…And that government of the people, by the people, for the people, shall not perish from the earth.
(Abraham Lincoln)
What gets the majority is this, they worry about who is in power. And this you can’t really fault people for. You worry about others taking your rights. You feel that if you don’t vote, or don’t use voice, then they will come for you. To force you to take a vaccine. Force you to carry a pregnancy to term. Jail you for saying the wrong thing. Come and take your house.
(George Hotz)
It is well enough that people of our nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
(Henry Ford)

Preface

I am one week away from turning 21 when writing this post. This post is not intended to dive into potential solutions or existing ones (like Bitcoin). Instead, this is me trying to pain a picture of the current monetary system and my beliefs on it. Feel free to criticize anything I say or offer me books/podcasts/etc. to further my understanding of the many gaps I have. My email is at the footer of every page. Smarter people have written better than what I am writing, but I am simply trying to siphon the sentiment and information I have to establish my belief system. A few days ago, the midterm elections took place and although I cannot vote because I am disenfrancised, I don’t think I would have voted if I wasn’t. As a kid, I used to watch WWE and be facisnated by the rivalries that took place. They always made it clear who the good and bad guys were, and we always knew that the good guy would ultimately be victorious. This is clearly not how the world works because everyone believes they are the good guy, I hope so–John Cena knew he was the good guy and whoever he fought knew he was the bad guy. We hope that the government would take the position of the good guy, but that rarely ever happens. It seems like the bad guys have been winning for too long, so I am writing this to show support for finding a way to beat the state in some of the facets of society they control. The state and the powers associated with it are too big for the people to fight directly, but we can create our own systems that beat them. In the end, it is always the people that win–we are all betting our lives on it. It takes the majority to believe that they don’t have to buy in to the current system. Let’s start with money creation and the economy.

Money is Trust

The money that circulates around the economy today is not real. It only has value because people put their faith in the government to handle their money appropriately to ensure that they can exchange their money for actual goods and services. The dollar’s strength and viability relies solely on the faith its users have in it. People would not want the supply of information to be closed sourced in the government, so why would they want their money to be controlled by them? In the perfect capitalist world, people decide where resources are allocated and products that are needed or demanded the most are created. People decide what is valuable and what is not–they decide how the market behaves. Knowing which products are best for a society takes risks, so when a company takes a big risk that eventually pays out, they are rewarded with profits. These profits may cause income inequality but they improve the standard of living of everyone else (better restated by Margaret Thatcher). Unfortunately, the people do not entirely control the money supply–central banks do.

Central Banks

The story begins in 1910 with six men on Jekyll Island who discussed the need for a national banking system in their super secretive book and tea club. These men believed that the inelastic supply of currency which was backed by gold at the time would contribute to long deflations. These wallstreet boys, through faux duckhunts, eventually helped develop the Federal Reserve Act (1913) that forms the central bank system that oversees monetary policy today. 97% of the money in the United States is in bank deposits. Once the gold standard was nullified, money lost any tangible meaning. “Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.”. This creation of money by banks is usually directed towards speculative assets instead of real goods and services within the economy, so ordinary people do not gain the benefits. Furthermore, central banks are able to create money (quantitative easing) and lend it to private banks during a crisis (e.g., 2008) and the government when spending exceeds taxes. In 2008, the central bank bailed out the banks that caused the crisis in the first place and placed the burden of repaying that debt on the people. These central banks can’t go bankrupt, and the people are expected to pay for the mistakes of these banks through taxation and inflation. Sounds like an abusive relationship to me.

Growing the Pie

A system built with the focus of “growing the pie” instead of redistributing pieces of the pie will lead to everyone prospering more, even with the existence of wealth inequality. It is important to ensure that methods to increase overall wealth come from goods or services of real value and not the many speculative black boxes that exist (think the dotcom bubble). You can’t create matter from nothing, so we must find ways to use existing resources to create real value AKA wealth. I am interested in how we can use the multiplyer effect to maximize positive returns. Our current monetary system has potential for this, but it is the use of certain funds that causes us to lose out on the multiplyer effect. Imagine someone named Bob who makes money off of the amount he mines and returns to his town. One day, he thinks about how he could carry more of the materials he mines and thereby increase his yield, so he invents the wheel from some of the stones he mines. He comes back to the town and thinks about how he can create more wheels and increase his output 10 fold, so he asks the bank for a reasonably significant loan, and he uses those loans to hire people to create more wheels. In turn, these new hires are earning wages, spending their hard-earned money on goods in the town and saving some of them in the bank. Since it is a bank, some of their money has to be kept as reserve but most of it can be lent back to other people seeking to take out loans and make investments just like Bob. These people, just like Bob, begin earning more and creating new goods, and the cycle continues. All of a sudden, Bob’s initial loan from the bank has created more money which circulated throughout the town to create more wealth. That is how I see the ideal world of our current monetary system. Whatever the solution or alternative is, it needs to be designed such that value and wealth creation cannot be undermined.