Money Systems 4.27 What System?

Our current money system is a choice. It’s not set in stone. We can choose a different money system that supports a prosperous, low-tax, high leisure, caring and creative society. To choose wisely we must understand the different money systems and how they each function. For the past few hundred years the discussion about money systems and economics has had some gaping holes in the understanding of fundamentals – particularly the issue of how and who creates new money.

So, how can we differentiate and talk about different money systems? Chapter 3 explained the basic aspects of any money system. It’s useful to ask those key questions when you are reading about a money system theory. And ask what answers an economist is assuming are true in policy discussions. This chapter looks specifically at the basic kinds of money systems. Using the flip book concept in the Clear Thinking (Chapter 2.12), we need six mix and match sections. A particular combination will reflect specific ideas about wealth and power.

What will be the money token?

Will it be physical?

  • a unit of a commodity of value in the marketplace (e.g., gold coin)
  • a physical or virtual unit with no commodity value (e.g., paper or virtual money)

What is the token in concept?

  • a unit of a commodity with value in the marketplace (e.g., gold coin)
  • an IOU receipt for a commodity or asset with present value in the marketplace
  • an IOU for a unit of time, service or product (e.g., one hour of elder care, tutoring, or any other servicea)
  • an IOU for value to be created in the future
  • a representation of commonly held equity/wealth.

How will the money be authenticated and made trustworthy?

  • by government decision, decree and common wealth guarantee
  • by decree of people of great wealth
  • by individuals’ trust and authentication efforts

How will this money measure and store value?

  • a stable measure and store
  • an elastic measure and store
    • designed to be increasing in value
    • designed to be decreasing in value
    • a variable value tied to the value of a commodity in the marketplace

Who creates new money?

It could be one or more of the following:

  • sovereign government – from cooperative to authoritarian
  • people of great wealth
  • people of raw power
  • selected and privileged entities, like banks
  • selected or self-selected individuals with the power to exercise and defend their privilege

How will new money be created and entered into the economy?

Physical production? Will it be by…

  • mining precious metals and producing coins
  • printing IOUs on special, counterfeit proof papers
  • maintaining accounts
  • by keystroke

Created & entered? How will it be entered into the economy? Will it become money by:

  • gifting it into the economy
    • equably
    • by specially privileged entities, like banks
  • spending it into the economy
    • by government decision and action
    • by specially privileged entities, like banks
  • lending it into the economy
    • by government decision and action
    • by specially privileged entities, like banks
  • investing into the economy
    • by government decision and action
    • by specially privileged entities, like banks

How will it be destroyed?

Will money be removed from the supply by:

  • taxation
  • paying back a loan
  • shifting commodity material from use as money to use as commodity
  • hoarding

Remember, you can pick just about any money system, and any government can use it. After selection, some systems, by their nature, will push governance in one direction or another.

The money system does not necessarily dictate who owns the means of production, how freely you can trade, what standards, limitations and regulations apply to how you do business, or to the ownership of property. These are separate considerations that belong in the realm of governance, and generally fall under the laws of commerce and economic policies. However, the choice of money system can limit the effective choices on economic, property and commerce issues.

It is also challenging to name a money system. Every money system has all the above aspects. So, which aspect should one pick to give a system its name? Schools of thought tend to pick one aspect that they consider most important and name their favored system after that aspect. Confusingly, the same name is often used to refer to totally different money systems. For example, the Modern Monetary Theorists, the American Monetary Institute and the Dutch group, Ons Geld (Our Money) all use the term sovereign money. But, they do not mean the same system (Chapter 4.37). So, one must be careful to establish the meaning of names.

General Thinking

If we look to Wikipedia as a general arbiter of current thinking, a search for money systems takes us to a page that lists three types of systems:

  • Commodity money;
  • Commodity backed money, aka representative money, or receipt money;
  • Fiat money.

This is an unsophisticated and oversimplified way of looking at money. Unsophisticated because it focuses on whether the money token is tangible or intangible. Oversimplified in that it reduces money systems to the kind of token used and who authorizes the money, and that is not a comprehensive view of money. But, since this is the common frame for looking at money, let’s take a few sections to look at money in this frame.