Here is the beginning of the multi-part response to the question we were
posed in yesterday’s posting. Even
considering the length of the reply, we didn’t get around to answering. The e-mail arrived at the start of a holiday
weekend, and for some reason known only to Baum’s demon of electricity, our
internet access went out temporarily.
The quick answer to our correspondent’s question as to
whether his friend and CESJ are saying the same thing is no, we do not believe
so.
The main reason we say this is because binary economics does
not, as our correspondent believed, redefine money. Rather, binary economics returns to the
original definition of money reflected in law and accounting: “anything that
can be accepted in settlement of a debt.”
All money in whatever form it takes (and it can be verbal without any
physical vehicle) is a contract, just as (in a sense) all contracts are money.
All contracts consist of offer,
acceptance, and consideration.
“Consideration” is “the inducement to enter into a contract,” that is, the
reason to engage in exchange of marketable goods and services. A much easier way of saying it is that
consideration is the thing or things of value being exchanged.
“Money” is therefore the “medium” by means of which
exchanges are made, “the medium of exchange.”
This includes direct exchange of the consideration itself (barter), as
well as the use of any or all “symbols” standing in place of the consideration.
When people move beyond barter, all exchanges continue to
take the form of the offer of a contract.
If the consideration takes the form of the present value of existing
marketable goods or services, the contract is called a “mortgage.” If the consideration takes the form of the
present value of future marketable goods or services, the contract is called a
“bill of exchange.”
According
to financial historian Benjamin Anderson, one of the first principles of finance
is to know the difference between a mortgage and a bill of exchange. Mortgages
and bills of exchange are private sector instruments. When a government borrows existing funds, the
instrument is called a bond, just as it is in the private sector. (There are technical differences between a
mortgage and a bond that we needn’t get into.)
When a government issues contracts representing the present
value of future tax collections, however (“creates money”), special language is
used to indicate that the government does not have a property right in the
present value the instrument represents.
The instrument is called a “bill of credit,” and instead of being
“issued,” it is “emitted.” A bill of
credit is said to be backed by the faith and credit of the emitting government
because the bill is good only if the government has the power to collect the
taxes to meet its obligations.
