CCCXX – Inflation

Ed Feser has an interesting article up about Economic and Linguistic Inflation. It’s mostly about linguistic inflation but it begins with a point about economic inflation. Here’s the beginning of Feser’s article:

F. A. Hayek’s classic paper “The Use of Knowledge in Society” famously argued that prices generated in a market economy function to transmit information that economic actors could not otherwise gather or make efficient use of.  For example, the price of an orange will reflect a wide variety of factors – an increase in demand for orange juice in one part of the country, a smaller orange crop than usual in another part, changes in transportation costs, and so on – that no one person has knowledge of.  Individual economic actors need only adjust their behavior in light of price changes (economizing, investing in an orange juice company, or whatever their particular circumstances make rational) in order to ensure that resources are used efficiently, without any central planner having to direct them.

Inflation disrupts this system.  As Milton and Rose Friedman summarize the problem in chapter 1 of their book Free to Choose:

One of the major adverse effects of erratic inflation is the introduction of static, as it were, into the transmission of information through prices.  If the price of wood goes up, for example, producers of wood cannot know whether that is because inflation is raising all prices or because wood is now in greater demand or lower supply relative to other products than it was before the price hike.  The information that is important for the organization of production is primarily about relative prices – the price of one item compared with the price of another.  High inflation, and particularly highly variable inflation, drowns that information in meaningless static. (pp. 17-18)

We have the tools to solve this problem! There’s two points worth making:

• What inflation is & what information it conveys
• What information is conveyed in any price whatsoever?

Let’s start with the second question first, because I like thinking backwards.

What’s In A Price? A Rose By Any Other Name Would Cost Twice As Much

I will make two mutually counterintuitive claims about Price. First: Price contains perfect information about the world at the moment of every transaction. Second: Price contains imperfect information about the market because it simulates but does not convey an expression of value.

Price contains perfect information about the world at a moment in time because of the equilibrium it achieves between supply and demand. If we are talking about oranges, the supply side of the market equation includes the substitutes and replacements, the derivative products and trades–every possible orange and every possible thing like oranges is represented by perfect knowledge of the supply side of the market. The demand side of the market equation includes every person for whom it is possible to buy oranges, every person for whom it is not possible, every currency they can buy it in, every conceivable purpose for oranges, and every conceivable derivative product from oranges. In short: the price of oranges includes who is supplying oranges and who is not. It includes who demands oranges and who does not. Every price includes this information, because if demand was infinite price would be infinite too. A market cannot just be an expression of who wants something, it has to factor in who doesn’t want it, and why. I am not in the market for oranges at this very moment because I ate grapes a few minutes ago. That decision is included in the price of oranges. If two minutes from now I get an idea for a way to make unlimited clean energy out of orange peels then two minutes from now my demand for oranges will increase dramatically, and that will affect the price of oranges.

(Kristor wrote an article and made this point in the comments, or i made this point, or I was learning it from him–anyway I can’t find it on the Orthosphere yet but I will link here if I can find it).

There’s a whole other side to this equation, that does not get a lot of consideration. What can oranges be exchanged for? This is a good point to pivot into inflation.

Inflation Makes Me Want To Blow Up

Inflation typically refers to the increase in prices of goods due to an increase in the money supply. Typically, inflation is treated like weather–it is a thing that happens to economies, and it is hard to predict. Inflation is a quality of markets. In fact, a more sensible way of discussing economic inflation would be an increase of supply for a resource available for barter. Remember the Zippy rule: All exchange is barter. So what makes it that I am willing to trade a sack of oranges for a few sheets of paper?

The core of this idea is the fact that the paper represents the delegated authority of the sovereign to provide for my needs. The sovereign issues a paper which says “I would buy this citizen one dollar’s worth of goods, but I cannot, so I trust this citizen to buy it for himself.” When the sovereign issues a LOT of these papers, they become worth less and less in barter. If the total economy is just me and my friend Joe the Orange Seller, and our total savings is $10,000 between us, and I go and offer to buy one orange from Joe for $10–that is a substantial amount of the total economy being spent on this one transaction.

