Currency as Debt: A New Theory of Money
Paper Currency
 

My Dear Friend,

Gold and silver coin facilitated stable exchange values until progress intervened. Technology and the industrial age vastly improved both the quantity and delivery of goods and services. The agrarian age ended as the division of labor increased. Production of gold and silver coin no longer kept pace with the creation of goods and services, unbalancing the Supply = Demand equation.

Recall that in a previous letter we saw that for the aggregate society, the equation Supply = Demand may be functionally rewritten from the definitions as:

(Volume of Goods and Services)×(Price) = (Desire)×(Volume of Currency)×(Rate of Circulation)

With the coming of the industrial age, reductions in the volume of currency relative to the increase in volume of goods and services inevitability resulted in price deflation.

Technical improvements allowed manufacturers and providers of services some reduction in their production costs, allowing them to lower prices while maintaining output and adequate profits. However, industrial expansion soon outpaced the available volume of currency. Faced with shrinking profits, suppliers reduced production. As in colonial days, this led to a public cry for help. People began looking for ways to provide for a more elastic currency. Paper currency and more emphasis on monetizing debt seemed an obvious solution.

Unlike gold and silver, paper currency is inexpensive to produce providing the paper an exchange value far in excess of its production cost. That is why using paper as currency is potentially dangerous. Not evil, just potentially dangerous. When created out of thin air and backed by no goods and services, the creators and first users of the new paper currency literally hold the wealth of the nation at their disposal. Remember, currency is not wealth, but grease to enable the wheels of trade and commerce to turn efficiently. Wealth is realized in actual goods and services, not currency.

A currency system is, or at least should be, a public utility serving all the people, not just a select few. The creation of currency should be a public function and, through natural law, its volume related to the volume of goods and services produced by society.

Because a currency system is rightfully a public utility in service of all the people, ensuring that the exchange value of a currency never changes should be the one and only monetary goal of a society. Markets might adequately control the output of goods and services, but prices remain stable only when the corresponding volume of currency is adequately controlled.

With a constant exchange value, people who hold currency in their pockets, under the mattress, or in a bank, are all assured that the value of future exchanges of wealth are preserved. Such a goal secures the integrity of contracts, secures the value of wealth, and secures the general wealth of the society. Not only should the value of a ham sandwich today be relatively the same in 20 years, for those retiring on a fixed income that exchange value is critical.

Can paper be safely and morally used as a currency? Maybe. The trick is controlling the volume of paper currency in circulation in proportion to the available volume of goods and services.

No mechanism exists today to forcibly control the rate of creating new paper currency. Currently, only policy controls the volume of currency in circulation and that policy finds a slight inflation politically expedient.

A person can trace this policy to the Great Depression. The roaring Twenties was an era of irrational financial speculation and credit expansion. The Federal Reserve System Board of Governors eventually reacted by clamping down on credit, forcing the volume of currency in circulation to lag behind the volume of goods and services produced. This negative phase angle in the Supply = Demand equation caused currency deflation. The Fed never eased up on this move and currency became scarce. The result was more than ten years of economic depression. To avoid making the same mistake again, today’s policy requires a positive phase angle, that is, a continuous slight currency inflation.

The U.S. Treasury could issue paper currency just as easily as the Federal Reserve System. Doing so would at least eliminate public payments of interest to private bankers for the use of a currency system which the public already owns. Not paying interest does not stop the overhead associated with printing currency, but is a move toward a more efficient system and a move toward truly viewing the nation’s currency system as a public utility.

However, governments with the power to print and issue new paper currency invariably misuse that power. When governments nationalize paper currency, and there are no controls to restrict the government from printing currency at whim, creating more currency to fund projects is easy to do. Unless goods and services back such currency creation, such antics destabilize the exchange value of currency. Manipulating the exchange value destroys the future return the currency holder originally expected.

The National Economic Stabilization and Recovery Act, NESARA, offers a plan with adequate controls to regulate the nation’s currency system. Under NESARA, Congressional ability to issue new paper currency is severely restricted by a newly created and largely independent Treasury Reserve Board. Furthermore, the bill provides for a new Treasury Reserve Account, under the exclusive control of the new Treasury Reserve Board, as a powerful new tool which acts as a shock absorber to regulate the volume of currency in circulation. Lastly, the bill provides an Exchange Index to help monitor the quantity of currency in circulation.

I believe passage of this new legislation will firmly establish ownership of the nation’s currency system in the hands of the American people and greatly promote their well being.

With all due regard and affection,

Your friend
 

Editor’s Note:

To better understand the concept that the currency represents unclaimed wealth, please read Back to Basics—The Nature of Money.

To understand how NESARA restores the national currency to being a true public utility, please read the following portions of the bill:

• Part I. Banking and Monetary Reform, Section 2 Findings
• Part I. Banking and Monetary Reform, Section 3 Congressional Control Of The United States Monetary System

To understand how NESARA establishes honest and moral characteristics for the national currency, please read Part I. Banking and Monetary Reform, Section 4 Provisions For United States Currency (Note: Section 4B, the characteristics necessary for Congress to lawfully define United States Treasury credit-notes).

To understand how NESARA maintains stable purchasing power and maintains a stable exchange value of all currencies in circulation, please read Part I. Banking and Monetary Reform, Section 9 Regulation Of The Exchange Value Of Treasury Credit-Notes.

To understand the implications of restoring the national currency to being a public utility, please visit the What’s In It For Me? section.
 

Pelatiah Webster, 1791, commenting on the inflation and depreciation caused by the paper Continental currency.