by Ant » Feb 26th, '10, 20:04
In answer to those of you querying the existence of money here is a simple version of what money actually is. It should explain to some degree some of what Gary is referring too but also by it's nature undermine the majority of the case he is trying to establish.
Money is very simply an agreed item to use for the trade of goods without any goods actually being involved.
For example, back in ye olde days when you wanted to buy 20 goats for 20 sheep you needed to transport 20 sheep to the goat seller and do the trade there and then, however money is like giving someone who is happy to perform the trade a "20 Sheep Note". This acts as a credit guarantee that you will swap 20 Sheep for 20 Goats.
The problem arises when you do not want sheep or goats and want say timber, how do you agree a fair trade for the value of timber? In order to make transactions simpler currency was introduced as a standardised trading value in order allow free and easy trade. As this "money" has no intrinsic value, it needs to be secured against something, originally this was the gold standard.
Basically you could take a £10 note to the good old treasury and say I want £10 worth of gold bullion please, and they would give it to you.
The problem arose when a number of very smart but sneaky b***** bankers decided that they would take this problem out of government hands and deal with it themselves. They were to be called the Bank of England (which is a private company not a government or state entity).
This is where fractional banking comes in to play (or fractional reserve banking to give it the full name). This is basically a rule that states in order to remain solvent a bank is required to keep at least 10% of it's total liabilities in realisable assets. Formerly this was gold, however now it's numbers on a screen (ergo money does not exist in a worth term as there is nothing to back it up, this is what Gary means by FIAT currency).
What this is also means that if a bank lends £9 million to it's customers, it must have £1 million in reserve. Where it get's really confusing is that they only need £1 million to lend the other £9 million (Lawrence, this would be the creating money out of nothing scenario).
So, does money exist as a valuable commodity, no. It has no intrinsic value. HOWEVER it DOES have a LEGAL value, and this is where the majority of Gary's argument falls down in my eyes.
Money is recognised by everyone, or rather currency is. It's worth is now based upon the issuing country (hence the international fluctuation in value). The stronger the countries economy the more valuable the currency. Due to this legally recognised existence of money you cannot argue that the money never existed and was merely created through the fractional banking system.
The only part of what Gary says that to my mind makes sense is that the giro credit is a financial instrument, however once again this is merely a currency in it's own right to propagate trade between credit companies, therefore by trying to use it as a form of currency I would wonder if this may be a form of theft or fraud in it's own right as it does not technically belong to you and is issued to expediate the transaction, not to settle it. Therefore even if it was used to "settle" a debt, the debt would still exist.
To try and simplify;
Credit company issue giro slip (technically an IOU) for £1, they are now minus £1 plus whatever debt you owe. You send back as payment, the £1 becomes £0 however your debt is still outstanding.
For those of you still unclear on fractional reserve banking then Wikipedia has a reasonably good explanation. I'll stop there because I think I'm rambling and entering other tangents!
"The most important thing is not to stop questioning."
