Natural Law and the Theory of Economic System Fluidity provides the theoretical basis for allowing the strengths of each economic system to peacefully work together to achieve this end and examines both the natural laws which govern economics as well as the moral basis for the existence of the nation state.
It is volume VI of the Why what we use as Money Matters series, and perhaps the most important, for it forms the philosophical core of our thesis.
We are pleased to offer it in PDF format for free here to our fellow taxpayers at The Mint, just click on the following link:
Additionally, it can be had for a mere $0.99 over at Amazon’s Kindle store and for free in a myriad of other eBook formats over and at Smashwords.com for the next month. Be sure to use coupon code: WF75E at checkout to receive the discount. The offer is good until May 25th, 2013.
We leave you this Friday with some foor for thoughts on Nature’s struggle from our upcoming eBook. Enjoy!
The natural world strives daily to achieve a perfect state of balance. Events and occurrences that, taken by themselves, appear chaotic and devoid of meaning are part of a grand rebalancing of the earth’s delicate state. These events are the splash of color across an oppressive gray sky that hints at the rainbow that will soon appear.
The natural world exists in a constant state of subtle agitation and violent quakes, yet each ebb and flow in the natural world is the physical expression of a desire to achieve a state that by definition will never be perfected:
Homeostasis, the tendency toward a relatively stable equilibrium between interdependent elements, is all at once a state of being that already exists and one that will never exist, for the natural world’s constant striving towards this state ensures that a perfect balance will never be achieved.
Yet despite the constant struggles in the natural world, the clashes between immovable objects and irresistible forces, the interplay between predator and prey, and the aggregation of slow processes which unite to cause large scale natural spectacles and events, are living proof of the laws that they are governed by, a set of rules that we hold out as natural law.
Mankind, for all of its virtues, has tacitly adopted a large scale delusion with regards to the natural world. The delusion is this, that all of nature’s struggles, interplays, and slow processes can be tamed or manipulated to bring about a constant state of balance in which he can plan, build, and operate with a high degree of certainty.
The widespread belief in this delusion, while seemingly noble and painstakingly practical, has flourished and proliferated under the current monetary system, in which the monetary premium, which is the highest expression of value that can be attributed to a good, has been completely removed from the natural world and is largely attributed to debt instruments, which ultimately rest on nothing more than the well intended promises of men.
Mankind’s day to day activities, which are the result of the choices that each man or woman individually take, often unconsciously, are largely dedicated to obtaining an increased portion of the monetary premium. With this given, it holds that the activities of mankind, to the extent that they succeed in their pursuit of the monetary premium, serve to throw the natural world ever further out of its delicate balance, which in turn gives rise to nature’s need to rebalance itself in order to comply with the immutable natural laws under which it must operate.
This volume, which is the most important and forms the basis for the previous five and all subsequent volumes in the Why what we use as Money Matters series, deals with natural law and mankind’s most suitable response to its many and varied demands, the capitalistic system.
It does so by presenting the ideologic basis of the true capitalistic system, a system rooted in the principles of freedom and private property. It further examines the specific demands of natural law and mankind’s failed response to it, which is the large scale socialist system which is violently forced upon mankind through the mechanism of large scale government. The concept of the large scale socialist system is referred to throughout this volume as a product of the “might makes right,” mentality.
While mankind is a mere forty years into the present monetary experiment in which the monetary premium has been increasingly associated with debt instruments, the effects of the removal of the monetary premium from the natural world are already evident. The consequences are staggering, and are currently manifesting themselves in the natural world through a phenomenon that has been labeled climate change.
The label is woefully misleading, as the climate is not simply changing, rather, the natural world is becoming increasingly unstable as it desperately seeks to balance as the activities of men, which previously worked in relative harmony with nature, with the immutable demands of natural law.
The current debt based monetary system and its tendency towards centralized planning and decision making has not only caused significant imbalances in trade and resource allocation, it is increasingly causing the earth itself to react more and more violently as it alone strives to comply with the demands of natural law.
For mankind, once the earth’s unwitting yet faithful custodian, has become its well meaning adversary. The root of this growing antagonism between man and nature is money, and the only remedy is to return the monetary premium to its rightful place in the natural realm.
