Category Archives: Finance and Economics

There ain’t no such thing as a free lunch: Principles of Credit, Exchange, and Finance

“There ain’t no such thing as a free lunch.” That’s a well-known adage that goes back a long time, but it was popularized by famed economist Milton Friedman and expressed in his 1975 book titled, There’s No Such Thing as a Free Lunch.

But the abuses of political money by national governments, central banks and the banking establishment and the consequent separation between the financial economy and the real economy have made it appear that there may be a free lunch after all. But we must not allow ourselves to be misled. It may not be immediately apparent but there is always a price to be paid when fundamental principles of reciprocal exchange are violated.

There have been many in the alternative currency and exchange movement who seem to think that this principle does not apply to their proposed schemes and the landscape is strewn with the wreckage of their folly, but the lessons from that experience are yet to be learned. Political currencies have the power of governments and huge financial institutions behind them and are able, through legal tender laws and taxation, to compel the circulation of their currencies and hide the ill effects of their malfeasance. Private and community currencies however must stand on their own merits without the crutch of legal compulsion and must therefore demonstrated their superiority in enabling the reciprocal exchange of goods and services in the marketplace.

Any would-be innovators in this realm must therefore understand the fundamental principles of currency, credit, investment, saving, and the exchange of value. That is a rather vast territory that I have been writing and lecturing about for a very long time. In this post I wish only to state explicitly the fundamental principles that must underlie the design and implementation of any private, community or complementary currency.

Principle #1, the essence of a currency: A currency is a short-term credit instrument of the issuer.
Currency is created when a provider of real value accepts it in payment from issuer, and it is redeemed and destroyed when the issuer accepts it back in payment for the goods or services that they provide. It may change hands many times between issuance and redemption.  

Principle #2, Currency circulation: The circulation of a currency is driven by the issuer’s obligation to accept it back.

Corollary #1.a.: To be sound, credible and effective, a currency must be spent into circulation by one or more trusted issuers who are ready, willing and able to deliver valued goods or services that are in regular demand, and to accept the currency back as payment.

Corollary #1.b.: A currency that is issued in such a way monetizes the value that is inherent in the goods and services that the issuer is ready, willing and able to sell immediately or in the very near future. In other words, it takes the value that is inherent in those real goods and services and converts it into a form (currency) that can be used to make payments.

Definition: Liquidity is the ability to pay, i.e., to meet immediate and short-term obligations.

It has long been recognized that the issuance of private, non-governmental currencies is not only possible and desirable, but also necessary if true freedom and government “by the people and for the people” is to be achieved. It is entirely feasible that any community can create its own liquidity (means of payment) by monetizing (in the form of its own currency) the value inherent in the goods and services produced within that community.

This is not a new idea. Arthur Kitson made the same point 125 years ago:

To the average man, a currency that has not the authority or stamp of government is inconceivable; and yet there is no good reason why communities should not create and control their own currency without the aid or intervention of governments, just as they incur debts or liabilities without such aid or intervention. —Arthur Kitson, A Scientific Solution of the Money Question (1895), p. 279.

Addendum 1: This may help to further clarify the matter:

Credit is given and received in each transaction as follows: a seller gives credit to a buyer when he delivers real value in exchange for the buyer’s promise (his/her currency or i.o.u.) to reciprocate at some time later. The buyer reciprocates when he/she later becomes a seller and accepts his/her previously issued currency as payment.
ReciprocityCircuit

Addendum 2: One of my correspondents on LinkedIn replied to my post saying this:

During high interest phases, credit clearing so clearly offers many benefits. In the current low or no interest phase these seem to be less obvious. Unless the community currency can avoid inflation maybe? But in a way inflation helps productive businesses to repay their debt. So where do you see the biggest benefit now?

That comment highlights some common misconceptions which I answer as follows:

Interest savings are a minor benefit of direct credit clearing. The BIG benefit is that it makes buyers and sellers independent of money and banks. This is especially important when money is made scarce, as it usually is for small and medium sized businesses (SMEs) who are often not able to get credit from banks, and when they do it is on onerous terms: high rates of interest, burdensome repayment schedules, pledge of collateral, and the inclination of banks to foreclose and force liquidation of assets rather than help a business through a difficult period. Credit clearing provides a friendly independent source of liquidity that is limited only by the value produced by businesses that are part of the credit clearing circle.

