Article #95815 (95874 is last):
From: firstname.lastname@example.org (William F. Hummel)
Subject: Money and Inflation
Date: Sun Oct 18 18:32:49 1998
>None of us is truly free of misconceptions about money.
JCT: Speak for yourself and other low-techs. To The Engineer and
other high-techs, money is no more complicated than poker chips with
an interest charge.
>That includes the people at the Fed who run our monetary system.
JCT: It's for sure that there's not a qualified banking systems
engineer in that bunch.
>Money is so many-faceted that one can view it usefully from many
JCT: I'm not sure how to view many-faceted chips from all the
different angles you think you see.
>However it's surprising how many people harbor basic errors in their
>views on money and our monetary system, including simple errors of
JCT: That's because most of those errors are taught in Economics
courses to economists who in turn repeat those errors at large. There
is not one Economics course in the world that has interest-free
banking systems on its curriculum. There is not one that even knows
that there are two possible inflationary shifts though it's not that
hard for normal people once they see it on a graph yet still
impossible for economists even if they do see it on the graph.
>I think a basic misconception about money arises from not
>appreciating the differences between the commodity money system of
>the past and the fiat money system of today.
JCT: Since all money is borrowed into circulation from banks
which insist upon collateral, it is all money backed by commodity even
if some of the commodities are tax payments.
>Even though the days of the gold standard are long past, there is a
>great deal of that era that pervades our thinking. In those days
>money was viewed by most as gold or silver coins and bank notes.
>Credit was a relatively minor issue in the average household. It was
>believed that the money supply was limited and could be counted, at
>least in principle.
>Today, the amount of money in circulation is largely a function of how
>much use is made of bank credit by businesses and consumers, including
>the use of credit cards. And we should now add speculators, since they
>use a significant amount of bank credit. We have various measures of
>the money supply, but there is no practical way in our fractional
>reserve system for the government to directly control the money
JCT: Of course, there is a practical way and that would be to
take back the control from the banking system to which it has been
given. It's just that they've given the control away and claim that
they can't take it back which is untrue.
>Nor is there any guideline that could be used as a meaningful
>target for the proper amount of money.
JCT: Unlike a casino bank or Local Employment-Trading System
local currency where the liquidity is limited on a one-to-one basis to
collateral or time. Of course, they could use such a meaningful way to
target the proper amount of money but they just don't and then teach
that there is no guideline. Yet any casino cashier is given such a
guideline the moment he learns his job.
>Even if we could control the money supply, there no sensible way to
>determine which accounts should be included.
JCT: What is sensible to an economist and what is sensible to an
engineer must certainly differ because casino banks do all the time a
perfect job of what regular banks can't find a sensible way to do at
>They may be used to buy goods and services, to save, to
>invest, or to speculate. Each has its own effect on the economy.
>The old saw that inflation is caused by "too much money chasing too
>few goods" does not apply as it did in the gold rush days. In a fiat
>money system, the money supply, which is mostly bank credit, depends
>on demand for credit, not the abundance of gold. But credit is not
>free, it comes at a price and that results in a self-regulating effect
>on its abundance.
JCT: The demand for interest does a lot more than just self-
regulate the demand for credit. It makes the amount of credit created
less than the debt for credit due. An automated source of poverty and
the cause of inflation.
>The causes of inflationary periods in the past have been quite
>varied, and very seldom were they the result of the government
>"printing" too much money. Yet a great many people still see
>inflation in those simple terms.
JCT: Well, okay. That's what I've been saying. It's not printing
too much money. Still, though you know what it is not, what do you
think that it is?
>We may be full of misconceptions about money, but at least we can all
>learn a little more about how our monetary system works without the
>distractions of ideology. I've tried to shed some light on that
>subject, which you can find it in a series of articles at
>http://people.we.mediaone.net/wfhummel William F. Hummel
JCT: Okay. You tell us what inflation is not but fail to tell us
what inflation is. Looks like I'll have to visit your web site and
find out if you've told us what it is.
JCT: After visiting your web site, I can only say that it is a
lot of information from someone who believes we suffer from inflation
shift A which is too much money chasing the goods. So I can't
recommend anyone spend time on research based on an initially false
From: "Michael L. Coburn" <email@example.com>
Date: Mon Oct 19 13:49:51 1998
>IFF, there is no way to control the amount of money, then, therefore,
>there is no way to control the value of money.