For so long as it rests solely on the hopes and dreams of mankind, the power of the monetary premium is in the employ of the most destructive force on the planet.
3D printing has come a long ways, but few imagined it would coincide with the national gun control debate. The technology, on the surface, allows one to create a plastic prototype of nearly anything that will fit into its print area.
While the national gun control debate rages on, these guys are using 3D print technology to great a ban that does not, as of yet, exist. Moral judgments aside, we present it of as an example that control, in this case control over the manufacture of high capacity magazines, is an illusion or delusion, the line between the two is determined by how much control a group of people think they have over another.
Without voluntary compliance, laws are impossible to enforce, and unjust laws are the first to be ignored. We are all subject to natural law, and must answer to it. In the meantime, we imagine that, while a novelty, those who have use for a HI-CAP, most of whom wear a military uniform, will opt to get them from a mass producer.
We are emotionally drained here after Spain’s victory over neighboring Portugal in the Euro 2012 semifinal which took place in the Ukraine. From what we could tell, soveriegn credit quality was not mentioned nor did it have an impact on the match. As such, the correlation between a country’s sovereign credit quality and Euro cup performance is still being tested.
If Germany downs Italy tomorrow, the hypothesis will hold, at least as far as the semifinals are concerned. We are predicting that Spain will disprove the hypothesis in the final and take the cup home.
Yet the Euro 2012, as are the Olympic games, which commence in just one tender month, are large scale distractions from the disease that ails the world and is threatening to rip it apart. Yes, fellow taxpayer, the insane “debt is currency” monetary experiment of the past 40 to 100 years is beginning to disintegrate.
Someday the historians will write about our times and lament: “They used debt as money, and corn as fuel,” or something to that effect.
While modern life is full of such contradictions, there are few with the potential to wreak such havok as the one where debt is forced into the role as money, which is akin to water being forced into service as oil.
But what is so bad about debt based currency? Doesn’t the ability to create money at will buffer everyone from suffering another depression?
On the contrary, the fickle nature of electronically created debts masquerading as money is economic suicide. This demands an explanation that we will not unduely withhold, for it about to burst out of us.
Capitalism is man’s only productive reaction to his Anarchic surroundings. It is inevitable that man would choose an increasingly free and capitalistic society as he gains a deeper understanding of natural law and his rightly understood self interests.
The expansion of the capitalistic system relies upon the division of labor in which men (we include women as we use the term “men” to define all of mankind) increasingly abandon self reliance and begin to trust their fellow men to provide them with life’s essentials.
This process is good, for it inspires and encourages widespread effeciencies in all spheres as man’s natural tendency to economize is rewarded as his actions align with what we refer to as the demands of anarchy and the natural economic law of supply and demand.
While this process is good, it is dependant upon capitalistic principles to operate in all spheres without exception. Any part of the system which succombs to hegemony (what we refer to as ‘Might makes right“) by one party causes all of those who mistakenly rely upon that part of the system to become vulnerable to its collapse.
The hegemonic parts of the system are prone to collapse because their existence is no longer owed to willing participation, but the use of force.
At the risk of oversimplifying a complicated issue, the more an organization encourages willing participation, the more it must adapt to the wants and needs of its clients. The process of adaptation makes the organization extremely strong and stable. It becomes a rock.
A hegemonic system, where organizations rely upon force to maintain thier positions, has already failed, for the organizations cease to adapt in a vain attempt to force others to adapt to them. The organizations in turn become weak and prone to collapse.
The largest hegemonic system operating today is the world’s monetary system, and it is on the verge of collapse. This debt based monetary system is especially dangerous because it has the effect of stimulating economic interdependence in much the same way that a healthy capitalistic system would while at the same time rendering useless or destroying the capital upon which a healthy capitalistic system relies upon to operate.
While the more perceptive members of society see it coming, the inevitable collapse causes the interdepence on which all rely to suddenly cease to operate. The result is chaos and suffering for the unprepared.
While there are many ways to prepare for this, there is only one way to start. It requires large amounts of humility, faith, and courage.
For now is the time to walk humbly with God and others. It is time to step, on the right with faith, which is provided by God, and the left with courage, which comes from within.
Faith…courage…faith…courage…faith…courage as we work together to pick up the pieces of the failed experiment to build something new, something reliable, something that will last.