Regarding inflation, it is never a good thing for SMEs or for most consumers. Inflation “helps productive businesses to repay their debt” only if the business has sufficient market power to raise prices of the things it sells and/or to keep the cost of inputs like labor and materials low. That may be true of big corporations that dominate those markets, but not for SMEs who get caught in the squeeze and are unable to raise their prices enough to keep up with inflation or to prevent their costs from rising.

The corporatocracy would like us to believe that the effects of inflation are the same for everyone but they are not.

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My latest interview with Greg Magarshak

This discussion between Thomas H. Greco, Jr. and Intercoin founder Greg Magarshak covers a wide range of topics including the principles of sound currency issuance; mutual credit clearing; proper allocation of credit; the problems of centralized power, depression, and inflation; empowerment of small businesses and local communities; crypto-currencies; universal basic income (UBI), and more.  

Moneyless Exchange in One Easy Lesson

When the division of labor has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labor can supply.  – Adam Smith, Wealth of Nations.

We have become so accustomed to using money to get the things we want and need that most people find it nearly impossible to conceive of any other possible way. Whenever I tell people that my work is about exchanging goods and services without using money they invariably ask, “Oh, you mean barter?” Then I go on to explain that barter requires a coincidence of wants between two people — I must have something you want, and you must have something I want. No, we must think beyond barter.

Through intensive study of monetary history and exchange principles extending over a long period of time I’ve come to a deeper understanding of the exchange process and the possibilities for advancing beyond our present dysfunctional and destructive monetary system.

“Mutual credit clearing” is a process that enables producers to trade goods and services directly among themselves without the need to use money. The credit clearing process is not a new invention; banks have been using it for a long time to settle accounts among themselves. But businesses can also use it to trade with one another and settle accounts among themselves, and they have been doing so for the past several decades. There are now scores of commercial “trade exchanges” operating around the world to provide credit clearing services for their tens of thousands of member businesses. While these exchanges are often referred to as “barter exchanges,” they do not do barter in the conventional meaning of the word. Rather, they utilize the collective credit of the members themselves as the internal payment medium. Members earn “trade credit” when they sell goods or services to another member, and they spend trade credit when they buy goods or services from another member. It is a simple process of accounting for value given and value received. When a member sells something their account is credited (increased) and when the buy something their account is debited (decreased). 

What enables the system to work is the fact that some trusted members who offer for sale goods and services that are in high demand are allowed to spend trade credits before they earn them. In other words, these trusted members are given a line of credit against their future sales; their account balances are allowed to be negative, up to some predetermined limit that is based mainly on the amount of value they are ready willing and able to sell to the other members.

Here, in a minute and a half, one of the major trade exchange operators explains the processes in its utter simplicity:

Note, this is not meant to be an endorsement of Bartercard or any other company. I refer to this video only as a good description of how credit clearing works to enable producers to trade among themselves without needing to make payment with conventional money, nor the need to borrow from banks.

And in this video a member of another trade exchange describes how credit clearing works for his business:

Properly organized and managed mutual credit clearing exchanges provide an effective, stable, and sustainable means of creating interest-free local liquidity and enabling companies and individuals to enhance their opportunities for success despite the adverse policies of banks and governments.

A more complete description of the credit clearing process can be found in my book, The End of Money and the Future of Civilization, particularly Chapter 12, Credit Clearing, the UnMoney.

Addendum: This subject is further explicated in my recent conversation with Greg Magarshak, founder of Intercoin, in which we discuss the essence of money, reciprocal exchange, credit allocation and whether or not cryptocurrencies and/or blockchain have a role to play in the reciprocal exchange process. A particularly pertinent clip is here. The entire two hour conversation can be seen at https://community.intercoin.org/t/interview-with-thomas-h-greco-community-currency-economist/1341.

Alternative History — What If?

