Return-Path: Delivered-To: jzube@acenet.com.au Received: from localhost (localhost [127.0.0.1]) by mail1.acenet.com.au (Postfix) with ESMTP id A94F4D8E for ; Tue, 1 Oct 2002 06:40:06 +1000 (EST) Received: from hall.mail.mindspring.net (hall.mail.mindspring.net [207.69.200.60]) by mail1.acenet.com.au (Postfix) with ESMTP id 9CA31351D for ; Tue, 1 Oct 2002 06:36:11 +1000 (EST) Received: from sdn-ap-013caburbp0348.dialsprint.net ([63.191.1.94] helo=v4dq1) by hall.mail.mindspring.net with smtp (Exim 3.33 #1) id 17w7B9-0001LI-00; Mon, 30 Sep 2002 16:30:09 -0400 Message-ID: <001001c268c0$98db17a0$5e01bf3f@v4dq1> From: "Thomas H. Greco, Jr." To: "Zarlinga Stephen" , "Yacub Ernie" , "Woods Ian" , "Williams Colin" , "Wild Leonardo" , "Weston David" , "Wautiez Francoise" , "von NotHaus Bernard" , "Van Gelder Sarah" , "Theaker John" , "Swann Bob" , "Sullivan Dan" , "Srinivas Hari" , "Spitler Jim" , "Snyder Philip" , "Smith Jeff" , "Smith J. W." , "Shorter Steve" , "Schindel Cal" , "Sabine McNeill" , "Rowbotham Michael" , "Reyes Bernardo" , "Razeto Luis" , "Rankin Aiden" , "Raddon Mary Beth" , "Primavera Heloisa" , "Powell Jeff" , "Pinshof Anton" , "Palmerton Ken" , "Nishibe Makoto" , "Nakagome Masaki" , "Mollner Terry" , "Menno" , "Megalli Theo" , "Martin Brian" , "Maret Karl" , "MacCallum Spencer" , "LubS" , "Lowe Annie" , "Lopezllera Luis" , "Lietaer Bernard" , , "Kogawa Joy" , "Koenig Peter" , "Kent Deirdre" , "Kennedy Tom" , "Kennedy Margrit&Declan" , "Kennedy Margrit" , "J. Walter Plinge" , "ISIL" <71034.2711@compuserve.com>, "Hui Po-keung" , "Huber Joseph" , "Hirota Miguel" , "Hardy Thomas" , "Elizalde Antonio" , "Anderson Ruth" , "Boudewijn Wegerif" , "Boyle David" , "Brouillet Carol" , "Burman David" , "Challen Peter" <101665.1247@compuserve.com>, "Daly Herman" , "Davidson Gordon" , "DonnellyK" , "Douthwaite Richard" , "Eisenkolb Hans" , "Etherden Peter" , "Fettes Christopher" , "Gebauer Wolfgang" , "Godschalk Hugo" <069523600-0001@t-online.de>, "Hofford Dana" , "IJCCR" , "Kay Richard" , "Leslie Brian" , "Linton Michael" , "Lunn Dan" , "McCrossin Sean" , "Robertson James" , "Souter Angus" , "Turmel Group" , "Turnbull Shann" , "van Arkel Henk" , "Woods Ian" , "Yeager Leland B." , "Zube John" , "Gonzalez Bernardo" , "Glover Paul" , "Miller Vince" , "Popp Klaus" , "Viola Lepre" , "Foldvary Fred" , "Fishman Bob" , "Firmage Joe" , "Economic Reform" , "Duncan Ged (Graham)" , "Dennis Spain" , "DeMeulenaere Stephen" , "Das Seva Deva" , "Cohen-Mitchell Tim" , "Burkhead Linda" , "Brunner Eva" , "Boudewijn Wegerif" , "Bethune Don" , "Belgrano Eduardo" , , "Ramada Camilo" , "Ratcliffe David" , "Shostak Frank" , "Squires Rob" , "Phillips Suzanne" , "Wright Timothy" Subject: valuing and value measurement Date: Mon, 30 Sep 2002 13:32:44 -0700 MIME-Version: 1.0 Content-Type: multipart/alternative; boundary="----=_NextPart_000_000B_01C26885.DB6D2EE0" X-Priority: 3 X-MSMail-Priority: Normal X-Mailer: Microsoft Outlook Express 5.50.4522.1200 X-MimeOLE: Produced By Microsoft MimeOLE V5.50.4522.1200 X-Virus-Scanned: by AMaViS new-20020517 X-Razor-id: 38159cea0a55e5278c8f9599f3ee5b3eb310b736 Status: This is a multi-part message in MIME format. ------=_NextPart_000_000B_01C26885.DB6D2EE0 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable To: IJCCR and selected correspondents From: Thomas H. Greco, Jr. Date: September 21, 2002 I have just now gotten around to reading the recent messages about the = "Quest for a unit for Measuring Value." Thanks, Leonardo for initiating = this multilog, and to Cal and others for significant input. It was sometime in the mid-eighties, I think, on a visit to the E.F. = Schumacher Society in Great Barrington, Mass., that Bob Swann showed me = Borsodi's manuscript on the Constant currency experiment. As soon as I = started reading it, I said, "Bob, we must publish this." I was, at that = time, President of the School of Living (founded by Ralph Borsodi in = 1934), so I suggested that SOL and EFS co-publish the book, which came = out under the title, "Inflation and the Coming Keynesian Catastrophe." = It describes the Constant experiment, as the subtitle suggests, but = leaves a lot of questions unanswered.=20 At one point during my extended travels of this past summer, I visited = Bob Swann. He is now 84 years of age and living in an assisted care = facility in Lee, Mass. Though his physical health seems fairly robust, = his short-term memory is failing and he is becoming increasingly hard of = hearing, making conversation somewhat problematic. Still, his mind is = generally sharp and he seems to be able to pull up significant memories = of the past. He worked with Borsodi on the Constant currency project, = along with Terry Mollner. I also visited Terry around the same time last = summer at his home in Northampton, Mass. Terry is one of the founders of = the Social Investment Forum and the Calvert mutual funds, and last = spring organized the Spirit in Business conference in NYC. Over the years, I've had discussions about the Constant currency with = both Bob and Terry, but have not managed to learn much beyond what is in = the book and an article or two that I managed to track down. Perhaps a = skilled interviewer asking some carefully chosen questions might evoke = from one of them some important points that have heretofore been = overlooked.