JCT: Try telling that to the casino cashier for whom every chip
has an exactly stated value or to a LETS member for whom every LETS
dollar has an exactly stated time value.
>>In a fiat money system, the money supply, which is mostly bank
>>credit, depends on demand for credit, not the abundance of gold.
>>But credit is not free, it comes at a price and that results in a
>>self-regulating effect on its abundance.
>This statement is not just misleading. It is incorrect.
JCT: Actually, other than using the word "fiat" as if the money
were not backed up by more than a government order when it's actually
backed up by collateral, I don't see anything incorrect in this
>>very seldom were they the result of the government "printing" too
>>much money. Many people still see inflation in those simple terms.
>These people see correctly.
JCT: Here he is correct. Most people do think of inflation in
terms of the Germans pushing wheel-barrows of money to the store after
the first world war.
>Most inflation has been caused by war, as those of wealth seek to
>preserve their stations at the cost of everyone else. Without war, we
>now have asset inflation to accoplish the same thing.
JCT: I wish I knew what you meant by asset inflation because my
Miracle Equation shows that our inflation is caused by interest rates,
>>I've tried to shed some light on that subject, which you can find
>>in a series of articles at
>Mr. Hummel's articles are good. They explain how things work. That
>makes them correct, but it does not justify the current system or make
>that any more right or correct. If I explain how the current system of
>justice works my explanation may be correct. But to incarcerate
>someone for smoking a joint, or getting laid is still wrong.
JCT: If you're saying that he's giving a correct explanation of a
bad system, I'd still have to point out that he has his inflation
From: firstname.lastname@example.org (William F. Hummel)
Date: Mon Oct 19 14:56:03 1998
>An astute observation. There is no way to control the value of money,
>as has been shown throughout the ages. But we always keep trying.
JCT: So they're both agreed that they don't know how to control
the value of their tokens. Luckily they don't work as casino cashiers
or as LETS bankers who do know how to control the value of their
Date: Mon Oct 19 18:10:34 1998
>At what point in history did the word "fiat" become identified with
JCT: That's my point too. It's all bank credit based on
collateral and none of it is "fiat" money. After checking his web
site though, I see that he defines tokens made of instrinsic value as
commodity money and tokens backed with intrinsic value as "fiat"
money. Unfortunately, many people think that "fiat" money is only
backed up by the say-so of the state when it is obvious that bank
credit is backed up by the collateral of borrowers.
>Before, "fiat" money always referred to government printing press
>money not specifically backed by gold or silver, did it not? It was
>issued "by fiat," or on the order and sovereign authority of
>government. Presumably, it derived its value from the government's
>power to tax and enforce legal tender laws.
JCT: But if it's backed up by a tax demand, then it's not fiat,
it's a commodity of tax payment. English tallies were such a "fiat"
"tax-commodity" money and worked for 7 centuries with no problems.
>Other forms of money was previously classified as 1) "hard,"
>"honest" or "commodity" money, i.e., gold and silver coins minted
>by government; 1) representational, such as gold and silver
>certificates issued against actual gold and silver in the vaults of
>the Treasury; or 3) bank credit, issued in the first instance by
>private banks in the form of loans or their equivalent.
>Banks do not extend credit by "fiat," as the word is defined in
>ordinary dictionaries. All such credit is backed by collateral of some
>type supplied by borrowers, and represents debt owed to banks. The
>process was once described as "the organization of debt into
>currency." Currency has largely been supplanted by deposits
>transferred by check.
JCT: All good points.
>Do you see no difference in terms of origin and effect?
>It is Orwellian *newspeak* to call bank credit "fiat."
>I am of the opinion that the right to issue "fiat" money, such as
>greenbacks or their digital equivalent, should be restored to
>government. It should never have been stripped away.
JCT: But as long as there's a demand created for that currency by
new taxes, it's not fair to call it "fiat" which conveys the
impression that it's unbacked.
From: email@example.com (William F. Hummel)
Date: Mon Oct 19 18:40:32 1998
>>At what point in history did the word "fiat" become identified with
JCT: We already suspected that.
>>It is Orwellian *newspeak* to call bank credit "fiat."
>Then why do you connect the two expressions together?
JCT: He's didn't. He's complaining that you did.
a comment to John Turmel