-- Posted 18 May, 2007 | | Discuss This Article - Comments:
Originally published at http://www.plata.com.mx/plata/ on May 15, 2007
The essence of the project to monetize the “Libertad” silver ounce and what gives it its originality, is that it builds a bridge between real money, as it existed in the world before 1914, and fictitious or “fiat” money which is in use all over the world today.
Since the remotest days of ancient times, sums of money were calculated on the basis of the weight of the silver or gold coins in which trading was done. It was not a number or other engraved sign which represented the value of that money, but its weight and purity.
For this reason, on the tables of the moneychangers at the regional commercial centers there were always to be found scales, in order to determine weight and thus the value of the coins which were to be exchanged. The coins bore engraved signs which showed who minted them; these signs were important because not all coins were of a standard purity. For nine centuries, the bezant minted in Constantinople, the present Istanbul, kept its purity unchanged and for that reason it became the most trusted and acceptable of all coins in Europe and in the distant regions to the East.
All human institutions go through cycles of advance and retreat. The institution of money has been no exception. In the years prior to the First World War (1914-1918) monetary theory and practice reached its greatest development; the world had universally accepted the doctrine that money, in order to fulfill its civilizing function, must incorporate a content of precious metal that will be of invariable weight and purity.
At the moment of reaching its highest development, monetary theory entered into decadence, to such a degree that today, one hundred years later, the world is living on the edge of a great crisis. Today, not a single currency in the world has a valuable content; all of the one hundred and eighty or so currencies in the world have absolutely no intrinsic value at all.
Today, the measure of value of a coin, of a note, or of a bank deposit is simply a number. This number does not refer to a quantity of something; it is an imaginary value which is used in transactions.
In Mexico we have silver coins, such as the “Libertad” silver ounce. These ounces do not bear a numeric value. They are valuable and people save them for that reason, but they are not money, because in today’s world what counts in order for a coin or a note to be money, is that it must show a number. Bank deposits – which are fictitious money as well as invisible – must be quantifiable by means of a number.
Today, without a number, the silver ounce cannot be money. In other ages, when what counted towards calculating the value of a coin was its weight and the purity of the metal, the silver ounce would undoubtedly have been money. However, those are not today’s conditions. Today, if a piece of precious metal is to be used as money, it must show a number that will indicate its value in commerce.
In 1979 the president of Mexico, José López Portillo, attempted the monetization of the silver ounce, which during his term in office was the silver ounce known as the “Silver Scales Ounce”. To do this, a number was to be given to the silver ounce, which would determine its monetary value. According to legislation, the Bank of Mexico was to determine that number, based on the value of silver in the international precious metals market.
The plan collapsed in 1981, two years after its start-up, because the numeric value attributed to the ounce varied from day to day; actually, the “Scales Ounce” had not been monetized at all; it was still a commodity and its value fluctuated from day to day, according to the price of silver as a commodity.
All coins and bills in all countries today show numeric values which cannot be reduced.
The failure of José López Portillo’s plan was due to the fact that no one had perceived that it was necessary to stipulate that the value attributed to the ounce by the Bank of Mexico should not be subject to any reduction: in order for the ounce to become money, its nominal value - its numeric value - must never be reduced. Only in this way, can silver cease to be a commodity and become money along with the mass of coins, notes and bank deposits which have no intrinsic value at all.
It is of no importance that this numeric nominal value is not engraved upon the coin. Actually, it is necessary that this value should not be engraved, because the value of silver has been going up all around the world, together with the increase of fictitious money in circulation, which is now used in the whole world. Any number engraved upon a silver ounce, which might represent its value, would be surpassed in the course of time by the continuing depreciation in the value of fictitious money. This has been the history of all our silver coins: again and again, when the value engraved on the Mexican silver coins in circulation turned out to be less that the commodity value of their silver, the silver coins ceased to be money and became a commodity. Their engraved value was surpassed by their intrinsic, commodity value obtainable at a refinery.
This is the keystone of the bridge between fictitious money circulating in the world today and real money with silver content: a nominal value, attributed by the monetary authority, which cannot be reduced, but which may be readjusted upward according to the rise in value of silver.
It is important that we monetize the “Libertad” silver ounce and build this bridge between fictitious money and real money, because all historic experience demonstrates that “fiat” money invariably goes down in value to zero. Never has any fictitious or “fiat” money with no intrinsic value been able to endure over time. The currencies of today, including the most prestigious such as the dollar, the euro, the pound sterling or the Japanese yen will not be exceptions to this experience. Everyday statistics confirm the historic experience: all monies are on their way to a total loss in value. As a grim example, Argentina has cancelled out 22 zeros from its currency, from 1930 to today.
Here are some numbers that show how money in circulation is going up all over the world, which will result in a loss of purchasing power:
Percentage of annual increase in circulation*:
Great Britain (M4): +13%
India (M3): +20.3%
China (M2): +17.2%
Australia (M3): +13%
South Korea (M3): +11.3%
New Zealand (M3): +18%
Japan (M3): + 6%
Russia (M3): +49%
USA (M3) +12% (Est.)