=20 No one seems to understand precisely how Borsodi planned to back his = Constants. Arbitrage is a way of making a profit by buying in one market = while selling in another to take advantage of a price differential, or = by buying and selling options (promises) with different maturities. = Thus, differentials over place and differentials over time can provide a = source of profit. Arbitrage helps to equalize prices and might earn some = income, but if a currency is to be redeemable, commodities would need to = be bought and held, or cash would need to be held and used to purchase = commodities to cover redemption demands. Alternatively, commodities = futures could be held, saving the costs of storage, etc., but that would = have been a somewhat less secure position. Borsodi, presumably due to his advanced age and failing health, was = apparently content to end the experiment where it did, having proven = that people were willing to accept and circulate a private currency. As far as I can determine, Borsodi's vision was to issue Constants as = "warehouse receipts" for the assortment of commodities indicated on the = notes, but that part of the experiment was never implemented.=20 Now I'd like to cover some points about valuation and value standards. I = treated these topics in my first book, Money and Debt (1990), but am = revisiting them now and plan to treat them more fully in my next book. Valuation When we speak of valuation, we must recognize the distinction between = individual valuation and collective valuation. The former is based on = personal needs, preferences, desires, while the latter is largely based = on culture and represents a sort of consensus in the market within a = definite region or social grouping. Thus, the valuing of shells, called = Tabu, by the Tolai tribes in the East New Britain Province of New Guinea = has enabled the shells to be used as both an exchange medium and as a = store of value, and further as a status symbol. (Stephen DeMeulenaere = http://ccdev.lets.net recently completed a project for the government = there, looking at ways to integrate shell money into the mainstream = economy). Within that limited domain, Tabu can be used as a means of = getting what one needs from the market, and for gaining status and = power. Outside of that domain, as Leonardo points out, the value of the = shells might be considerably different. A New Yorker might see them only = as pretty baubles and of little value. If the cultural value is = recognized, however, and if it is not too inconvenient to carry them = back to New Guinea, then their value will be largely maintained. In = other words, Tabu are money in New Guinea but not in New York. They have = a monetary or exchange value in New Guinea that they lack elsewhere. I = can get "full" value for them in New Guinea but not in New York. I returned from Britain with a few pound notes, which are useless to me = here in the US, but I know that I can take or send them back to England = and receive full value in exchange for them. The point is that, with any = kind of money, what one can get for it depends on where s/he is, where = that money came from, and the prevailing consensus about its current = worth in its home domain. Value Measurement The specification of any quantitative dimension requires, of course, = some defined, standard units of measure. We use inches or centimeters to = specify the length OF THINGS; we use pounds or kilograms to specify the = weight OF THINGS. Similarly, we need a unit to specify the value OF = THINGS (or services, or promises, or ownership shares, etc.).