If Joe the Orange Seller and I have a sum total savings of $10,000,000 between us, and I offer $10, that is less substantial of an investment. The sovereign needs to carefully manage the money supply or else there will be an over abundance of the resource. This makes sense if we were to use another resource.

If where I live, Guinea Pig husbandry is rare, then offering Joe a Guinea Pig in exchange for an orange would be a pretty big deal. If where I live there is an infestation of Guinea Pigs and they have become a pest, such that you cannot walk outside without stepping on one, then offering Joe a Guinea Pig would be a joke–he could step outside and fill a basket with guinea pigs right now, for free–why would he give me an orange for one?

Managing money as a resource is the key. Price is the twofold equilibrium between the supply and demand of the product being sold and the thing being traded for it.

This means you should be able to make a model for price that includes the supply and demand of oranges and the supply and demand of barterable resources and set the price in [resource] for oranges given both. I’m imagining two intersecting graphs with supply and demand on it and price being the point at which both graphs are in mutual equilibrium.

Price as twofold equilibrium is the new idea for me. Maybe economists realized this a long time ago but I’ve just realized it so I will probably write more on this topic.

AMDG

CCCXVI – The World’s Big Bath

I was talking to Hambone about something unrelated and he made a remark which would probably sound shocking to the uninitiated or the uncynical. Hambone and I went to undergrad together and become acquainted due to being in many of the same classes together. We then briefly worked at the same auditing firm together, before parting professional ways. So for context, both Hambone and I are accountants.

“As accountants, we should know that the numbers are all [garbage] anyway. It’s all grift.”

Be very cautious if you take up this line of thought. Many people wield it imprecisely–you might be tempted to think that “Corporations make up numbers”, which they do not. That’s the great thing about accounting: None of the numbers are made up. The numbers are all accurate inputs into an algorithm that churns out results that match expectations. The Accounting Algorithm can only do so much, it cannot make a bad company look profitable, but it can exaggerate mediocre times or mask exceptional times. Corporations do this for a variety of reasons. Auditors exist to make sure that the Accounting Algorithm doesn’t produce results that are too dramatically different from the real inputs, and in many cases are just looking to make sure that this year doesn’t look too different from last year. When times are good, this process works great. When times are bad, they tend to be REALLY bad, and take auditing firms down with them.

The headline that stirred up this line of thought in me was this one, from my Ukraine War source: “World Bank Warns of Global Recession“ caused by the war in Ukraine.

There is an illegal accounting technique–a technique that has been forbidden from Accounting Algorithms–called the Big Bath. The Big Bath is when a firm takes all of their losses all at once, so that the rest of the year looks good by comparison. “Man, there was a hurricane so Q3 Earnings were terrible, but look, Q4 showed huge growth year-over-year!”

There are signs that corporations are already contemplating this. I saw a headline somewhere that said a certain company was forecasting low earnings for Q1 reporting since the war in Ukraine began in February. Other tech firms have been committing layoffs. The sanctions have disconnected Russia from the global economic order and many corporations are terminating their operations there.

There is a discrete and definite impact of all of this on the individual firms and on the economy writ large. But if everyone starts reaching for the excuse “But the War in Russia!” then a Global Recession becomes more than just likely, but becomes certain.

This applies to more than just corporations too, it’s important to note. Governments control the levers of their economies. Debt and taxation have risen to terrible and drastic heights, and being able to take a “Big Bath” in the form of an economic collapse–and being able to blame it on Russia— probably looks like an appealing prospect.

Down that road leads war, unless some other path is taken. A global scale economic collapse with Russia as the scapegoat would create cultural animosity that can’t help but explode. I pray this is not the outcome, but it is hard for me to claim that it is something our politicians would not do even with full knowledge of the consequences of their actions.

The good news is that if we do undertake a global economic reset, there will be no bailouts because there will be no global economic system to rescue anyone. We will be forced to have an economy based on productivity and value, at least for a while–and only the productive and valuable will keep the economic dynamo running. It will be a healthy thing to drain the bad economic humors. We just have to make sure that what replaces it isn’t the same thing we had before.

AMDG

CCCXV – Debt Forgiveness

I have been watching Joe Biden navigate the political waters around debt forgiveness with mixed feelings. On the one hand, I would be a beneficiary because I have a student loan and to be able to not have to pay it back would be an incredible boon–it is a rational economic decision to favor debt forgiveness. But on the other hand, it is an insane solution to an insane problem.

