Posted by: cjenscook | 04/11/2009

Money….and Date-Free Credit

The current hopeless G20 policy initiatives to put Humpty Dumpty back together again deal with adjusting the quantity of the interest-bearing credit obligations issued by credit institutions (aka banks) which we are accustomed to using as Money.  The only available options are the sado-monetarism of Default and Depression on the one hand, and the neo- Keynesian approach of simply printing and spending the stuff which leads to Inflation.

On the progressive fringes of economics and of monetary discussion there is nothing more divisive than talking about the issuance of money-as-credit “Debt-Free” – other than perhaps the related wars of attrition concerning Usury. Since debt is the corollary of credit and credit is inherent in a monetary relationship, it’s not difficult to see where these divisions come from.

I think that the solution lies in creating not “Debt-Free” but rather “Date Free” credit. Such open and undated credit already exists in the form of bank-notes, which have an indefinite duration ie are date-free. The problem with these “redeemable” bank notes is that when you present them for redemption, all you get is…..duh….another bank-note.

NET’s  proposition – which we are actually working on introducing – is a new generation of open-ended date-free redeemable credits. These are a new synthesis of:

  • Equity –  shares in a Corporation with absolute but infinite duration;
  • Debt – with an absolute defined duration.

into redeemable Units with an indefinite or date-free,  duration.

These date free Units are created within a consensual framework of partnership law – rather than statutory Company law or judge-made Trust law.  Units are redeemable for value such as the use value of energy or the use value of land/location.

What is referred to (eg by Marx)  as Finance Capital consists of the legal protocols of Debt and Equity, which may – in the case of secured debt – comprise conflicting absolute legal claims over the same productive asset. Unsecured dated credit is another issue altogether, and the fact that virtually all schools of economics ignore the difference is probably one of the main reasons why their theories are at variance with reality.

There are several Black Swans that demonstrate that the conventional assumption that credit IS money is invalid. These are the Swiss WIR and the plethora of proprietary barter systems which incorporate trade credit or “time to pay”.

The WIR is an accounting system and barter network which has been working quietly since 1934. In the WIR system, goods and services are exchanged on credit terms with debit balances backed by a charge over WIR members’ assets. WIR exchanges do not take place in exchange for Swiss Francs as a fiat IOU credit object, but rather by reference to Swiss Francs as what I term a Value Standard or Unit of measure.

My case is that any barter system which incorporates time to pay, and uses a Value Standard, actually IS a monetary system. In other words, while credit/time to pay is implicit in a monetary system, and it may be monetised, it is not itself Money. Money is IMHO a relationship.

I am proposing an Energy Standard for international exchange, and am getting very considerable interest and traction.

Firstly in Iran, where this presentation

Introducing the Petro

was made in January to a top level  domestic event (including ministers) at which I was the only non-Farsi speaker.

Subject to the result of Iran’s June election, I have been informed by a minister that a workshop is planned later this year involving 10 regional countries at which the concept will be presented.

Secondly, on several blogs and in particular by the Financial Times Alphaville blog, here…

A Commodity Anchor for Money

Thirdly, and finally, I suggest that the direct Peer to Peer connections of the internet will be the basis of the next generation of networked Peer to Peer Finance, and the US Carnegie Institute published a short article on the subject here

Peer to Peer Finance – a Flight to Simplicity

Consensual partnership-based protocols such as the US LLC and UK LLP are rapidly emerging eg City of Glasgow now has four municipal LLP’s. Because of the consensual nature of partnership there is very little governments can do to resist viral adoption of such models, as and when they become sufficiently user-friendly..

The goal of NET’s social business is to develop generic user friendly partnership-based enterprise models since we believe that these may well be optimal- the proof of that pudding is in the eating. These timeless framework agreements – which replace conventional debt and equity protocols – could be what will enable the viral spread of such P2P financing.

We believe that there is no future for credit intermediaries – or any other intermediaries (including the State as an organisation, as opposed to a participative institution) – and that Banks and Governments alike  will have to reinvent themselves as service providers, or wither on the vine.

So in conclusion, it makes more sense to talk about money not as a credit object but as a relationship, and to refer to date-free credit rather than debt-free money.

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Responses

  1. “WIR exchanges do not take place in exchange for Swiss Francs as a fiat IOU credit object, but rather by reference to Swiss Francs as what I term a Value Standard or Unit of measure.”

    I think the correct term in economics jargon for this is numéraire. http://en.wikipedia.org/wiki/Numeraire

    I think the right way forward is to move to mutual credit exchange offering a range of currency units as numeraires. Unfortunately, governments work very hard to block these kinds of systems, making tax accounting and tax collection harder – as well as cutting out their buddies in the finance “industry” from their “nice little earner”.

    Adrian

  2. In a true Peer to Peer architecture consensual adoption of a particular Standard/numeraire cannot be blocked. As the music industry is finding out the hard way.

    In this P2P architecture, currency units eg a Unit redeemable in energy, or in land rental value, or in pizza, are open or undated credit objects which I characterise as “money’s worth”.

    These units are not numeraires.

    So in the Petro/ Energy Accounting (cf technocrats…) architecture I advocate, Units redeemable in energy (eg electricity) are not Petros, but have a constant price denominated in Petros.

    Bob Hahl writes well on an electricity standard/ currency here

    About Kilowatt Cards

    but his is an architecture with a central issuer of an undated credit object redeemable against electricity.


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