=20 Confusion has arisen on this point because of the legal preference given = to one form of payment (generally, central bank currencies) over others, = and the legal equivalence between the measure of value (unit) and the = means of payment (currency). One should be able to, as in the past, = place an independent value upon a currency, which is a promise or = i.o.u., as s/he is able to place a value on anything else. For this we = need an independent, concrete standard. It was at one time possible to = evaluate a particular bank note in terms of an objective monetary = standard. Thus, when the US dollar enjoyed that kind of precise = definition (initially, 371.25 grains of fine silver; later a specified = weight of gold), a five dollar note of Podunk Bank might be accepted in = the market at a discount from face value, perhaps at $4 instead of five, = or it might be refused as payment. With an objective measure of value, = and without the forced circulation (legal tender status) of national = currency notes, the same discipline could be applied to them. As it is, = national currency notes cannot be refused, and they cannot be discounted = since there is no objective value unit against which to discount it. All = on can do in such circumstances is raise his/her prices. That's the = nature of inflation, an increase in market prices as vendors try to = compensate for the effects of official currency debasement.=20 Various standards have been proposed - a specified weight of gold or = silver or some other single commodity, an hour of labor, a kilowatt hour = of electricity, etc. I won't get into the debate about their pros and = cons right now. My preferred standard is a commodity composite. This = would provide, I think, a good, objective measuring stick. It would not = be a means of payment. In Appendix A of my book, Money and Debt (1990), I adapted Borsodi's = composite prescription and came up with a step-by-step procedure for = defining an objective (non-political) unit of account. Here it is: Appendix A _ Definition of an Objective, Global Standard Unit of=20 Account Using a Composite (Market Basket Assortment) of Basic=20 Commodities Defining the Standard The definition of a composite commodity standard can be achieved by=20 completing the following steps: 1. Select about 30 commodities to be included in the standard, based=20 on the following criteria: 1. traded in several relatively free markets (free exchange). 2. importance in world trade (volume). 3. importance in satisfying basic human needs (necessity). 4. stability of prices (in real terms) over time (stability). 5. uniformity of, or standardization of quality (uniformity) 2. Determine the "economic importance" (I) of each commodity by=20 multiplying its average price (P) during the base year in one=20 specified market (e.g. New York) by world production (V) of that=20 commodity in the base year. Thus I=3DP*V 3. Determine the fractional weight (W) for each commodity in the=20 market basket by dividing its economic importance by the sum of=20 all the economic importance figures. Thus W=3DI/sum I 4. Selecting the initial value of the market basket arbitrarily to be=20 equal to, say, $1,000,000 (one million dollars), determine the=20 initial value amount (D) of each commodity to be included by=20 multiplying its weight (W) by $1,000,000. Thus D=3DW*$1,000,000 5. Determine the physical quantity (Q) of each commodity to be=20 contained in the market basket by dividing its value amount by its=20 average price (P). Thus Q=3DD/P 6. Adjust the quantities (Q), discarding fractional units in such a=20 way as to not disturb too greatly the relative make_up of the=20 market basket while maintaining its initial value close to=20 $1,000,000. 7. Consider the value of the final market basket to be (arbitrarily)=20 equal to 500,000 (five hundred thousand) standard accounting=20 units. Thus, the standard unit will be initially equivalent to $2=20 US, or $1 will equal .5 standard units.=20 The process described in Steps 1 through 6 above reduces to taking the=20 same fraction of each commodity's total world production, that=20 fraction being $1,000,000 divided by the total value of world=20 production of all the selected commodities. Determining the Value of Currencies in Terms of the Standard Unit.=20 Given the definition of the standard value unit as being one five=20 hundred thousandth of the specified "market basket", the value of any=20 currency (e.g. the U.S. dollar) at any time can be easily determined=20 by computing the current cost of the market basket in dollars using=20 prices reported in actual trading. Dividing by 500,000 will give the=20 dollar equivalent of one standard accounting unit. The reciprocal, of=20 course, would be the value of the dollar expressed in standard=20 accounting units. I now believe that 12 to 15 commodities will suffice. Evolution of Money We used to do the same thing with gold and silver that the Tolai do with = Tabu shells. We collectively imputed a value to them that went beyond = their use value. The Europeans were, during the last millennium, crazed = with gold and silver fever. Because these metals were so highly prized = and used as both exchange media and store of value in Europe, they were = the primary object of desire in the early conquest of the Americas. With = the plundering of