*Data from John Embry, Sprott Asset Management, Toronto, Canadá.
The M3 data for the USA is no longer published by the Federal Reserve, as of March, 2006. It is suspected that the “Fed” wants to hide what is going on. Some individuals have made careful studies which lead us to believe that the annual increase of M3 is at 12%.
The “total bankization” – the complete elimination of coins and bills – which is the dream of the owners or administrators of the great banks of the world, is an unrealizable illusion and a very fragile construct if indeed, it were possible. Besides the inevitable trend to the total depreciation of money, a total “bankization” spanning the whole world and integrated into a single world currency would have to rely on the maintenance of world electronic communications, which would have to be highly technical, highly expensive and highly vulnerable in the case of wars or social upheavals.
And besides this, if national Central Banks have, in the course of one century, brought us to the brink of a wild monetary inflation, it is likely that once united in a single World Bank, its noxious power would be many times worse. Such a Bank would represent an absolute concentration of power and it is worth recalling the words of Lord Acton: “Power corrupts and absolute power corrupts absolutely.”
The stability of civilization depends on monetary stability, which makes it possible. Stability is not to be found in complexity but in simplicity. As in other times it was fashionable to say that “Nature abhors a vacuum”, we can say today that “Nature abhors complexity”.
The “bankization” that the technocrats hunger for is extremely complex and lacks a real and enduring foundation, because the money it offers is fictitious. It will not bring us, as human beings, either peace of mind or satisfaction, but rather all sorts of tribulations, for “bankization” is based on fictitious money which tends to a final loss of all value, gravely threatening human life.
In support of this, let us note that the EOCD (“European Organization for Cooperation and Development”) recently declared that “governments must look for means of satisfaction that increase the happiness of their nations, since happiness, according to a recent study, is not a direct result of greater GNP.” The study of the EOCD revealed that the Norwegians, with an annual per capital income of $35,000 dollars, were less happy than Mexicans, who only have a per capital income of $10,000 dollars.
The monetization of the silver ounce, by means of the bridge which we have designed – a nominal value which cannot be reduced, but which can be readjusted upward – is a return to simplicity and to reality in the economic field. Its simplicity guarantees that the silver ounces will be in circulation and serving human beings for centuries after the collapse of fictitious money and even after the disappearance of the Central Banks of the world.
The monetary system which prevails in the world is like a horse which is galloping out of control and is rushing to a precipice. It was in August of 1971 that this horse took the golden bit in its teeth and began to trot briskly. The politicians, the bankers and the economists were so pleased!
36 years later, not a day goes by that worried voices are heard, warning that this wild rush has become a nightmare and that the precipice is now very near.
There is no lack of economists and financial analysts who are conscious of the danger of an economic collapse caused by the unbridled expansion of credit and fictitious money in circulation, but they are stumped by the problem of how to reinsert precious metals into the monetary system, to bring this deadly race under control.
These economists and financial analysts, experts in monetary theory and in monetary history, always come up against a problem they cannot resolve because their mindset blocks the way: they conceive of the precious metal coin as having an engraved numeric value. We live in the “Age of Number” and these experts have not been able to resolve the problem, which is that a precious metal coin with an engraved value, will have to go out of circulation sooner or later! The silver coin with an engraved value is obsolete, in today’s monetary world.
The “silver bridge” we have designed resolves the problem in a surprisingly simple manner: the first part of the bridge is that the silver coin must have no engraved value. The second part is that the monetary authority must attribute to this coin, a nominal numeric value. Finally, the keystone which completes the bridge is the condition that the last nominal value attributed, must never be diminished. This is the bridge that turns the silver coin into money that will be instituted in permanent circulation, by the side of fictitious money.
I may be asked: “Will silver, circulating in parallel with fictitious money, be able to stop the world’s race to the financial and monetary abyss?”
I doubt it will be able to do so. The unbridled expansion of credit and money of the last 36 years has distorted the productive structures of the nations. The damage has been enormous and fundamental because these structures have responded to great flows of credit and of fictitious money and are therefore not based on economic realities, but rather on illusions which have confused the economic actors. The economic information (regarding the amount of real capital actually accumulated in the world) which has been provided by these flows of credit and money is false information. The facts based on this false information (signal noise) cannot be made good: further on we shall perceive these facts as tremendous errors of malinvestment.
However, the institution of the silver coin in Mexico, circulating in parallel with fictitious money, will doubtless bring with it transcendent beneficial effects for Mexico, and those effects will be observed by the rest of the world. The monetary history of the world since 1914 to the present, has been the history of world monetary deterioration unrelieved by one single positive fact. It is only now, in 2007, that there is a possibility of a positive fact, with the institution in Mexico of the silver ounce in permanent circulation alongside of fictitious money.
In a world that is increasingly worried and confused, this positive fact might encourage economists all over the world to rethink what can be done to mitigate the coming disaster. When it was thought there was no alternative, suddenly there becomes visible a new road and a new hope.
Perhaps Mexico shall have the glory of offering the world this new road and this new hope of providing civilization with a stable, just and realistic base.
-- Posted 18 May, 2007 | | Discuss This Article - Comments: