Friday 19 June 2015

The false equality between commodity-money and Fiat System


By Daniele Pace*


In dealing with this topic we must first do a premise of clarification on the current conception of the Fiat System by those who hold power: the banking system.
Despite the Fiat System is based on a trust structure by the nominal value, the banking system continues to think this kind of money, in relation to inflation, as if it was a commodity money of medieval style, based on the intrinsic value, thus fuelling among economists, the belief that the currency might inflate itself depending on its quantity. The intrinsic value of gold from centuries past is now replaced by the trust, according to the governor Draghi[1], and it hold up the value of money. In this specific the problem is still different from what is discussed in the previous chapter.[2]

Until recently, you could read on the website of the Bank of Italy as in the past the erosion of the precious metal in the coins in order to profit affected inflation, decreasing the value of each individual issue. Today this misinterpretation of inflation due to the erosion of the metal is less and less "publicized", as to be gone from the websites of many official banks.
This example of the erosion of the metal in relation to inflation, very popular before the crisis, certainly tended to the confusion between the value of one currency and the index of consumer prices, and to justify the existence of a central body predisposed to a strong control on inflation as the Deutsche Bundesbank style.

In fact, in historical reconstructions reported in several texts, including my The Utopian Money, is revealed as the currency in the past it had been issued in its value in two separate criteria, the one that had a nominal value, and another that had an intrinsic value.
The first currency was the Aristotelian numisma, in which the value was determined by law and made many times more that intrinsic, so that was not the metal to determine it, but the law of the state.
The second currency was instead the commodity-money largely used when the concept of numisma was forgotten and the value of the coins was determined by the weight of the metal. These were the first currencies of the Eastern concept, used in the West until the various reforms based on the Aristotelian concept of the measure of value, adopted in Rome for a long time and abandoned with the fall of the Empire. In this regard, much has been said about the responsibility that had the emperors in decreasing the metal content of their money, but in reality, being these of value established by law, the reduction in the quantity of the metal had no impact on the coinage, and as well on inflation that has no ties to the money supply. The real monetary problem of the late empire was the monetary crunch and not the reduction of the metal content.

Economists today have not yet been able to give a definition of money but only to determine the characteristics. Definitions however are very different from each other depending on the economic current of reference, although the introduction of the Euro would have to provide valid information to define the real nature of money. Economists instead seem stuck on concepts that do not consider the social and legal aspects that modern money brings, aspects very well detailed instead by Professor Auriti at the University of Teramo.
The introduction of the Euro, by means of a law, in no way encouraged the academics of the Faculty of Economics, closed in their economic principles influenced by Anglo-Saxon literature that by its nature can not, in the case of the economy, to include social concepts and legal in these studies.
So the understanding of modern money, that currency which economists would able to inflate with increasing the money supply, remained at concepts conceived during the regimes of Gold Standard and commodity money, thus excluding the conventional currency established by law, the same law that, with a stroke of the pen, has seen the birth of the Euro. The jurisprudence has established, but in this case it is more appropriate to say “imposed”, the Convention-Euro currency.
The question is: may a convention inflate itself?
What is the difference between numisma-money in antiquity, the gold of the following centuries, and today's currency Fiat trust, and what its relationship with inflation?

We can say that the numisma-money and the modern Fiat money are created by law, without any relation to the material that depicts the symbol, while the commodity-money gold had a behaviour absolutely equal to any goods with fluctuating value.
While in the numisma-money the metal was only the media to represent the value, as is the paper and the digital number of the computer in the modern Fiat money, in that golden the metal was the intrinsic value of the coin. So this can only be regarded as a commodity, while the other two currencies are laid down in the value of the law that creates a convention. The legal agreement can not be subject to inflation and the fundamental error of the economists, past and current, was to define money as a commodity, as well as today continues to discuss the banking system. This is in the case of inflation than in the loan interest.
But as now revealed with the introduction of the Fiat system, and how exposed two millennia ago by Aristotle, the currency can not be a commodity, but only a convention to be set by law, the Aristotelian nomos completed in thought by Giacinto Auriti.[3]
Here then is the fundamental error in the approach to money is still perpetrated in using primarily economic models designed during the Gold Standard, now superseded by a new monetary model, and secondly by treating money as if it was a commodity and not a social convention whose value and the creation of which are established by law.