precious metals from the New World (providing an = abundant supply of money), Europe enjoyed a burgeoning prosperity. If = they had better understood the nature of money, all of that killing and = plundering might have been avoided. With our understanding, and the = improved communications and transportation available to us, we should be = able to mediate exchange more fairly, peacefully, and efficiently. How did the situation change? Gradually, by the introduction of a = different kind of money - first by symbolic money (warehouse receipts = for gold and silver), then by credit money (mainly, i.o.u's of banks and = governments, but also of private individuals, groups, companies). This = is the crucial thing to understand, and that is why the study of = monetary history is so important. We have managed to climb what Hartley Withers calls "The ladder of = economic civilization" by growing beyond such monetary fetishes.=20 We must understand how the payment process evolved and how the form of = money changed from commodity money to paper money, then to check = clearing, enabling it to transcend both natural limitations (the = available supply of metals) and legal restrictions (on the issuance of = bank notes). When the needs of commerce for exchange media grew to the = point where they exceeded the available supply of commodity monies = (mainly, gold and silver), banks issued paper notes to supplement that = supply. When the government decreed that any additional paper notes = issued must be fully backed by gold, traders made increasing use of bank = credit money, using the device of checks to make payments by = transferring monetary values from one account to another.=20 Actually, paper money represented a shift from commodity money to credit = money. It was made redeemable for gold or silver as a way of gaining = acceptance. But properly issued credit money is, on its own merits, = quite serviceable as a medium of exchange, and need not be convertible = into commodity money. Likewise, mutual credit systems (like LETS and = commercial trade exchanges) have amply demonstrated that credits created = on the basis of the actual exchange of goods an services provide a = perfectly acceptable medium of exchange within a community context. In a = less personal and cohesive social context, it may be necessary to "back" = such credits through the pledge of valuable assets, i.e., to = collateralize ones promise to reciprocate. In either case, the transfer = of credits between ledger accounts using checks or electronic transfers = provides a very adequate system of payment. There is no need for ledger = credits to be redeemable for paper notes of any kind, or for = commodities. The best working model of this is perhaps the Swiss WIR = system. It seems to approximate the Private Enterprise Money proposed by = E. C. Riegel in the 1940's in his book with that title. That is a book I = would like every serious student of money to read. Get it online at = http://www.mind_trek.com/treatise/ecr_pem/index.htm. About the only disagreement I have with Riegel's proposal is with his = "abstract standard unit of account." That is best left for another = discussion.=20 I'd also recommend that people read Riegel's, Flight From Inflation. = Spencer MacCallum published that one long after Riegel's death. It has a = lot of insights that complement the other book, and it's the source that = really opened my eyes to the true nature of money. It's not online yet, = but Spencer or I can provide hard copies. BTW, I'd like to post my book, Money and Debt, on the web in PDF format. = If anyone would be willing to convert it to PDF, I'd appreciate it. I = can provide the text files in any word processing format, but the = diagrams would need to be scanned. Tom Thomas H. Greco, Jr., Director Community Information Resource Center P.O. Box 42663, Tucson, AZ 85733 USA 520-795-8930 circ2@mindspring.com Consulting on community currencies and cashless exchange, local and = regional development, and equitable finance. Our new website is at: http://circ2.home.mindspring.com. It contains an abundance of useful material on economic, social, and = political transformation, including creative ideas about money, finance, = community empowerment, and sustainable economics, plus the full text of = my book, New Money for Healthy Communities. My latest book, "Money: Understanding and Creating Alternatives to Legal = Tender," published by Chelsea Green, is now available. For details, see = http://www.chelseagreen.com/Livelihood/Money.htm The excerpted, e-book version (in PDF format) can be found at: = http://www.chelseagreen.com/Livelihood/MoneyEBook.htm. ------=_NextPart_000_000B_01C26885.DB6D2EE0 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable

