Thursday, June 13, 2013

Private Sector Money, IV: The Rest of the Story


Now, to get back to the original question that started this series — we don’t think that such private money creation will allow multinationals (or anyone else) to escape taxation or accountability.

In order to be able to create money, a business has to show the bills and notes it is issuing on its books as a liability, to be redeemed on maturity by handing over assets to the holder(s) of the instruments.

Regardless of the form the money takes (e.g., cash, check, bills, notes, warehouse receipts, bills of lading, etc.), it is recorded on the books just the same as cash.  This is the “money measurement principle” in accounting.  As long as something can be measured in terms of money, it must be entered on the books.

Having been entered on the books, it automatically goes into the calculation of net profit.  The only problem that occurs is when a business has been accepting promises in payment for its goods and services, and the maker of the promise either hasn’t made good on the promise when the company needs cash, or the maker defaults on the promise.

So, regardless what you call profits, they remain profits and subject to tax or distribution the same as any other profit, and money remains money, no matter what form it takes, as long as the promise behind it is good.

#30#

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