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Guest Post: The Origin Of Money

Tyler Durden's picture


Submitted by John Aziz of Azizonomics

The Origin Of Money

Markets are true democracies. The allocation of resources, capital and labour is achieved through the mechanism of spending, and so based on spending preferences. As money flows through the economy the popular grows and the unpopular shrinks.  Producers receive a signal to produce more or less based on spending preferences. Markets distribute power according to demand and productivity; the more you earn, the more power you accumulate to allocate resources, capital and labour. As the power to allocate resources (i.e. money) is widely desired, markets encourage the development of skills, talents and ideas.

Planned economies have a track record of failure, in my view because they do not have this democratic dimension. The state may claim to be “scientific”, but as Hayek conclusively illustrated, the lack of any real feedback mechanism has always led planned economies into hideous misallocations of resources, the most egregious example being the collectivisation of agriculture in both Maoist China and Soviet Russia that led to mass starvation and millions of deaths. The market’s resource allocation system is a complex, multi-dimensional process that blends together the skills, knowledge, and ideas of society, and for which there is no substitute. Socialism might claim to represent the wider interests of society, but in adopting a system based on economic planning, the wider interests and desires of society and the democratic market process are ignored.

This complex process begins with the designation of money, which is why the choice of the monetary medium is critical.

Like all democracies, markets can be corrupted.

Whoever creates the money holds a position of great power — the choice of how to allocate resources is in their hands. They choose who gets the money, and for what, and when. And they do this again and again and again. 

Who should create the monetary medium? Today, money is designated in the ivory towers of central banks and allocated through the banking system. Historically, in the days of commodity-money, money was initially allocated by digging it up out of the ground. Anyone with a shovel or a gold pan could create money. In the days of barter, a monetary medium was created even more simply, through producing things others were happy to swap or credit.

While central banks might claim that they have the nation’s best democratic interests at heart, evidence shows that since the world exited the gold exchange standard in 1971 (thus giving banks a monopoly over the allocation of money and credit), bank assets as a percentage of GDP have exploded (this data is from the United Kingdom, but there is a similar pattern around the world).

Clearly, some pigs are more equal than others:

Giving banks a monopoly over the allocation of capital has dramatically enriched banking interests. It is also correlated with a dramatic fall in total factor productivity, and a dramatic increase in income inequality.

Very simply, I believe that the present system is inherently undemocratic. Giving banks a monopoly over the initial allocation of credit and money enriches the banks at the expense of society. Banks and bankers — who produce nothing — allocate resources to their interests. The rest of society — including all the productive sectors — get crumbs from the table. The market mechanism is perverted, and bent in favour of the financial system. The financial system can subsidise incompetence and ineptitude through bailouts and helicopter drops. 

Such a system is unsustainable. The subsidisation of incompetence breeds more incompetence, and weakens the system, whether it is government handing off corporate welfare to inept corporations, or whether it is the central bank bailing out inept financial institutions. The financial system never learned the lessons of 2008; MF Global and the London Whale illustrate that. Printing money to save broken systems just makes these systems more fragile and prone to collapse. Ignoring the market mechanism, and the interests of the wider society to subsidise the financial sector and well-connected corporations just makes society angry and disaffected.

Our monopoly will eventually discredit itself through the subsidisation of graft and incompetence. It is just a matter of time.


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Sun, 07/01/2012 - 16:49 | 2579139 Kayman
Kayman's picture

Money, and its various disguises, is not the economy.  Money is founded in trust and there is no banker or politician you can trust.

Sun, 07/01/2012 - 17:55 | 2579264 economics9698
economics9698's picture

This is by far the best thing you have ever written.  Clear, accurate, concise.  Damn john I think you just graduated.

Sun, 07/01/2012 - 17:23 | 2579199 slaughterer
slaughterer's picture

I want to buy $20 trillion of Euro Debt a.s.a.p.  Euro Debt is the best investment of the 21st century.  Does anyone know where I can get some cheap?  Euro has the best future of all eco zones.   

Sun, 07/01/2012 - 17:56 | 2579266 economics9698
economics9698's picture

No but I got a bridge to sell you, lots of paper with it.

Mon, 07/02/2012 - 03:59 | 2579982 gold-is-not-dead
gold-is-not-dead's picture

hehehe, there are plenty of 'em cheap, just look for "SD" rating... :)

Sun, 07/01/2012 - 16:46 | 2579132 bullionbaron
bullionbaron's picture

"Markets are true democracies." Eventually the public will return to the people's money, Gold and Silver.

Sun, 07/01/2012 - 17:41 | 2579232 unununium
unununium's picture

The state of new, alternative currencies is exciting.  Bitcoin is at the forefront.  Forbes writer Jon Matonis deserves tremendous credit for treating the topic seriously.