This Power Point slide show presentation was delivered virtually to the Alternative History Festival in Poland in September 2020. It highlights several historical turns as modern civilization has evolved that led to our present predicament and then asks how things might have been different and how they ought to be.

You can download it here.

Who’s Reset will it be?

The oligarchs, plutocrats, and technocrats have a plan for you. It’s been called the “New World Order,” and now, “The Great Reset” which is being promoted by the World Economic Forum. Despite their high sounding rhetoric, you and I will have no role in formulating this plan, rather it is self-elected “global leaders” who will “come together to design a common recovery path and shape the Great Reset.”

It is imperative the people around the world come together now to plan our own future, one that is based on our own common values, needs, and a shared vision of how humans can live in harmony with nature and with each other. One current initiative that intends to facilitate that effort is “The Greater Reset” which is upcoming starting Monday, January 25th and continuing through Friday, January 29th.

Our World. Our Way.

The Greater Reset Activation: January 25th – 29th, 2021

“The Greater Reset is the world’s collective response to the World Economic Forum’s Initiative: The Great Reset.

“We offer an alternative to the WEF’s top-down, centralized, authoritarian vision. Our desire is to help all people find community and liberty by providing practical steps and knowledge for co-creating a world that respects individual liberty, bodily autonomy, and choice. We invite you to join us for 5 days of discussion about the diverse opportunities available for those who seek to live in harmony with humanity and the planet, while respecting our innate freedom.”

You can get program details, and sign up for “The Greater Reset” at https://thegreaterreset.org/

R.I.P. Spencer Heath MacCallum

Spencer MacCallum and Emalie

Spencer MacCallum and Emalie Caley

Spencer Heath MacCallum (b: December 21, 1931; d: December 17, 2020) was truly an amazing and wonderful person–multi-talented, intelligent, kind, and compassionate. Spencer was an anthropologist, archeologist, editor, publisher, entrepreneur, and philosopher. The world is much poorer without him. I was privileged to count Spencer as a friend for more than 25 years. Among his significant achievements were his preservation and promulgation of the works of E. C. Riegel (b. 1878; d. 1954), a man whom I’ve described as a “master of monetary truth” whose insights have greatly inspired my own work on the “money problem” and the development of innovative and equitable means of exchanging value.

In his Editorial Preface to Flight From Inflation, Spencer tells the fascinating story of how he happened to meetSMECTG_Cr Riegel, how he subsequently rescued Riegel’s literary legacy from oblivion, and then went on to preserve, reprint and republish much of his work. Among the treasures discovered in Riegel’s papers was an unpublished manuscript titled Flight From Inflation that Spencer went on to edit and publish in 1978.

Spencer was also the person who discovered the work of potter Juan Quezada, helped him to develop his craft, and made the pottery of Mata Ortiz, Mexico famous throughout the Americas. That story and more about Spencer’s remarkable life is told by Walter Parks and Richard O’Connor in this remembrance.

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Painting a (false?) picture by the numbers

During my academic career my primary teaching duty was to provide my students with an understanding of Liesthe use of statistics to draw conclusions about the real world, and how to avoid the common pitfalls that lead to error. In connection with that I would remind them of an old saying of uncertain origin but often attributed to Mark Twain: “There are three kinds of lies: lies, damned lies, and statistics.” Here’s a case in point.

A report in the January 1 edition of the Arizona Daily Star (page B1) is headlined, “Longtime Nogales migrant shelter director Juan Francisco Louriero dies from COVID.” But, it is not until paragraph 6 that the reader learns the true story. It reads, “At 76, Louriero was already in fragile health. He lived with diabetes and kidney failure,” then goes on to say, “The COVID-19 pandemic hit the city of Nogales particularly hard, so his family took precautions, limiting his exposure and using face masks and sanitizer whenever they left their home.” The article reports that Louriero started feeling ill on December 12, went to the hospital the next day, was intubated two days after that, and died on December 18.