For walking humbly in faith and courage is to live in the Kingdom of God.
When we attended graduate school in Spain, we were the first North American student in our course. It was late 2003 and the Eurozone was full of optimism. This optimism lead some of the professors to use a portion of their class time taunt the US model as failed and the European model as the obvious way forward.
As proof of European supremacy, our Finance professor often made a point of mentioning to us that the yields on the Spanish 10yr bond were almost the equivalent to the yields on the US 10yr bond.
What a difference nine years and 500 basis points make.
Circa 2012, Spain dominates the financial headlines as the latest casualty of the European debt crisis. Apparently Spain now is in need of a bailout. The bailout strategy which will be employed by Spain, Inc. is a hybrid of the prior bailouts accepted by their counterparts, Greece, Inc. and Ireland, Inc.
Greece, Inc. required a bailout because its government was broke. Ireland, Inc. was slightly more ingenious in that it made a good faith effort to backstop its banks, only to find that it was now the entity which required a backstop. Spain, Inc, theoretically learning from both experiences, forced its banks to accept the backstop directly so that the Spanish government could save face and be spared the humiliation of the Irish scenario.
Unfortunately, the markets have seen through the charade and are now putting pressure on all bonds, bank or sovereign, which hail from the Iberian Peninsula.
Spain’s strategy has failed before it was even implemented for lack of collateral and credibility, both of which are in desperately short supply amongst the EU leadership.
How did once proud Europe end up in this situation? They decided to force a debt based currency integration by integrating only the currency part of the equation and leaving the debt and fiscal matters to chance.
As if choosing to use a debt based currency weren’t bad enough, choosing only to implement the currency is like handing the nations foolish enough to engage in such a gamble the revolver in a game of Russian roulette where the revolver is fully loaded.
Now, the revolver is being passed and it is Spain’s turn. Once Spain slumps to the floor, it is Italy’s turn, the Belgium, France, etc. until the European Currency Union, doomed from its outset, breathes its last.
At some point in the process, possibly as Spain pulls the trigger, USA, Inc. will be forced to step in with the “ultimate” backstop, the final hope of the failed, insane “debt is money” currency regime. As the US throws its sovereign credit rating in front of the runaway freight train of Europe’s soveriegns, it will quickly find itself in the very situation that it is trying to save the European Sovereigns from.
For in this debt crisis, the unwritten rule of quality holds. When one adds wine to sewage, one gets sewage. When one adds sewage to wine, one gets sewage. The sovereign vats have long since been polluted. It might make sense to check one’s portfolio and remove as much sewage as possible.
Beyond that, we will present two unsolicited yet practical bits of advice. First, US Bonds will ultimately slide as USA, Inc. wades across the pond to aid Europe. The Euro currency will rally as the run on European banks by the citizens and the wholesale dumping of any bond denominated in the currency begins. Quite simply, demand for the Euro will exceed supply in the short term.
We submit to you that the Spain, Inc. debacle is further evidence of one of The Mint’s central themes, that Anarchy is man’s reality, it is an ultimate given, it simply is, and all understanding of the current political and social structures is greatly facilitated by one’s acceptance of this fact.
In fact, one’s ability to act and react to the unfolding changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the Truly Capitalistic system which organically emerges as men learn anew that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.
To truly embrace this fact, we must understand the nature of mankind. Man, left to his own devices, is completely devoid of the ability to do the right thing. He doesn’t have it in him. He is lazy, self-serving, and completely evil. He needs God and his fellow man to be able to do anything productive, altruistic, or what may be considered remotely good. A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the necessity of a framework which presupposes this fact within which mankind can use this weakness to avoid both self and mutual destruction.
The only reliable framework which has emerged out of natural Anarchy which not only addresses the problem of human nature, but also turn man’s weaknesses into strengths is what we call True Capitalism. Ironically, by allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe.
In fact, to fight the workings of True Capitalism is, by default, to submit oneself to chaos and misery. Yet every nation on the planet is devoted to some degree in the fight against True capitalism. Why? Because the nation state sells itself as the most perfect expression of man’s good intentions, which we presuppose do not exist. In other words, the dream of the nation state is built on a false pretense that is usually attributed to socialism: That man is inherently good and wants to do good to others.