To: IJCCR and selected correspondents

From: Thomas H. Greco, Jr.

Date: September 21, 2002

I have just now gotten around to reading the recent messages about = the "Quest=20 for a unit for Measuring Value." Thanks, Leonardo for initiating this = multilog,=20 and to Cal and others for significant input.

It was sometime in the mid-eighties, I think, on a visit to the E.F.=20 Schumacher Society in Great Barrington, Mass., that Bob Swann showed me=20 Borsodi's manuscript on the Constant currency experiment. As soon as I = started=20 reading it, I said, "Bob, we must publish this." I was, at that time, = President=20 of the School of Living (founded by Ralph Borsodi in 1934), so I = suggested that=20 SOL and EFS co-publish the book, which came out under the title, = "Inflation and=20 the Coming Keynesian Catastrophe." It describes the Constant experiment, = as the=20 subtitle suggests, but leaves a lot of questions unanswered.

At one point during my extended travels of this past summer, I = visited Bob=20 Swann. He is now 84 years of age and living in an assisted care facility = in Lee,=20 Mass. Though his physical health seems fairly robust, his short-term = memory is=20 failing and he is becoming increasingly hard of hearing, making = conversation=20 somewhat problematic. Still, his mind is generally sharp and he seems to = be able=20 to pull up significant memories of the past. He worked with Borsodi on = the=20 Constant currency project, along with Terry Mollner. I also visited = Terry around=20 the same time last summer at his home in Northampton, Mass. Terry is one = of the=20 founders of the Social Investment Forum and the Calvert mutual funds, = and last=20 spring organized the Spirit in Business conference in NYC.

Over the years, I've had discussions about the Constant currency with = both=20 Bob and Terry, but have not managed to learn much beyond what is in the = book and=20 an article or two that I managed to track down. Perhaps a skilled = interviewer=20 asking some carefully chosen questions might evoke from one of them some = important points that have heretofore been overlooked.