There are a number of troubling things about this report, besides some important unanswered questions. First is the headline. Is it fair to say that Mr. Louriero died from COVID rather than from diabetes and/or kidney failure? Was he actually tested for covid or was he one of the “presumed” cases? Even if he did test positive for covid, might that have been one of the many false positives associated with the test, and can covid honestly be considered to be the cause of death? In his reported condition it is likely that any additional stressor, even the common cold, could have pushed Mr. Louriero over the edge. Would the headline then have read, “Louriero dies from common cold?”

Furthermore, is it possible that intubation might have been the proximate cause of his demise? Serious questions have been raised about the possible harm resulting from the use of ventilators (intubation) on critically ill patients, especially those with covid. An article in the April 16, 2020 issue of Time Magazine explains Why Ventilators May Not Be Working as Well for COVID-19 Patients as Doctors Hoped.  An article in the journal STAT, says, “New Analysis recommends less reliance on ventilators to treat coronavirus patients,” and cites a report by the American Journal of Tropical Medicine and Hygiene which concludes that “by using ventilators more sparingly on Covid-19 patients, physicians could reduce the more than 50% death rate for those put on the machines.” (The Time article puts the death rate of covid patients on ventilators even higher, up to 80%, “based in numbers out of China and New York City”).

It appears that the Star article is one more instance of the mainstream media using misleading headlines and hyping the threat which Covid-19 allegedly poses. There is plenty of evidence to show that this “pandemic” has been seized upon as an opportunity to advance a deeper agenda that has more to do with politics and social control than with public health. And any article or video, even those posted by highly qualified people, that questions the official covid narrative is quickly suppressed or taken down. Science and democracy both depend upon transparency and open debate but the concentration of power over information channels has given the few great power to censor the many.

This is a critical time in the evolution of civilization. There is as much disinformation emanating from the mainstream as there is from the fringes. It is up to people themselves to re-calibrate their BS detectors and make up their own minds.

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Sovereign or Slave? How perversion of the money power has decided the issue—until now!

As I indicated in my previous post, No democracy when government has the money power, E. C. Riegel, more than 75 years ago, explained, better than anyone else I’ve encountered, the nature of money, its fundamental function, and the history and consequences of its politicization, and outlined a way of transcending the perverse and dysfunctional system that we have lived under for far too long. His work is perhaps best summarized in his book, Private Enterprise Money, from which I quoted. I continue here with further quotes that elucidate the key points of sovereignty, money and government.

Riegel’s solution involved the organization of credit clearing circles that he called “Valun Exchanges” that would be joined together in networks for exchanging goods and services. He argues, as I do, that it is the individual person that is sovereign, not any king, emperor or government, and that the power to issue money, therefore, also resides in the individual. When we realize that money is really only short-term credit, it becomes clear that it is in our power as individuals to give it or withhold it as we go about our daily business of exchanging the value (goods and services) we produce and consume.

In Chapter 9 of his book, Riegel proposes that the Valun Exchanges be organized on a “state-wise” basis. He observes that:  “The sovereign power of the citizen rises to the state government; and from there it is delegated upward to the federal government, and downward to subdivisions. We are, first of all, citizens of our respective states; and this implies citizenship also in local and national governments.” p. 139

He then recounts the history of the union of the American colonies after their separation from British rule and argues that: “The advantage in abolishing this multiplicity of monies [of the various colonies] was obvious, but the implications involved in surrendering the money issuing power to the federal government was not comprehended. The gain to all in uniformity of money unit was visualized; the loss in sovereignty thereby suffered, was not.”  p. 140

From this point onward, I will let Riegel’s words speak for themselves. All page number refer to the printed edition.

“We now realize that the money power of the private citizen is in fact his sovereignty; and that in yielding it he yields his sovereignty. Thus the transferring of the money power from the states to the federal government was the transferring of the citizens’ sovereignty to the national government, and the reducing of the state to the status of a subordinate. p. 140

“The political money system implies that the citizen will abate his natural money issuing power, and make the criterion of his exchanges and the regulation of the money system entirely dependent upon the government that he recognizes as the money power. By making the federal government the sole money issuing power, the individual states transferred the fealty of their citizens to the national government, because they became thereby dependent upon its money power. The citizen having thus had his fealty transferred to the national  government—it was taken from the state governments—and the latter are now dismayed by the increase of federal power and the commensurate subordination of state power.”