Debt forgiveness, in general, is an ancient practice. In the Roman Republic, the poor would periodically find themselves saddled with multi-generational debts–debts that ones children and grandchildren would be on the hook to pay back. The holders of this debt, the rich, would get richer and richer and hold more and more multi-generational debts. Debt abolition would periodically reset the slate, though it was obviously unpopular with the rich, it would create great favor with the voting poor.

In a strict accounting sense, debt forgiveness seeks to clear your balance sheet of a liability and clear the holders balance sheet of a receivable. This could be accomplished through cash payments–the government pays your debt. This creates the problem of a high money supply and inflation, because the debt problem has been solved by flooding the economy with cash. Another way this could be accomplished is through magic: the receivable disappears and the liability disappears and we call it even. This has the effect of giving you whatever you bought with the loan for free, and this has the effect of harming the lender who is not compensated for your purchase on credit. This obviously disproportionately benefits borrowers and harms lenders.

The problem this is intending to solve is the “Student Loan Crisis”. There are billions (if not trillions) of dollars of student loan debt outstanding right now. This problem did not just happen. Student loans were nationalized, which means the United States Government is the primary holder or guarantor of most student loans. This had the effect of telling academia that student loans were a gamble it is impossible to lose: Students can borrow whatever they want, and the government is backing it up. What is more: because the government is backing these student loans, they are not dischargeable in bankruptcy. There is no way students can avoid paying back these loans, and there is no way academia can not get paid. The rational economic decision at this point is to gradually ratchet up tuition to maximize guaranteed earnings. Academia became about maximizing enrollments and not maximizing productively employed graduates. The financial incentives were off.

Compounding this problem is modern conceptions of Usury. Full recourse lending means that students livelihoods were on the hook–the fact that the debts were not dischargeable in bankruptcy meant that these were multi-generational debts–debt holders can go after your earnings, your car, your job. The debts are unsecured with collateral so everything that you are secures the loan. These are the reasons the problem itself is insane.

The solution is insane because it fails to solve the problem, but much like the ancient Roman Republic simply resets the slate, hurts lenders and benefits borrowers, and allows the clock to reset and resume counting down for the next time debt explodes to unreasonable proportions and needs to be reset. No systematic or structural changes are made, only superficial ones. It will benefit the borrowers but will not require any new moral standards in our economy.

AMDG

CCXCIX – The Global Order Will End

In a previous article I took it as a given that the global economy will collapse at some point in the future. I didn’t expand on this, it’s just one of those assumptions I’ve always held to be true and never really thought about. Well, I’ve been thinking about it a lot lately. And now that I think of it just now, we have all the pieces already to understand why.

Remember: Markets Are Rational and Efficient

Markets are efficient. To reiterate from the linked article: they are efficient in that whatever someone desires can and will be satisfied by the market. That is to say: Markets exist to satisfy the “public like”–things society enjoys and approves of, whether or not it is good for them. People make rational economic decisions–economists like to refer to homo economicus as the modern rational economic decision making man. This is true on larger scales as well. Corporations will make rational economic decisions–look at tax havens for proof of that. There was a lot of bluster over Trump’s bankruptcy’s when all he was doing was making rational economic decisions to support his business. Was it good and moral? Maybe not. Was it legal? Yes. Was it profitable? Definitely. Countries behave this way too. Some countries structure their tax laws for the express purpose of attracting foreign corporations. Countries structure their foreign policy to protect their economic interests. Countries make rational economic decisions: not necessarily good and moral decisions, but rational decisions given the economic landscape.

Remember: Money is a Resource

Money is a resource used to conduct exchanges in the name of the sovereign to supply oneself with ones needs. The denomination of currency tells you who the sovereign is. Who receives the money tells you who is subject to the sovereign. What they use it for tells you what they need the most. NATO is a recent example I’ve discussed: We pay for their military defense, so in a certain sense America is their sovereign. This works the same way for the EU: If they operate in Euro denominated currency, they are transacting in the name of the sovereign, which is not their own. Once people decide what kind of currency they are going to use to make exchanges, they make rational economic decisions to maximize their stockpiles of currency–or property received through exchanging that currency.