Given their presuppositions, is it clear that the nation state and a truly capitalistic society are, in fact, the antithesis of one another. Where a nation state regulates by edict, truly capitalistic society regulates by example. Where a nation state is rigid, where truly capitalistic society is pliable. Hence, where truly capitalistic society will bend but not break, the nation state is repeatedly smashed to pieces when faced with change.
For the more a nation state tries to force men to do good, the more mankind’s character flaws will overtake these good intentions until the nation state becomes an expression of mankind’s evil nature.
The truly capitalistic society allows each mans evil nature to be corrected by allowing him to experience the consequences of his inherently poor behavior, paradoxically and naturally improving the behavior and norms of all.
Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence? The evidence can be found in that the institutions which supposedly offer the best option to Anarchy, the nation states if the world, are beginning to succumb to the punishments they have built up in their losing fight against natural law.
Greece, Ireland, Portugal, Italy, and now Spain, Inc. are now succumbing to the inevitable. The member of club med which turns from the failure of the Euro currency to go it alone and embrace the much feared “Anarchy,” as it were, paradoxically stands to be richly rewarded by the flocks of tourists who can suddenly afford a European vacation without the Euro.
We conclude with a brief manifesto for your perusal and enjoyment. What does the future hold?
Out of Anarchy, a Truly Capitalistic System will ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
Free money also renders null and void any arguments as to what constitutes good or bad money, for this determination will be made on a daily basis by producers and consumers rather than a monetary authority who is acting on mere theory with severely limited data.
Absent the government declaration of what is money and how much said “money” is worth, there is no longer bad money driving out good money, as Gresham’s Law so perceptively observes. What remains, then, as the ultimate determinant of what is money and how much it is worth are the two parties to a transaction, who are generally in the best position to determine such matters.
“But this would destroy exchange as we know it!” comes the cry from apologists of legal tender laws. “No one will know what anything is worth, let alone how to pay for it!”
On the contrary, the free operation of the money supply would, by necessity, cause everyone engaging in exchange to be acutely aware of both what constitutes money and how much it is worth. It is legal tender laws which serve to pull the wool over everyone’s eyes as to the true value of money.
When seen through a different lens, that of the free operation of the money supply, the absurdity of legal tender laws becomes clear. Commodity (free) money is unhindered by the artificial restraint of existing debts and is constrained only by the productive will of society. Commodity (free) money is free to accurately reflect the price of goods and services in light of the perceived supply and productive capacity of both goods being exchanged, that being offered in exchange and that offered in payment as money.
Money, as most people instinctively understand it, is simply an ordinary good whose utility and value are greatly enhanced by its wide acceptance in trade. If one strives to remove the “cost” of producing money, as Adam Smith so nobly aspired to do, it is clear that the best way to do this is to allow the good which is acting as money to be produced in the most efficient way by the greatest number of artisans as are necessary to fulfill the present demand for money.
But how would all of these artisans, blindly creating all of this commodity money, know when to stop producing were it not for legal tender laws?
Here, there is no risk of oversimplifying the answer, for the answer is painfully simple. As persons competing in the free market who have chosen to produce money, they are likely to be the first to know when there is too much money in circulation, for their orders for new money will uncannily drop when the economy has enough money to function efficiently.
Further, any commodity that is only marginally used in the production of money will quickly and smoothly have its supply directed to other, more efficient uses as the incentive (realized margin) to use it as money is incrementally reduced as supply begins to overtake demand. Each producer is therefore free to choose his or her exit point.
Take the case of copper. If copper becomes monetized by the free will of the participants in the economy, it stands to reason that it could be demonetized by the same free market operation. Should economic activity slow to the point where the pace of saving and exchange no longer calls for copper to assume a role as money, as copper is demonetized those holding copper will find it more efficient to melt the copper that they have in monetary form and sell it as a consumer good.
The process of demonetization is simply a matter or free choice when something occurring in nature is used as money. It first moves to the fringes of use as money, as a Jeton or modern day casino chip is used in place of money. In time, the material will be demonetized completely.
Debt, when used as money, enjoys no such elasticity. By necessity, when debt is forced into a role as money, it causes an unnatural proliferation of credit, so that when the inverse of Gresham’s law begins to operate (good credits push bad credits out of circulation) the unnatural restriction on the money supply assures that even the best of credits will go bad, and the money supply along with them.