“What has actually transpired is a reversal of the intent of the federal plan whereby the national government was to be dependent upon the states for grants of power. The national government, through its money power, is now supreme and in reality holds the state governments in subjection to it. Federal fiscal policy now determines the bounds of state sovereignty. It took many years to reveal this structural weakness because, in the earlier days of the federation, the economy depended more upon the private issuance of money through the banking system, and thus federal fiscal power was dormant. The policy of the federal government up to 1932 was to leave to the banks the function of supplying money. During the Jackson administration, with the abolishment of the United States Bank, government participation in money supply reached its lowest point—with the government confining itself to the mere minting of gold and silver coins at a seigniorage charge to any one who brought the metal to the mint.” pp. 140-141.

Money Power Is Sovereignty
The states, to recapture their independence and sovereignty, must look to their citizens who, in turn, must assert their sovereignty by exercising their inherent money power. It was right that the states should have surrendered their money power; but they should have surrendered it to their citizens, and not to another government. At the time the federation was formed the nature of the money power was not understood; and it was not realized that it is the essence of sovereignty. But we know now that it is and if we wish to preserve the federation and also home rule, we must now deal intelligently with the money power.

While the states have surrendered their money power, their citizens have not. The citizens have merely failed to exercise their natural powers against which there is no prohibition in either state or federal constitutions. This is not a political issue – requiring legislation or repeal of legislation, or constitutional amendments, or any official action – but it is, nevertheless, a profound political movement; because, as the people assert their money power, their natural intimacy with their state and local governments asserts itself – since there is no other power that can step between. Today, the federal government stands between the citizen and local government, and thus alienates him.

If our states are to develop their individuality and counter the stereotyping influence of a monetary dictatorship, if local government and private enterprise are to work out their natural virtues, if democracy is to prevail in business and government, and if our federal republican system is to survive, we must meet our problems by dealing with their fundamental causes – the political money system.”

To accomplish these broad and vital aims, the Governor or some other public official should take the leadership of this cause within his state. In the absence of this, leadership must be taken by private citizens. It offers an incomparable opportunity for public service.”

While the money issuing power is inherent in every man, it can be realized only by a pact among many. Therefore, the individual is helpless, and organized action is necessary. The method of organizing a Valun Exchange should be no different from organizing any other cooperative movement.” pp. 143-144.

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No democracy when government has the money power

Think for a moment about the basic necessities of life. One can live only a few minutes without air, a few days without water, and a few weeks without food. We also need shelter from the heat and cold, from rain and snow and sun. We need energy–gas, oil, electricity–to warm us when the weather is cold and to cool us when it is hot, to help us do our work and enable us to move about­.

And how do we acquire those things? Air is still freely available, although it may not always be clean or healthy to breathe. Water is increasingly not free, even if we draw it from the kitchen faucet, and all of those other necessities, we depend upon others to provide. But at every turn there is someone with an outstretched hand saying, “Pay me.” The point is that there is another element that we are utterly dependent upon–MONEY!

As Adam Smith observed long ago, “When the division of labor has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labor can supply” (Wealth of Nations). That puts economic exchange and the devices we use to facilitate it at the center of human interaction. Money has become so familiar to us in our daily lives that we hardly even notice it, except when it is lacking. But our ignorance of the nature of money, where it comes from, and how it is created has cost us dearly both in terms of material comfort and increasingly in our loss of freedom.  

Economics and politics are inextricably linked; they are in fact a unitary system which early economists like Adam Smith, John Stuart Mill, and Jean-Jacques Rousseau recognized, using the term “political economy” to categorize their work. Economics as a separate discipline did not exist until about a hundred years ago when latter day academicians sought to cloak the fact behind a mask of mathematical rigor. But it cannot be denied that economic structures and policies have heretofore made implicit choices about who would be the winners and who would be the losers. The challenge before us today is to build political-economic systems that allow everyone to win, not just in terms of material comfort, but in terms of peace, harmony, dignity, and freedom. We cannot change politics without changing economics, and we cannot change economics without changing money.