No one seems to understand precisely how Borsodi planned to back his=20 Constants. Arbitrage is a way of making a profit by buying in one market = while=20 selling in another to take advantage of a price differential, or by = buying and=20 selling options (promises) with different maturities. Thus, = differentials over=20 place and differentials over time can provide a source of profit. = Arbitrage=20 helps to equalize prices and might earn some income, but if a currency = is to be=20 redeemable, commodities would need to be bought and held, or cash would = need to=20 be held and used to purchase commodities to cover redemption demands.=20 Alternatively, commodities futures could be held, saving the costs of = storage,=20 etc., but that would have been a somewhat less secure position.

Borsodi, presumably due to his advanced age and failing health, was=20 apparently content to end the experiment where it did, having proven = that people=20 were willing to accept and circulate a private currency.

As far as I can determine, Borsodi's vision was to issue Constants as = "warehouse receipts" for the assortment of commodities indicated on the = notes,=20 but that part of the experiment was never implemented.

Now I'd like to cover some points about valuation and value = standards. I=20 treated these topics in my first book, Money and Debt (1990), but = am=20 revisiting them now and plan to treat them more fully in my next = book.

Valuation

When we speak of valuation, we must recognize the distinction between = individual valuation and collective valuation. The former is based on = personal=20 needs, preferences, desires, while the latter is largely based on = culture and=20 represents a sort of consensus in the market within a definite region or = social=20 grouping. Thus, the valuing of shells, called Tabu, by the Tolai tribes = in the=20 East New Britain Province of New Guinea has enabled the shells to be = used as=20 both an exchange medium and as a store of value, and further as a status = symbol.=20 (Stephen DeMeulenaere http://ccdev.lets.net = recently=20 completed a project for the government there, looking at ways to = integrate shell=20 money into the mainstream economy). Within that limited domain, Tabu can = be used=20 as a means of getting what one needs from the market, and for gaining = status and=20 power. Outside of that domain, as Leonardo points out, the value of the = shells=20 might be considerably different. A New Yorker might see them only as = pretty=20 baubles and of little value. If the cultural value is recognized, = however, and=20 if it is not too inconvenient to carry them back to New Guinea, then = their value=20 will be largely maintained. In other words, Tabu are money in New = Guinea=20 but not in New York. They have a monetary or exchange value in = New Guinea=20 that they lack elsewhere. I can get "full" value for them in New Guinea = but not=20 in New York.

I returned from Britain with a few pound notes, which are useless to = me here=20 in the US, but I know that I can take or send them back to England and = receive=20 full value in exchange for them. The point is that, with any kind of = money, what=20 one can get for it depends on where s/he is, where that money came from, = and the=20 prevailing consensus about its current worth in its home domain.

Value Measurement

The specification of any quantitative dimension requires, of course, = some=20 defined, standard units of measure. We use inches or centimeters to = specify the=20 length OF THINGS; we use pounds or kilograms to specify the weight OF = THINGS.=20 Similarly, we need a unit to specify the value OF THINGS (or services, = or=20 promises, or ownership shares, etc.).

Confusion has arisen on this point because of the legal preference = given to=20 one form of payment (generally, central bank currencies) over others, = and the=20 legal equivalence between the measure of value (unit) and the means of = payment=20 (currency). One should be able to, as in the past, place an independent = value=20 upon a currency, which is a promise or i.o.u., as s/he is able to place = a value=20 on anything else. For this we need an independent, concrete standard. It = was at=20 one time possible to evaluate a particular bank note in terms of an = objective=20 monetary standard. Thus, when the US dollar enjoyed that kind of precise = definition (initially, 371.25 grains of fine silver; later a specified = weight of=20 gold), a five dollar note of Podunk Bank might be accepted in the market = at a=20 discount from face value, perhaps at $4 instead of five, or it might be = refused=20 as payment. With an objective measure of value, and without the forced=20 circulation (legal tender status) of national currency notes, the same=20 discipline could be applied to them. As it is, national currency notes = cannot be=20 refused, and they cannot be discounted since there is no objective value = unit=20 against which to discount it. All on can do in such circumstances is = raise=20 his/her prices. That's the nature of inflation, an increase in market = prices as=20 vendors try to compensate for the effects of official currency = debasement.