When debt is demonetized, usually by force, the result is more often than not a severe hyperinflation followed by war.
Legal tender laws, such as the modern laws which declare that debt is money, are futile at best and generally destructive. They do, however, permit a small group to reap the monetary margin that the artificial monopoly on money creation allows them for at time.
Accepting that an inanimate object is no longer worth what one thought it was can be disappointing, but at least one still has said inanimate object. In the case of debt, accepting that someone cannot deliver what they promised tends to create feelings of resentment and remorse which, depending upon the size of the failure, can lead to violence.
Soon, the world will learn that using debt as money is a dangerous violation of the very laws of nature. As with any violation of natural law, the consequences may be withheld for a time, but they are never avoided. The longer they are artificially withheld, the more swiftly and severely the consequences will be meted out when they can no longer be repressed.
For no man, or group of men, regardless of their number, clairvoyance, or special powers they profess to have, can suspend or accelerate the operation of natural law. The Creator alone reserves that power for himself.
There is a perfect balance in God’s creation. Yin and yang, male and female, mercy and justice, heat cold, money and debt. Calling one extreme the by the name of other is futile and leads only to confusion and destruction.
Natural law is always operating, always demanding a balance of accounts in the real world, not simply on an accountant’s ledger or numbers on a bank statement.
It is then foolishness for anyone to assume that a central authority, no matter how clairvoyant, can properly estimate the money supply necessary for human economic activity to continue at the optimal rate, balancing both the quantity of debt and money to provide for both the present and future using all of the information which is collectively available.
It is for this reason that it is imperative that people be free to declare both what will serve as money as well as its value in exchange. History has shown that, if people chose gold or anything natural as money, economic activity and the resulting benefits to society will accumulate so rapidly that the supply of gold will quickly act as a constraint. If gold is money by decree, this becomes a problem.
However, if gold has simply been chosen for use as money by the majority, the same majority will quickly and tacitly gravitate to a secondary natural source of money with which to augment the primary natural money supply. Historically, this secondary source of money has been silver.
Once economic activity further accelerates and the benefits continue to accrue to a larger portion of the population, the supply of silver will act as a restraint. Again, if left to their own devices, the majority will quickly and tacitly adopt another item occurring in nature to be used as money. Historically, this third source has been copper.
Yet even the supply of copper, abundant as it may be, will eventually serve as a restraint, and so on, and so forth. Eventually, in this example of what we like to call “Free Money,” gold will tend to operate as a form of savings and settlement only in the largest of transactions, with silver serving as money at an intermediate level while copper would be the most widely circulated currency for smaller transactions.
The beauty of free money is that, should the supply of copper become a constraint, steel, nickel, or some other more abundant natural resource will take the place of copper for use in smaller transactions, and so on, so that the money supply, in a general sense, will always be perfectly suited for the rate of economic activity which is occurring.
It is important to note that, while history has shown a preference for metals to be used as money, in the free money (and by extension, free banking) theory there is no requirement that what be adopted as money be metal. In fact, money can be anything that those participating in exchange bilaterally accept as payment for goods and settlement of debts. As you will recall, the only thing that money should not be, by definition, is debt.
Yes, Mr. Cheney, Deficits do matter
While it is obvious that debt can be exchanged in the place of money for a time, as the past 100 years have shown us, common sense, logic, and natural law will demand that the debts which circulate be settled in real terms. The creation of debt as money severely distorts economic reality and the more debt that is created, the greater the demanded settlement in real terms will be, regardless of how many times one chants the Keynesian mantra recently made famous again by former Vice President of the US Dick Cheney “Deficits don’t matter.”
The superiority of free money is that the money supply is free to adapt to the rapidly economic activity, which is nothing more than an expression of the changing wants and needs of consumers. The money supply is not hindered by unnatural constraints which have nothing to do with economic reality and are imposed by what is at best an uninformed or disinterested and at worst a malicious monetary authority.
The current debt as money system, far from providing a perfectly elastic money supply, has created the economic equivalent of concrete, which is now hardening the economy instead of providing it with the much needed lubrication. If this insanity carries on much longer, society will be shattered as economic reality takes a jackhammer to it.