Sun, 07/01/2012 - 19:26 | 2579441 NIRee
NIRee's picture

So we trade one fiction for another? What was the definition of an idiot?

Sun, 07/01/2012 - 19:29 | 2579446 Aziz
Aziz's picture

+1. Bitcoin explained in a single question.

Sun, 07/01/2012 - 19:57 | 2579477 unununium
unununium's picture

Learn more, and you will reconsider.  As hard money goes, bitcoin is harder than gold-backed currency because a backing party can always renege (e.g. United States, 1971).

Actual gold coins are great, but practical demands will always require electronic transfers.  There is no reason international, or even inter-city transfers should require fiat currency.

Bitcoin transfers are final, non-repudiatable direct transfers between parties with absolutely no financial intermediary.  The future monetary policy of the currency is published, algorithmic, controlled by no-one, and set in stone forever.

That's all the energy I have for delivering education today.


Sun, 07/01/2012 - 21:31 | 2579591 Blankman
Blankman's picture

Dear Mr. Bitcoin,


Please refer to the Liberty Dollar to see what happens when you try to compete with the US Dollar.  Get too big and you better get your lawyers ready.

Sun, 07/01/2012 - 21:55 | 2579623 economics9698
economics9698's picture

The problem started in 1862 with the greenback.  The way to eliminate governments from the picture is to allow banks to issue their own currency backed by metal.

Mon, 07/02/2012 - 00:24 | 2579830 unununium
unununium's picture

What we have here is a Linux vs. Microsoft situation, capish?  How's it going for those Microsoft lawyers?

Mon, 07/02/2012 - 04:16 | 2579991 gold-is-not-dead
gold-is-not-dead's picture

Hehehe, yeah, those lawyers who got rid of the nasty torrents and thepiratebay, will now have a chance to fail it again... To all the non believers, bitcoin network can not be stopped... Internet kill switch, fine, we'll setup a new interweb network... All you need is a couple of hundred bucks worth of antena equiptment and you can have an intercity wifi internet running on ipv4 or ipv6...

Sun, 07/01/2012 - 16:51 | 2579142 sunaJ
sunaJ's picture

They are screwed.  In their final moments they will scream that we must kill each other in "self-defense."  They aren't just going to walk away.  They have been grafting for so long they don't even remember to keep it secret.  That is the level of their corruption.

Sun, 07/01/2012 - 22:09 | 2579644 illyia
illyia's picture

Yes. But it is still "just a matter of time". Unfortunately it is also my time...

Sun, 07/01/2012 - 16:53 | 2579146 wandstrasse
wandstrasse's picture

the future? a boot in your face, that is the future.

Sun, 07/01/2012 - 17:28 | 2579207 Goldilocks
Goldilocks's picture

Yah can’t eat that     :-/

Sun, 07/01/2012 - 17:34 | 2579221 A Lunatic
A Lunatic's picture

Why? Seriously. Why the Hell does that have to be the future? Cowardice? Apathy? Fear? Dependence upon the very system so many profess to abhor? Who is it that commands such authority over you as to garner your submission without so much as a thimbles worth of resistance???

Sun, 07/01/2012 - 18:09 | 2579301 Zero Govt
Zero Govt's picture

Resistence = stop paying your taxes

all other options (via the political process) are futile

you cannot change a sows ear (the rotten monopolist State) into a silk purse

Sun, 07/01/2012 - 19:52 | 2579471 narapoiddyslexia
narapoiddyslexia's picture

There is another option. Stop spending money. Shrink the economy. The government can only survive in its current form if the economy grows. Growth is the justification upon which it issues all debt. Without growth the debt cannot, will not, be repaid. Puncture the balloon. I do not know what the numbers might be, but if everyone who reads this tells everyone they know to stop spending money, and what it will do to the government if they stop spending money, then Obama, at least, is screwed. A lot fewer people are required to sink the economy, than are required to vote Obama out of office.

Sun, 07/01/2012 - 22:23 | 2579659 n8dawg84
n8dawg84's picture


I believe it's very difficult for the average person to simply stop spending money. Not everyone has the ability to produce the things needed for everyday living. I agree that there is a lot that can be done to reduce overall spending, however to completely stop seems almost as impractical as not paying taxes. Sadly, I cannot come up with anything original as a better way to starve the beast. For now, I've closed my digital fiat accounts so banks cannot practice fractional reserve lending with my money. Also, I hold hard currency to protect against wealth destruction. These are the best options I've come across.

Sun, 07/01/2012 - 21:54 | 2579622 n8dawg84
n8dawg84's picture

Zero Govt,

I understand that you starve the beast by not paying taxes. It sounds good in theory, but how does one simply stop paying taxes without ending up in jail or having money withheld from one's paycheck?