Various standards have been proposed – a specified weight of = gold or silver=20 or some other single commodity, an hour of labor, a kilowatt hour of=20 electricity, etc. I won't get into the debate about their pros and cons = right=20 now. My preferred standard is a commodity composite. This would provide, = I=20 think, a good, objective measuring stick. It would not be a means of=20 payment.

In Appendix A of my book, Money and Debt (1990), I adapted = Borsodi's=20 composite prescription and came up with a step-by-step procedure for = defining an=20 objective (non-political) unit of account.

Here it is:

Appendix A _ Definition of an Objective, Global Standard Unit = of

Account Using a Composite (Market Basket Assortment) of Basic

Commodities

Defining the Standard

The definition of a composite commodity standard can be achieved by =

completing the following steps:

1. Select about 30 commodities to be included in the standard, based =

on the following criteria:

1. traded in several relatively free markets (free exchange).

2. importance in world trade (volume).

3. importance in satisfying basic human needs (necessity).

4. stability of prices (in real terms) over time (stability).

5. uniformity of, or standardization of quality (uniformity)

2. Determine the "economic importance" (I) of each commodity by

multiplying its average price (P) during the base year in one

specified market (e.g. New York) by world production (V) of that

commodity in the base year. Thus

I=3DP*V

3. Determine the fractional weight (W) for each commodity in the

market basket by dividing its economic importance by the sum of

all the economic importance figures. Thus

W=3DI/sum I

4. Selecting the initial value of the market basket arbitrarily to be =

equal to, say, $1,000,000 (one million dollars), determine the

initial value amount (D) of each commodity to be included by

multiplying its weight (W) by $1,000,000. Thus

D=3DW*$1,000,000

5. Determine the physical quantity (Q) of each commodity to be

contained in the market basket by dividing its value amount by its =

average price (P). Thus

Q=3DD/P

6. Adjust the quantities (Q), discarding fractional units in such a =

way as to not disturb too greatly the relative make_up of the

market basket while maintaining its initial value close to

$1,000,000.

7. Consider the value of the final market basket to be (arbitrarily) =

equal to 500,000 (five hundred thousand) standard accounting

units. Thus, the standard unit will be initially equivalent to $2 =

US, or $1 will equal .5 standard units.

The process described in Steps 1 through 6 above reduces to taking = the

same fraction of each commodity's total world production, that

fraction being $1,000,000 divided by the total value of world

production of all the selected commodities.

Determining the Value of Currencies in Terms of the Standard = Unit.=20

Given the definition of the standard value unit as being one five =

hundred thousandth of the specified "market basket", the value of any =

currency (e.g. the U.S. dollar) at any time can be easily determined =

by computing the current cost of the market basket in dollars using =

prices reported in actual trading. Dividing by 500,000 will give the =

dollar equivalent of one standard accounting unit. The reciprocal, of =

course, would be the value of the dollar expressed in standard

accounting units.

I now believe that 12 to 15 commodities will suffice.

Evolution of Money

We used to do the same thing with gold and silver that the Tolai do = with Tabu=20 shells. We collectively imputed a value to them that went beyond their = use=20 value. The Europeans were, during the last millennium, crazed with gold = and=20 silver fever. Because these metals were so highly prized and used as = both=20 exchange media and store of value in Europe, they were the primary = object of=20 desire in the early conquest of the Americas. With the plundering of = precious=20 metals from the New World (providing an abundant supply of money), = Europe=20 enjoyed a burgeoning prosperity. If they had better understood the = nature of=20 money, all of that killing and plundering might have been avoided. With = our=20 understanding, and the improved communications and transportation = available to=20 us, we should be able to mediate exchange more fairly, peacefully, and=20 efficiently.

