … make any thing but gold and silver coin a tender in payment of debts; …..”
US Constitution, Article I, Section 10, § 1
To coin money is to transform specie into a standardized form — namely, cambitas. The US government has no right to issue cambitas-ex-nihilo except under threat of punishment. Further, a security is not an empty promise. The Federal Reserve Notes that we use in everyday transactions today offer no promise of redemption. The only reason that they are honored in a court of law is because Congress has declared them legal tender. But, no where in the US Constitution is Congress authorized to declare legal tender (just another term for medium-of-exchange — cambitas or cambitas ex-nihilo depending on the situation)! In short, Federal Reserve Notes are not a legitimate medium-of-exchange under the Constitution.
The above three passages need to be taught to every American child with the full candor that they were conceived — not the contrived interpretations offered by the US Supreme Court.
Surely, you have heard of the notion of the separation of church and state. There is a meaningful corollary: the separation of the supply of money and the state.
In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104