Remember: The Combination of Scarcity and Demand is What Makes Currency Worth Something

There must be a limited supply of a thing for it to function as currency, and people must want that thing for it to function as currency. When there is a lot of currency around, people don’t really want it so the value of it goes down–which makes things cost more. When there is no currency around, people really want it and so the value goes up, which makes things cost less. If you are a jerk, no one will want currency issued by you. If you are not a jerk, people will be interested in currency issued by you.

And So:

America is suffering from currency inflation right now due to COVID. That means that it has a lot of currency out there, issued in the name of the sovereign, so it is not very valuable and prices are up. There are a lot of subjects to the American sovereign as well, in the form of foreign nationals who receive our currency and use it to provide necessities for themselves, namely defense and foreign aid.

The Global Order and the Global Economy will end when A) No one believes the US will protect it’s economic subjects; B) When the US Dollar is no longer valuable as a means of exchange and/or is not able to provide for defense anymore; and/or C) When some alternative to US Hegemony becomes more profitable and rational economic behavior pivots away from the US.

That’s the thesis: The Global Economic Order isn’t really the Global Economic Order–it is America’s Economic Order. And America’s economic order is not designed intentionally, so it is fragile. It is being sustained by the citizens of America, and being exported around the world. It will inevitably collapse because there is a maximum limit that the American population can support. When we reach that, only those who are disconnected from the American Economic Order will be unaffected.

Think about who is on that list.

AMDG

CCLXXXIX – The Morality of Saving

My last article accidentally opened a window into a very confusing area of financial morality, and this area was rapidly and ably pounced upon by DavidtheBarbarian and Tenetur.

The thesis of that article is that the ideal money supply is such that an arbitrary population, after an arbitrary period of time, will have all their needs met and no money in reserve.

As David points out, there are very prudent reasons why one might want money in reserve–emergencies, insurance, long term future planning, and things like that. If we allow for that, then the money supply is not zero after some arbitrary period.

There are two approaches I can take to answer this. In the first, I could double down on the hard teaching, ignoring for a moment practical reality. In the second, I could refine my argument and try to determine what money supply is truly ideal.

The important question to both is this: How much should we worry about the future? The double-down response is “Not at all”; the refining response is “Some arbitrary amount”. We cannot go to the opposite extreme and say “Worrying about the future should be our sole focus” because then we fail to allow for any activity in the present.

The two possible responses seem to me to be mutually exclusive. I note in my previous article that the double-down approach should be undertaken prayerfully and under spiritual direction. But to a certain extent, so should the practice of saving. So should everything. If you are a parent with children, you could not neglect to plan for their future.

I think an error I made in the comments is to suppose that surplus ought to be given away instead of saved–as if that were the only alternative. Surplus ought to be committed to some purpose.

Imagine this: I chop down a tree. It gives me two cords of firewood–it was a big tree. If I am living for today, I will take the logs I need to keep my house warm tonight, and give the rest away to my neighbors. It is easy to imagine that I might need firewood for tomorrow too, and you can’t expect that I would chop down another tree only to take one part of the wood and give away the rest.

No, I would pick some arbitrary amount that would last me for some arbitrary period of time. I might be really concerned about how cold this winter will be, and keep all two cords. I might not be that concerned and keep only one cord. Lets say that it is February and I live in a temperate area and spring is right around the corner, so I make a prudential judgement that I need half a cord to last me to spring. I have 1.5 cords remaining. Ought I give that wood away? I could give some away–maybe my family lives close by, or close friends, I could take care of them. I could host a community bonfire, allow an opportunity for some fellowship. I could take that wood and go have a community bonfire in an area that doesn’t have much availability of wood. I could keep some of the wood and carve it into sculptures or plane it into planks and make furniture.

The point is: once my needs are met, now I can go about satisfying the needs of the community. The individualist utalitarians say that we should either keep all of it for ourselves or take just what we need for tonight. I think a way to reconcile this problem that would be good would be to say that all our resources must have a purpose, and once our needs are met we must see what we can do to satisfy the needs of others. This doesn’t have to be charity–it could be a creative, new use of the resource for which there is some demand. But the use must be towards some good.