Sun, 07/01/2012 - 22:14 | 2579649 illyia
illyia's picture

Yes, agree. Just not paying taxes is a great idea but the ones who go first are the first ones shot. I do like narapoiddyslexia's idea, though I recognize that in the end that is what will happen anyway: eventually. I guess the idea is "do not feed the beast".

But, there again, so many fool to convince, so little time...

Mon, 07/02/2012 - 09:03 | 2580303 jimbos world
jimbos world's picture

Yes, agree. Just not paying taxes is a great idea but the ones who go first are the first ones shot.

You may be surprised...  a whole bunch of like minded individuals have claimed their property (wages) back from the US Treasury.  In many cases with not so much as a question before being refunded all monies taken out of paychecks.  Hint: the deductions from your pay are not taxes (they are simply held in a non-interest bearing escrow account) until you file your tax return.  Educate yourself-

Sun, 07/01/2012 - 22:25 | 2579662 A Lunatic
A Lunatic's picture

Freedom isn't free..........What are YOU willing to sacrifice? I do not mean that in a snide or condescending's just the truth. Please give it some thought, everyone.

Sun, 07/01/2012 - 16:53 | 2579147 Yen Cross
Yen Cross's picture

 Markets can't / won't thrive without corruption. The masses will NEVER be fed.  True market Capitalism  generates the will, and desire to TRY!

Sun, 07/01/2012 - 16:56 | 2579153 Debugas
Debugas's picture

markets are not democracies. Markets tend to form monopolies and truly free markets have to be enforced otherwise the markets tend to degenerate into unpleasant mafia style parasitic structures.

Best prove is an analogy with cultivated field which yields useful crops vs uncultivated one which gets covered with parasitic plants

Sun, 07/01/2012 - 17:31 | 2579214 Aziz
Aziz's picture

"unpleasant mafia style parasitic structures."

Are you talking about the Federal Reserve system?

Sun, 07/01/2012 - 19:03 | 2579404 Lord Koos
Lord Koos's picture

More like JP Morgan & Walmart.

Mon, 07/02/2012 - 06:48 | 2580056 Lebensphilosoph
Lebensphilosoph's picture

Markets tend to form monopolies and truly free markets have to be enforced

Enforced according to the stipulations of contract, yes. Planned and regulated by the state, no, for that couldn't possibly be a 'truly free market'.


otherwise the markets tend to degenerate into unpleasant mafia style parasitic structures.

Mafia? Parasitic? Such as the state? Pay us 10-35% of your income for our 'protection' and 'services' and if you don't we send around our official thugs in blue to bundle you off to prison or kill you if you try to defend yourself. So when businesses become governments we have a problem, eh? You don't say ...

Best prove is an analogy with cultivated field which yields useful crops vs uncultivated one which gets covered with parasitic plants

The analogy is a poor one.

Sun, 07/01/2012 - 16:56 | 2579156 Atomizer
Atomizer's picture


“The Trilateral Commission is international and is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the United States. The Trilateral Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power: Political, Monetary, Intellectual, and Ecclesiastical.” - BarryGoldwater , U.S. Senator

Sun, 07/01/2012 - 16:56 | 2579157 Snakeeyes
Snakeeyes's picture

Absolutelly. But the US is screwed too. Obamacare was anti free market as we're Obama's 14 loan modification programs. Now we will have to print money to pay for these lavish redistributions of wealth.


Sun, 07/01/2012 - 16:56 | 2579158 Bansters-in-my-...
Bansters-in-my- feces's picture

"Markets are true democracies"

Are you fucking wasted ...???? ...or what..??

Not in this world.!!!

Sun, 07/01/2012 - 17:03 | 2579167 localpacific
localpacific's picture

good post ZH 

Sun, 07/01/2012 - 17:03 | 2579170 blunderdog
blunderdog's picture

Centralized production of money is undemocratic.

Brilliant insight.

For your next assignment, I suggest researching a method of using wind-power to move ships.  It could change the world.

Sun, 07/01/2012 - 17:08 | 2579177 Atomizer
Atomizer's picture



“The principle we must keep in mind is that two people cannot both be the exclusive owner of the same thing at the same time. Yet fractional reserve banking operates on the theory that bank account holder A and borrower B can both own the same money at the same time. This practice is just as fraudulent as selling two buyers the same vacation home and giving them both exclusive title to the home and hoping that they don’t both show up to use it the same weekend. With fractional reserve banking, titles to money (gold) are spuriously created, meaning there are more titles to property than there is actual property. In fact, no new money is created, but the number of titles to existing money is expanded. And it is in this manner that the value of the dollar is diminished. In the absence of a gold standard, the crime is exceeded today to the point of absurdity, as only titles themselves are traded with no tie to any real property whatsoever. We have been swindled.” -

“We shall have world government whether or not you like it… the only question is whether or not it be by conquest or consent.” – James Warburg, Rothschild Banking Agent, 1950
Sun, 07/01/2012 - 17:59 | 2579276 Peter Pan
Peter Pan's picture

Between fractional reserve banking, paper gold and silver, extreme leverage, deivatives and rehypothecation is there any wonder that the possibility of a free market remains just a possibility?