Money can not be a commodity even if there are similarities of form. As to the substance, but particularly his creation, there are mechanisms and processes not only different, but also belong to fields which have nothing to do with each other.
The similarities of form are in the possibility of exchange, in the measurement of a value and use-value, but the creation of the goods and the money come in and follow processes, one material, the other spiritual, which between they are not associated.
The commodity is an economic good, natural or processed, exchangeable for other goods, which has need of an economic business-cycle related to a time and a real working production and use value.
Even natural goods need time and resources. The wood for example needs the growth of the tree and the assimilation of nutrients, that is labour and natural energy. The oil needs of chemical processes and times geologically large. Any material good produced by man needs a production cycle equally to the natural cycles of the earth.
The modern money on the contrary, is yes exchangeable for goods and has a use-value being a medium of exchange, but it does not need of economic business-cycles that employ time and work because it is time, spirit and Convention, that is jurisprudence. It has no value as a primary human need and not as an expression of human work, but as an expression of social convention, which does not require "labour" but legal rule. Money can not be a commodity as it lacks to capture the specific use-value that characterise a good. It has a purchasing power, which is its use-value, the expected timing of its use as a medium of exchange and measure of the value in the exchange. But it is convention as it is not the material element to confer it, but the social convention, the agreement between the parties, now imposed by law, that it has that value. To exist today, as it was in the times of numisma, only it needs the social convention, sets, or consensual. Paper and ink, then spirit and law. The material that represents the value does not matter, and therefore the economic business-cycle from which is made, when there is a convention, as such as today the money is created for 90 percent, by computerized records intangible.
It is therefore a social creation of value over time, stable and shared, which has an instrumental function, created by the human spirit, the creative mind, thus made simply the law. There is not an economic business-cycle, there is not material or work.

The difference with the goods in the process of money creation is evident. This despite having a utilitarian use in the exchange, it has not the consumption / enjoyment "classic" proper of goods. A social convention imposed or consensual, created by the mind and / or the law can not inflate itself in any way, and its value is determined arbitrarily and not according to the alleged "natural laws".
In fact its behaviour in the circulation is completely different from any other commodity.[4]
The modern economy would like a relationship between money supply and inflation, apparently as in the case of an erosion of the metal, not coincidentally making reference time ago on the website of the Bank of Italy. Today this reference has disappeared but it remains a kind of track when you try to tie the modern conventional currency to inflation.
A note or a digital writing however, can not diminish their value as this is conventionally written. They can certainly buy less goods than in the past, but as a result of higher prices and not to the reduction of their value, which remains fixed.
This fixed value will be highlighted in the continuation of this work with the dissertation on the Fisher equation in which you would like to demonstrate a relationship between inflation and money supply[5]. For now it is sufficient to break the causal and direct link between the increase in the money supply and inflation that the equation would like to demonstrate and that the agreement imposed by the state already denies it being invariable.
The money in fact in the past it was accepted as customary, defined then as legal induced value by Professor Auriti[3], that the state converts in Convention through law. Once granted that a single banknote, and today a digital number, has a determined value X, this can not be modified because the sum of the banknotes, or of digital numbers, varies. This will necessarily be the sum of the values of X, which remain constant as the value of a banknote, which remains a legal certificate for all purposes, not variable, as well as the digital number of computer with which it dispenses bank credit, that is the promise to request monetary liquidity in the same species from the bank.

Extract from: The Fruiterer Conspiracy

*Daniele Pace - Writer and independent researcher - Author of The Fruiterer Conspiracy and The Utopian Money



[1] Archive of the Bank of Italy, The culture of monetary stability Unit today. Speech by Mario Draghi, April 4, 2001 (http://www.bancaditalia.it/interventi/integov/2011/draghi-040411/Inaugurazione_Mostra_04_04_2001.pdf )
[2] Price inflation and currency devaluation, pag. 14
[3] The utopian country, Giacinto Auriti, free PDF, (http://www.signoraggio.com/auriti/ilpaesedellutopia_auriti.pdf)
[4] Pre-existence of V and T in the exchange: Store of Value and circulation, pag. 61

[5] PART THREE, pag. 39

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