Circling back to the question of, what is the ideal money supply. In a utalitarian world, the ideal money supply would be whatever amount results in needs being met and balances being zero after some arbitrary period of time. If we allow for future planning and provision of public goods to ourselves, our family, our friends, and neighbors–then there is no upper bound.

In fact–and this may be opening the door to a whole new line of thought–the money supply has two varieties, potential and kinetic money. Money that is being saved is potential, and has no limit. Money that is being used is kinetic, and must always be zero after some period of time. Money flows from the sovereign, is used actively until it ends up in someones savings. Money flows from Kinetic to potential, in other words.

In a Christian nation, a high level of money-wealth that has been built up means society gradually improves because it is implicitly being leveraged for the public good. In a selfish nation, a high level of money wealth that has been built up means social stratification occurs, because a few people are stockpiling sovereign money and so more sovereign money needs to be issued to meet the needs of the poor.

That is an interesting thought.

AMDG

CCLXXXVIII – The Ideal Money Supply

Authors Note: I went back and forth on whether to publish this. It is a half formed thought without a strong justification, but I think the core idea is sound and I would be interested in feedback from readers, so ultimately that is why I am posting this. Please let me know what you think!

I have asserted that money is the delegated authority of the sovereign to provide for our necessities. Providing for our necessities is a responsibility of the Sovereign, as head of state, analogous to head of household. Because the purpose of money is to provide what we need, and the source of money is the sovereign, and the exchange rate for money is dependent upon the amount of money in circulation, we can use these ideas to estimate the ideal money supply.

Lets create a scenario that is extremely simple. King Alfred is King of a nation with one subject, and that subject is Bob the Peasant. Bob the Peasant works for King Alfred as his gardener, and Alfred gives Bob a wage for his work. Bob’s only need is bread, so the King pays him in loaves of bread–one loaf per week. The money supply in this scenario is zero, and everyone’s needs are met.

If King Alfred did not have a ready supply of Bread, then Alfred could pay Bob a wage of 1 Alfranc per week, which is enough for Bob to buy a loaf of bread from another supplier. The supplier receives the money, and pays a tax since they have no other needs, and the Alfranc returns to King Alfred. Money supply is zero, everyone’s needs are met.

We can keep growing this scenario ad infinitum. The principle I wanted to hammer home is that the ideal money supply is, after some arbitrary period, that the money in circulation is zero, and everyone’s needs have been met. Property is real “wealth”, not money. A surplus of money means you have satisfied all your needs and are able to provide for much of your future needs. A deficit of money means you have not satisfied all your needs, you need more to bring everything home. A balance of zero money means you have satisfied all your needs and you have no provision for future needs.

Some might call that short sighted, others might call that abandonment to divine providence.

This is not investment advice: You need savings to live in the modern world, and if you are going to give up all your possessions and abandon yourself to divine providence, do so under intense prayer and the supervision of a spiritual director. It can be exceedingly fruitful to do: Matthew 19:21-23

What I think would be a good takeaway from this is that real wealth exists in real property, and real financial security comes from having a means of providing for your needs and preserving your real property. If all your bills are paid and you have no money in the bank, you are satisfied–you have everything you need.

AMDG

CCLXXXVI – Currency and Taxation

Let’s return to the ideas surrounding currency, sovereignty, and taxation. I believe Taxation was one of the open questions from my last thought-sprint on the topic, but I had to step away for a while to let the seeds of thought germinate and allow the spiritual focus of this blog some elbow-room. So lets see what thoughts remain after some time away!

The question at hand is what is taxation. Zippy, again, referred to currency as Tax vouchers because he didn’t have a model of currency or taxation that fit closely. For his purposes it worked, because he framed a lot of his thinking in terms of contracts and titles to real property. I feel fairly confident in my description of currency as delegated authority of the sovereign, so that influences what taxation is.

In one of my articles, I take this glancing blow at answering the question: Sacrifice (or, Worship generally) is the practice of giving back to God the things that are Gods, so taxation is giving back to Caesar the things that are Caesars. But why do we owe anything to Caesar at all?

