A way to improve the efficiency of the economy and to extend the degree of personal autonomy in people's lives would be to allow trading in personal credit. At the moment we trade only the credit of nation States... Personal credit trading enables people to enter into economic relationships with others that are different to those enabled today.
At the moment we can only be in the debt of another by borrowing the currency of the State... This introduces a third party into the arrangement because currency is the credit of Government... It is possible for the State to forgive the lender any obligations (to the State) and so the lender is no worse off than they were originally. We trade the currency (credit) of a third party, they are always involved and in fact have the final word on what any of it is worth. Depending on the relationship of an individual with the State, money in the hands of one person is worth an amount according to that relationship.
The nature of State credit is different from individual credit because the State has the ability to decide that credit held by a particular person is worthless, whereas an individual who renounces credit owned by one person would affect the price of all their credit... To put it another way, personal credit can be sold to another person if there are relationship difficulties... credit of the State is different because it is not debt of the State but a promise to exert reduced harm.
If the relationship between two creditors sours, the credit can be sold... however, we always need the credit of the State. Credit of the state means we must do less work (for the State) than otherwise. It is a "negative" credit...
Currency is how people decide who gets to do less work for the Government
Each year our debt to the State increases (taxation) so currency is a way to off-set those losses. Each year the Government assumes an issuance of personal credit to itself from each of the citizens... If you haven't agreed that anything is owed why should this issuance have been assumed?
So then personal credit is a way to enable individuals to get into debt with each other without introducing the currency of the State.
The value of personal credit would be based on nothing more than the "full faith and credit" of the issuer... the holder would trust that it is worth something because it is worth something to the issuer and they can be relied on to act in a way to preserve the value of the credit. This happens in a similar way to someone who is anxious to maintain a good reputation among colleagues.
If we imagine two friends, Alice and Bob decide that they like and trust each other they may decide to reinforce that bond by issuing to one-another their own credit. If we assume for the moment that the exchange rate is roughly parity, Alice would issue Bob with ten "Alice credits" and vice versa.
They would now be in each other's debt.
How would this work? Imagine a few days later Alice decides that she would prefer to eat out that night, rather than to cook for herself. She goes to a restaurant and offers to pay for the meal with "Bob credits". The restaurant inspects the Bob credits and confirms they are a credit they are willing to accept (more on this later...). So now Alice has a full stomach and the restaurant has Bob credits. A few days later, the restaurant might give Bob a call and see if he is willing to come in later in the week and wash a few dishes to get his credit back.
They might haggle on the price of the credit, but eventually when Bob has done sufficient work for the restaurant his credit can be redeemed. Now only the credit of Alice is in circulation.
So why then would the restaurant know to recognise Bob's credit? Every person and every business would have a suite of credits (currencies) which are recognised by them. Their bank account would consist of multiple sub-accounts for each of the currencies that they accept. If a currency becomes prevalent in the locality and they do not accept it they would consider adding it to their roster of recognised currencies.
So what happens if we want to use a currency which is not widely recognised in the locality in which we find ourselves? Very simply we would exchange it for a currency that does find favour...
Imagine we are about to plan a tourist trip to a foreign place. We know that very few of the currencies that we hold will be recognised, but we happen to know that someone whose currency we hold used to live in the region and still has many friends from there. We approach them and ask if they still have currencies from the time that they were abroad? They confirm that they do and agree to exchange them for our "local" currencies.
This enables someone who is in good standing with a person to trade on their "credit" in a foreign land... it is similar to someone saying "mention my name"... we exchange social standing or status. Previously the foreign vendor (perhaps a hotel owner) would be due a favour from the person who gave their name, now everything is above-board.
So how to issue credit? A person issuing credit would use a bank to facilitate the process. They would inform the bank whenever more credit is issued or if it is bought and sold. Your bank would perhaps allow you to issue credit to a couple of dozen people. For someone to open an account to own your credit would require their (the bank's) approval.
It would be possible for the bank to issue two types of credit: Public and Private... Whoever owns the Public credit would be known to you, your bank would allow you to see who owns this type of credit... The distribution of Private credit would not be known to the issuer of the credit. The issuer, of course would know the absolute amount and perhaps the number of accounts but nothing more.
When distributing Private credit the issuer could have an auction to existing holders, without being informed of the final purchaser.
We use Government money because there is no better alternative... And since there is no wealth behind the money (the Government isn't productive) the State must tax the population to create an artificial demand.
If we could issue our own credits the justification for State money (and hence taxes) would evaporate.
Stocks and shares can be seen as an individual currency but because the demand for fiat is universal (everyone pays taxes) State fiat becomes money (the most commonly-traded good). So shares do operate like private currencies except that they are drowned out by the State.
People could use company shares instead of fiat. They don't because everyone has to pay taxes (a universal burden) which creates the demand for fiat...
http://preview.tinyurl.com/b5lv4c
for the record the BoE doesn't so much "supply the economy with money" as use violence to force all competing forms of money out of the market place.
So in this way the Government uses violence to force competing currencies out of the marketplace.
7th February 2009
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