Thursday, March 26, 2015

Don’t Put the Horse Before the Cart


Okay, we’ve been looking at money (looking at money you don’t have is much better than spending money you don’t have, trust us), and the key role it must play in the restructuring of the economy to empower people to take back their lives, liberties, and property, and run things for themselves, instead of for the benefit of an élite, or to conform to whatever weird idea has seized those who want to run the world for our own good.

"Don't tell ME how to pull a cart. I've stayed right here for years doing it."
Capital Homesteading would conform monetary policy to the goal of sustainable, market-oriented, non-inflationary growth. It is essential to note that Capital Homesteading monetary reforms conform to the banking principle that money is only created in response to the acceptance of financial instruments, i.e., mortgages and bills of exchange representing the present value of existing and future marketable goods and services, respectively.

That is, don’t put the cart before the horse.  To be sound, money should be created only after there is actual present value to back the new money. This ties the amount of new money directly to the present value of existing and future marketable goods and services in the economy, resulting in an elastic and stable asset-backed reserve currency.

In contrast, the currency principle dictates that money is first created, consumption reduced, and money savings accumulated, and only then are new capital investments identified and financed.

Money doesn't create value, value creates money.
That is, money is created before there is actual present value to back the new money. The only thing behind the new money is the obligation of the issuer to make good on it at some future date. There is no link between the amount of money created and the present value of existing and future marketable goods and services in the economy.

This results in an inelastic currency if the amount of whatever is defined as money is fixed by law (as under the British Bank Charter Act of 1844 (7 & 8 Vict. c. 32 — don’t you just love obscure legal citations?) and the United States National Banking Act of 1863, Ch. 58, 12 Stat. 665, February 25, 1863, amended 1864, yeah, yeah, yeah), and an elastic currency if the issuer can create money at will, but in both cases the money is inflationary and debt-backed.

#30#

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