How did the situation change? Gradually, by the introduction of a = different=20 kind of money – first by symbolic money (warehouse receipts for = gold and=20 silver), then by credit money (mainly, i.o.u's of banks and governments, = but=20 also of private individuals, groups, companies). This is the crucial = thing to=20 understand, and that is why the study of monetary history is so = important.

We have managed to climb what Hartley Withers calls "The ladder of = economic=20 civilization" by growing beyond such monetary fetishes.

We must understand how the payment process evolved and how the form = of money=20 changed from commodity money to paper money, then to check clearing, = enabling it=20 to transcend both natural limitations (the available supply of metals) = and legal=20 restrictions (on the issuance of bank notes). When the needs of commerce = for=20 exchange media grew to the point where they exceeded the available = supply of=20 commodity monies (mainly, gold and silver), banks issued paper notes to=20 supplement that supply. When the government decreed that any additional = paper=20 notes issued must be fully backed by gold, traders made increasing use = of bank=20 credit money, using the device of checks to make payments by = transferring=20 monetary values from one account to another.

Actually, paper money represented a shift from commodity money to = credit=20 money. It was made redeemable for gold or silver as a way of gaining = acceptance.=20 But properly issued credit money is, on its own merits, quite = serviceable as a=20 medium of exchange, and need not be convertible into commodity money. = Likewise,=20 mutual credit systems (like LETS and commercial trade exchanges) have = amply=20 demonstrated that credits created on the basis of the actual exchange of = goods=20 an services provide a perfectly acceptable medium of exchange within a = community=20 context. In a less personal and cohesive social context, it may be = necessary to=20 "back" such credits through the pledge of valuable assets, i.e., = to=20 collateralize ones promise to reciprocate. In either case, the transfer = of=20 credits between ledger accounts using checks or electronic transfers = provides a=20 very adequate system of payment. There is no need for ledger credits to = be=20 redeemable for paper notes of any kind, or for commodities. The best = working=20 model of this is perhaps the Swiss WIR system. It seems to approximate = the=20 Private Enterprise Money proposed by E. C. Riegel in the 1940's = in his=20 book with that title. That is a book I would like every serious student = of money=20 to read. Get it online at http://www.mind_trek.com/treatise/ecr_pem/index.htm.

About the only disagreement I have with Riegel's proposal is with his = "abstract standard unit of account." That is best left for another = discussion.=20

I'd also recommend that people read Riegel's, Flight From = Inflation.=20 Spencer MacCallum published that one long after Riegel's death. It has a = lot of=20 insights that complement the other book, and it's the source that really = opened=20 my eyes to the true nature of money. It's not online yet, but Spencer or = I can=20 provide hard copies.

BTW, I'd like to post my book, Money and Debt, on the web in = PDF=20 format. If anyone would be willing to convert it to PDF, I'd appreciate = it. I=20 can provide the text files in any word processing format, but the = diagrams would=20 need to be scanned.

Tom

Thomas H. Greco, Jr., Director
Community = Information Resource=20 Center
P.O. Box 42663, Tucson, AZ 85733 USA
520-795-8930
circ2@mindspring.com
Consulti= ng on=20 community currencies and cashless exchange, local and regional = development, and=20 equitable finance.
Our new website is at: http://circ2.home.mindspring.co= m.
It=20 contains an abundance of useful material on economic, social, and = political=20 transformation, including creative ideas about money, finance, community = empowerment, and sustainable economics, plus the full text of = my
book, New=20 Money for Healthy Communities.
My latest book, "Money: Understanding = and=20 Creating Alternatives to Legal Tender," published by Chelsea Green, is = now=20 available. For details, see http://www.chel= seagreen.com/Livelihood/Money.htm
The=20 excerpted, e-book version (in PDF format) can be found at: http://www= .chelseagreen.com/Livelihood/MoneyEBook.htm.

 

 

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