First, we have to accept that taxation is a morally permissible act, and indeed one aspect of the sovereign duty to care for his subjects. The basic idea is that when the sovereign has some goal to be undertaken for the good of the state and his subjects–be it war, infrastructure, bureaucratic reform, anything–it requires people and resources to accomplish. A Draft is a sovereign levy of personnel; a tax is a sovereign levy of property. A tax is a sovereign levy of actual property–any currency received is provided in lieu of the property needed by the sovereign. Sometimes it might be food, so the sovereign requisitions grain. Absent grain, some amount of dollars will do. This is because dollars represent future property which can be purchased with the sovereigns authority to provide for necessities.

In a previous draft of this article, at this point I went in to talk about all the different kinds of tax systems–but I think that is a moot point. The underlying principle of taxation is sound. How taxation is implemented might be just or unjust in type, amount, or character. In democracies, taxation tends to be unjust because of the inherent flaws in absence of a true sovereign.

If we accept the premise that all ownership is derived from the Sovereign, then really all taxation is, is recalling property which was delegated to the people from the sovereign in the first place. And the people have a duty to provide it, the same way there is a duty to comply with a draft if one is implemented.

“But Scoot, what about private property? Isn’t that Natural Law?”

You’re right–private ownership is an element of natural law. But this concept of taxation doesn’t abrogate that. Private ownership is a kind of authority and that authority flows from God through the sovereign to you. That shovel is yours, you and the shovel are the King’s, the King and all his subjects are God’s. No other person can eliminate your claim on that shovel, but the King can requisition it for a higher purpose to which you owe a duty out of filial love if not obedience.

I think that is the last point which remains to be made clear, and I might write about in more detail later on, disambiguating ownership, authority, and sovereignty.

AMDG

CCLXXX – What If I’m Wrong?

In my previous three articles on the Sovereign and Property, I treated it as a given that currency is a token of authority delegated from the sovereign. I know this is not the conclusion Zippy came to, so for completeness’ sake I want to explore why that might be and just generally think about ways this whole idea might be a complete waste of time. And so, in no particular order:

NB: Each of these Errors should be taken as an independent argument contra my previous articles and not a combined case.

CCLXX – Render to Caesar the Garbage That is Caesar’s

DavidTheBarbarian’s comment on my previous article is excellent and touches on a lot of points which I noted in my reply to him but which I wanted to expand upon.

First, we need to disambiguate what money is in fact from how it is used. In medieval times, money was made of gold, but it was used to delegate the sovereigns authority to acquire property. Today, money is made of nothing, but is used to delegate the sovereign’s authority to acquire property. The important part of a currency is NOT what it is made of, as evidenced by modern currency being literally nothing. The important part of a currency is that it signifies the sovereign’s authority to acquire property.

This concept coheres with my previous discussion of yap as a unit of value. Anything is only valuable insofar as people want it. Money is the same way. If there was only one coin in the world which bore the sovereigns authority to acquire property, even if it was made of garbage, people would accept a lot of property in exchange for that coin. This is because no exchanges would be possible without it unless they were direct property-to-property exchanges. Exchanges always happen at a yap profit for both parties and sometimes happen at a money profit for one party. If the sovereign printed a trillion such coins, each individual one would not be tradable for very much property.

The important point here is that how much property you can exchange for money is not an intrinsic property of money, but is a consequence of how much money is around. The purpose of the money supply is to facilitate exchanges of property, and the money supply should match the number of exchanges performed by all citizens over the course of a given time period.

Another key point is that as the delegated authority of the sovereign, money properly belongs to the sovereign. When we offer a sacrifice, we are returning to God that which is Gods. When we pay taxes, we are returning to the sovereign that which is the sovereigns. So suddenly, what Christ said in Matthew 22 suddenly makes sense: Render therefore to Caesar the things that are Caesar’s, and render to God the things that are God’s.

Tithing, it’s important to note here, is baptizing the purchasing authority of the sovereign. In other words, it allows the sovereign to satisfy the needs of the Church. Taxes simply give back the Sovereign’s authority; Tithing is committing that authority to the work of the Church.

AMDG

CCLXVIII – Currency as Future Property

I’ve had some time to think about Currency since I wrote this article which included numerous ill-formed thoughts on Zippyist ideas of currency.

