I think the key here is that the money system is an information system. I agree with you that capitalism, as it is implemented in countries like the U.S., has failed (as measured by inner-city poverty, rural poverty, the corrupt influence of money on our political system, and the environmental devastation associated with economic “growth”).

However, when you use the term “money” you can think of many different things…everything from our current, rather convoluted debt-based currency system, to a precious-metal backed system, to various types of community currency (which are incredibly diverse). Each system sets up different incentives and has the potential to bring out different qualities in human beings.

"…for if money permits the wicked to become good, and the dishonest to become honoured, then it also has the potential to make the dependent self-sufficient, the excluded included, the displaced settled, and the violent peaceful."

This statement is an unsupportable fallacy.

It is illogical and does not follow the idea of 'common sense'.

It takes an unsupported premise and furnishes it with an equally unsupported outcome.

The rest of this article is dirivative as it is a regurgitation of socialist/ mutualist 'labour value' theory.

'Labour value' theory would make a capatailist economic famework obsolete by operating outside of its definitions. 'Mutualism' at its heart is a simplified, 'liberalist' form of CAPATAILIST econonmic theory.

Capatailist economic theory and practice have failed. Capatailism is just the latest in a long line of primative power structures imposed on society by the 'ruling' 'classes'. All power is the product of agency and 'given agency'.

I have no real point other than; THINK ABOUT IT.

Nothing is absolute except transformation.

And, whose money are they lending in the first place?

The depositors, basically the same people who borrow the money. The money is in there simply because it is supposedly "insured" by the FDIC. It faces similar risks to any capital but the state declares it to be lower risk, so the average citizen sinks their capital in banks.

The fed has little to show for the FDIC fund. If push came to shove, they would simply print new money to get depositors their deposits and the value for the new money would come from money already in print. In other words, we insure our own deposits with our own capital and yet the banks reap the profit.

The system is no accident. I think it was rothbard who has the great expose on the formation of the federal reserve.

For example, if I invest money in a corporation I have little recourse if they squander the money…the only recourse are costly class-action suits which often fail and even when they succeed, rarely generate a substantial recovery of the investment.

But if a bank lends me money, they're probably going to get it back. Even if I declare bankruptcy, in many cases, they're still going to get a substantial portion of it back. The reform passed early in the George W. Bush administration pushed things even farther in this direction.

when they are enforced they are referred to as a "loan", when they are not enforced they are referred to as an "investment".

of course, the flow goes from individual to corporation for the most part. loans to corporations are considered investments while individuals must deal with loans and repay backed by the force of the state.

all debt is a play on the market, when we realize that and realease all debtholders who received funds from consenting creditiors as a market call and not labor bondage, we will have a completely different world.

I think, given that we have taxes, a holding tax would provide so much better incentives relative to an income tax. Another type of tax I would support preferentially, would be use taxes on common resources. For example, most water rates in the U.S. are so low, especially in the southwest where water is scarce. That water is effectively a public good / public resource, so, if conservation is an issue, why not just raise rates? It seems a no brainer to me. Another one would be highway tolls…most of them are not in proportion to the amount of wear-and-tear put on the roads (i.e. even though truck tolls are higher, they don't reflect the true amount of wear placed by these large vehicles, and small vehicles and taxpayers are effectively subsidizing them).

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Back to the currency question though, I think compared to some other countries, the U.S. actually has fairly lax laws with respect to currency? (Much laxer than, say, Germany, which until recently outright prohibited most alternative currency.) The only thing holding the currency in usage is the concept of "legal tender" and the fact that it is accepted for tax liabilities. But–anyone–including businesses, individuals, state and local governments, and even the federal government, are free to voluntarily accept payment in some other currency for settlement of any debt–they just aren't legally obligated to do so.

When you think about it this way, the notion of a currency not being legal tender is actually liberating…legal tender is in a sense, a form of coercion, because you HAVE to accept it.

But if you start using currency that's not legal tender, you don't have to accept it…it gives each party more freedom. And it makes debts harder to enforce, which, again, depending on your perspective, could be a good thing. Our banking system, wrapped up in the federal reserve, and based all on debt rather than anything tangible, is so convoluted and corrupt. Is it necessarily a good thing that debts in this system can be enforced so easily?

So in a sense, the legal system in the U.S. is actually liberating for people who want to use other currencies…they just need to build a framework of trust (rather than debt and coercion) to support their currency. But ultimately I think this would make it a much, much stronger currency.

Alex – Interesting on the Worgl experiment, although it looks to me like it /was/ backed by the second biggest gorilla in the arena – while the biggest one was looking the other way. Use of the Worgl currency also was induced by its being one of only two to means of payment for a fee demanded at gunpoint, when no one had any of the other acceptable form of payment, which I suspect (although I have not verified – maybe you have more information on this at hand) was primarily caused by government antics that never would have occurred in a true free market to begin with.