In my own work I have often credited E. C. Riegel for much of my enlightenment on these matters. He said:

“We have been pursuing the illusion that by voting political ballots biennially and quadrenially, we controlled our affairs. While the government must beg us each two years for our political ballot, we beg the government every day for our economic ballot. Since we are dependent upon our government for our daily dollar ballot, there stands over our political democracy a monetary autocracy. Therefore, we are not democratic governors; we are economic subjects. … The process whereby parchment freedoms become sterile is quite simple. It begins with the fact that we need a constant money supply to effect our exchanges whereby we live. The supply is completely in the hands of government. We beseech the government to issue it. … Is not every public expenditure the result of pressure by some large or small segment of the citizenry? And are not these pressure groups impelled by the necessity of petitioning government since it is the only source of the economy’s life blood? How can we blame the government for spending and on the other hand, how can we blame those who invent schemes for spending, without which our economy would stagnate? It is the false concept of political money power that converts citizens into petitioners, and makes government a dispenser of patronage instead of a public servant. This power of patronage utterly destroys the democratic system of government–since the people cannot be both petitioners and rulers” (Private Enterprise Money (1944. pp. 78-79 in print edition).

Riegel devoted his life to showing not only how the political money system corrupts both economics and politics, but also how it can be transcended, a work that I have taken up and pursued over the past 40 years. My own books, lectures, interviews, and web posts have built upon, interpreted, and extended the works of E. C. Riegel, Henry George, Ralph Borsodi, Ulrich von Beckerath, Heinrich Ritterschausen, and many others. My latest book, The End of Money and the Future of Civilization, is a comprehensive treatment of money and politics and a guide to how to create effective exchange media that are independent of government, banks, and political money. Once we realize that money is credit, and that it is in our power to give or withhold it, we can take back control of the exchange process and our government.

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Move your money, preserve your capital, improve your community and make housing more affordable

Poverty and homelessness have been persistent problems in virtually every community and are becoming worse, and disparities in incomes and wealth have long been increasing. Meanwhile the stock markets are booming while returns of savings accounts have been driven below zero in real terms. All of this has been happening while human productivity is greater than at any time in human history. What’s wrong with this picture?

Clearly, there must be some serious defects in the systems by which our collective production is distributed and used. This is the realm of money, banking and finance which controls the functions of value exchange, saving, and investment. As I’ve repeatedly argued, it is not just a matter of how these systems are managed (policy), but the way they’ve been designed, i.e., their very structure. Whether by intention or by accident, these system are designed to do precisely what they are doing. They enrich and empower the few at the expense of impoverishing and dis-empowering the many.

While there may be little possibility of reforming these systems, they can be transcended. New systems and structures can be designed and deployed that better serve the necessary functions. My work has been focused mainly, but not entirely, on the exchange of value function, which is the fundamental purpose of money. Over the past forty years I’ve written and lectured extensively about private and community currencies and mutual credit clearing as ways of transcending the political money regime. See, for example, How to Bring Liquidity Into an Economy, Free of Interest, Inflation, and Boom and Bust Cycles.

Others have been active in addressing the functions of saving, and investment. Notable in this regard are Ellen Brown and her associates at the Public Banking Institute, John Katovich and associates at Cutting Edge Capital, attorney Jenny Kassan, John Fullerton at the Capital Institute, and community economist Michael Shuman.

Michael, in his recent newsletter, Gimme Shelter (With Local Investment), reports on some exciting developments, one of which is “…the SEC quietly increased the ceiling on a crowdfunding raise from $1.07 million to $5 million—effectively enabling significantly more housing projects to be funded by grassroots investors sick of Wall Street.” Another is the emergence of community investment trusts (CITs), which “allow members of the community to invest in neighborhood projects. Whereas most CLTs [Community Land Trusts] are nonprofit, CITs can be for-profit and issue equity.”

“Still another approach is to buy pieces of equity in homes to make home ownership more affordable. That’s the strategy of a new company called Landed. It strikes a deal with new homeowners to pick up half or more of the down payment.”

For more details on all of that, read Michael’s entire article here.
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