I wanted to explore an idea for a moment, tentatively, because it would represent a break with Zippy on what we consider currency. I want to make sure I understand this idea fully before I commit to it, so I’m going to explore it here and once more I’ll invite comment and criticism on the idea.

In my previous article I noted in one graf the thought that currency may represent deferred assets. Deferred assets is not an accounting concept, even though it uses accounting terminology. It describes that currency represents future property–future real assets. I’ve noted elsewhere in a separate discussion that currency is not intrinsically useful. This is kind of what people mean when they say cash is “liquid”: it is easily transferable and functional as a medium of exchange but not useful for anything. Real assets–property of any kind–are “hard” because they are not easily exchanged. I can exchange one dollar for one dollar with perfect ease, but I cannot easily exchange a pack of gum for one dollar, nor can I easily get one dollars worth of other property in exchange for a pack of gum. Real assets are the only things with intrinsic value which is sustained over time.

Why does it make sense to think of currency as future property at all? Especially if we think about it in terms of the government issuing future property?

We have to start by thinking about the true nature of the sovereign. This gets complicated in democracies so lets simplify by thinking about a minute Kingdom. We’ve talked about how all authority is delegated from the sovereign, because the sovereign is the responsible caretaker of his Kingdom. The sovereign is responsible for the national defense, for example, but the sovereign may appoint Generals to discharge this duty in his name. In a way, the sovereign owns his kingdom. Again: not as a dictator or tyrant, but as a responsible caretaker. In ownership, it means the King owns the land of the Kingdom. If a peasant carves out a patch of land for himself, he must buy that land from the King. The King may also fief land to nobles to rule a smaller, more manageably sized chunk of the Kingdom. All of this is a delegation of authority from the sovereign, and not an abrogation of authority. The Peasant has private property, but it is not independent from the domain of the King. Both the peasant qua subject and the land qua property belong to the king, but the peasant is given free exercise of the land insofar as the King respects private property.

The same is true if the peasant chops down a tree. The tree is on land that belongs to the King, but delegated to the Peasant via the purchase of land. The tree is processed and the Peasant carves it into a cart, and goes to buy iron fasteners from the blacksmith. The iron was mined in the kingdom, and so belongs to the King, and was delegated to the owner of the mine, who is a subject of the King, who hired miners (also subjects) who brought out the iron and who sold it to the blacksmith (also a subject) who turned the iron into fasteners which were purchased by the peasant.

Lets cut to the punchline: Currency represents delegated authority to acquire property on behalf of the King. This suddenly makes it appropriate to stamp the Kings image and name on coins–the King is he in whose name an exchange is made.

When the Sovereign issues new coins, he is releasing tokens of his authority to acquire future property. Whether the Sovereign issues new coins to an institutional bank or to the peasants directly doesn’t matter–each coin bears the authority to acquire real property in the name of/on behalf of the King. The King would do all these things himself but he can’t be everywhere at once, authority must be delegated and especially insofar as it pertains to the welfare of the peasants, they know best what they need and so receive delegated authority to buy for themselves food.

Turning our attention now to taxation, in practice this appears to be a kind of rent paid to the sovereign in exchange for bearing his authority to acquire future property. The King delegates authority to the peasant, and the peasant gives some of that authority back. This is simplest (both morally and procedurally) with Sales taxes. The peasant, in the name of the King, acquires some iron fasteners from the blacksmith, and pays a tax that amounts to one coin which he gives to the blacksmith to return promptly to the King. Said another way, the peasant exchanges future property for real property, and some of that future property goes back to the treasury to be used by the state to directly acquire property rather than to do so via delegation.

How can we think about wages? An employer would give you real property if it was liquid but it isn’t, so it gives you these tokens of future property (on behalf of the King) so that you might acquire your own property. Income tax then is a surrender of some authority in proportion to the amount of delegated authority you earned in a given year.

This conception of currency is also congruent with Zippy’s thoughts on profitable interest: If your friend is in need and he borrows some amount of future property from you, the interest is collecting MORE future property than was given.

I think this idea solves some of the challenges of thinking about currency as tax vouchers while retaining Zippy’s moral and financial understanding of currency.

AMDG