I have no objections in principle to currencies that lose value, although it should be noted that anything used as money has a cost to keep around. For example, without the fraud of fractional reserve banking, to store money is a bank would have to cost money, unless the bank decided to finance its operations through a fee on transfers (the DGC Pecunix in financed in this way). If people wish to keep their Au/Ag coins hidden in their house, that is fine – but there is still a storage cost, although admittedly the most visible part of that cost is zero. Also, unless there is a need to keep that money in a very liquid form, I think that we would see much of it deposited with loan brokers in interest bearing accounts. These would almost certainly have a fixed term, as otherwise the loan broker would have accounts payable on demand that could only be fulfilled over years, which is fraud. It should also be noted that anyone who takes out a loan is spending money and keeping it moving through the economy.

As for the uS changing from an income tax to a holding tax, I'd rather see the the uS abolish all taxation altogether. If at the same time they were to end their gun-enforced monopoly on money, and allow any government entity or private person or group to create and use their own currency in any form that people choose to use, then it is most definitely an improvement over the current situation – although I doubt this will happen because the government would then finish going bankrupt overnight.

I still am of the opinion that gold and/or other precious metals would form the basis of worldwide currency in a true free market, and that {depreciation|demurrage|holding tax|storage fees} would be at whatever the true cost of providing the service is – and no more. However things work out in the free market, and whatever ends up being used as money – whether gold, silver, lets, devaluing currency, tobacco, or dried cow dung – I am certain that it will provide the greatest prosperity that humans are capable of creating at the time.

Tor

If you had a closed system where the currency supply was relatively static, or, perhaps expanded only in proportion to population, but the currency lost value over time, it could be more sustainable. I have two ideas of how this could look:

For an example with national currency. Suppose the U.S. abolished all income tax and payroll tax, and instead funded all expenditures through a demurrage fee / holding tax on money. This could result in a relative constant rate of the currency losing value (through the tax) yet without changing the total supply of currency.

Tor insightfully remarked that inflation is a wealth transfer–from people holding the old money to people holding the newly created money, whether it is printed outright (like the famous German hyperinflation) or created indirectly through bank lending (like in our Federal Reserve system). Taxes also are a wealth transfer. Since income tax is a disincentive towards economic activity, it seems common sense to eliminate it and replace it with a holding tax on money that could raise an equal amount of money, as the second would provide an incentive for productive investment. Why tax through disincentives on work when you could raise the same revenue through an incentive on work?

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For an example with a community currency, there would be no need for a large holding tax to finance government expenditures. What could the holding fee be used for? Besides a very small fee to finance administrative overhead of the system (which would hopefully be minimal), the fee could be a way to give the currency, effectively, a finite lifetime. Continuously retire old money from circulation, at a fixed rate, and issue new money.

There are different ways that it could look, those are just two ideas I had. Basically, I agree with you about the continual expansion of the currency supply being unsustainable. But there are ways for a currency to lose value even if the total supply in circulation is relatively fixed. I ultimately think that these sorts of currencies are the most sustainable.

Other examples are when there are competing national currencies…this is common in developing countries, where people will typically use the national currency, which often has high inflation, in day-to-day commerce, but use U.S. dollars (which hold their value) for saving. People only spend their U.S. dollars when they need to cash in on their savings and make a big purchase. These countries don't have a supply of U.S. currency…except in cases like Ecuador which just decided to use the U.S. dollar as their currency.

It's market forces, and free choice, that causes people to use the more-quickly-devaluing currency. Think about it…if you have some of two currencies, and you can buy something with each of them, you want to spend the one that will lose value before you spend the one that will hold value. Thus, it becomes easier for businesses to make sales in the quickly-devaluing currency…and it also becomes easier to earn money in wages in this currency.

I'm not saying currencies that hold their value are better or worse than ones that don't–only that there's a well-established pattern of the devaluation resulting in an increased velocity of circulation, and increased economic activity in that currency, whereas the currency that holds its value having the opposite effect. Look at the U.S. People use gold as a long-term investment vehicle, but they use it very infrequently as a trading medium in day-to-day business.

Who is to determine what amount of trade is appropriate? Think about which economists are saying that hoarding is bad – I think you’ll find that those who say that are either Keynesians or Chicago school. Doesn’t everyone have the right to decide for themselves how much they want to save?

If your artificially inflating currency is superior, then it should win in the free market. If it needs the support of a state to compete, however, then I suggest it is inferior. Go ahead and try out your currency ideas in the market – I am. [By “win” I mean survive and thrive, not necessarily become a monopoly currency.]

To look at it from a leftish viewpoint, you can’t build a sustainable economy on an unsustainable currency. Any currency with artificial inflation built in (like any based on debt like FRNs) is inherently unsustainable. Such currencies demand over-investing, which promotes the boom-and-bust cycle. They also lead to policies which cause harm in order to generate profits. I believe a great part of the environmental damage caused by corporations is tied to their need to expand at a greater than natural rate, caused by the inflationary currency we now have.