All these mechanisms are contrivances designed to skim and control the system to the point of collapse.

Sun, 07/01/2012 - 17:12 | 2579183 SHRAGS
SHRAGS's picture

I've uploaded "The Age Of Inflation" [scribd] by Jacques Rueff. The French edition was published in 1964 and the English edition in 1967. It is out of print and unavailable in the physical, except in a few libraries. Rueff covers the resumption of the Gold Standard in 1922 after World War I - in his mind the seeds of the future inflation were set by adopting the Gold Exchange Standard instead of the classic Gold Standard, economising on the use of gold in the system. A similar system allowing foreign reserves was adopted later in the Bretton Woods agreements.

He also covers the "Hitlerite" economics, and credits Hilter with being the only person to conquer inflation. The 1948 German currency reforms are studied, and it provides in Rueff's view laboratory conditions for an experiment on planned vs unplanned economy.

Its 189 pages long, and a quick read. 

From the inside cover:

In these lectures, delivered between 1932 and
1961, Jacques Rueff, the distinguished French
economist who conceived the financial reform
adopted by the government of President de
Gaulle in 1958, attacks the concept of the planned
economy, which he holds responsible for the
inflation which is now ravaging so many coun-
tries of the world.
Comparing Germany and England after World
War I, Rueff demonstrates how the Germans, to
avoid depreciating the inflation-ridden mark by
attempting to control foreign trade, took the first
step towards the planned economy of the Third
Reich; whereas England devalued its currency,
accepted financial responsibility, and preserved
its social structure.
In this and other lectures, Rueff proves incon-
testably that a country can rid itself of inflation
only by permitting the purchasing power of its
population to adjust itself to the total value of
purchasable wealth, and by returning to a gold

Sun, 07/01/2012 - 17:33 | 2579184 Sean7k
Sean7k's picture

This chart, which is the most coherent aspect of the whole article, shows nothing more than the creation of debt via fiat currency creation and the resulting holding of the debt by, mainly, banks. Regardless of the assets classes purchased and held on balance sheets, all of this debt is the result of fractional reserve banking and governmental debt creation.

Consequently, any movement away from paper currency and credit would destroy said wealth in a heartbeat. 

Eliminate legal tender laws and you free production from the manacles placed on it by banks. When banks can no longer say what is money, they cannot control interest rates and they are back to being a warehouse or clearinghouse- the only two jobs a bank should have.

Note: John, do you have spell check? "subsidization"

Sun, 07/01/2012 - 17:35 | 2579227 Aziz
Aziz's picture

I'm British. We (as well as Canadians, Australians, etc) spell it with an s.

By the way, paper isn't wealth. Biggest delusion in the world. And I'm nothing like naive enough to suggest moving back to the gold standard. Policymakers will never do it, because they are beholden to the financial system who love being able to print money and give it to their friends. We will default back to commodity-money and barter when the system self-destructs. That could be in a year or twenty years, but I know a rotten system when I see one.

Sun, 07/01/2012 - 18:06 | 2579293 Peter Pan
Peter Pan's picture

Agreed. All assets in fact must either have intrinsic value or be scarce. Fiat has neither quality and simply relies on government edict.

As a result the production of every paper dollar acts either as a dilutor of existing dollars or as a confiscator by allowing governments to buy anything they want by what is the equivalent of forgery.

Mon, 07/02/2012 - 07:02 | 2580080 Lebensphilosoph
Lebensphilosoph's picture

Intrinsic value? Grow up.

Sun, 07/01/2012 - 18:51 | 2579391 Sean7k
Sean7k's picture

My apologies. It still detracts from your message. 

I never said paper is wealth, the assets purchased with it is, There is no reason to believe we will default to commodity-money and barter system. Historically, social credit systems are more likely. 

However, if we do not suffer a complete breakdown, the more likely result is a global currency (SDR's) or similar. As for a gold standard, I keep in mind who has the gold. I would be more suspicious of this type of system. 

Freedom for the market to choose is the preferred result and the easiest to achieve. It makes the selection of "money" truly democratic. It does nothing to exclude FED money, but allows people to ignore it. This allows for less social dislocation, as the effect is not aggressive, but passive resistance.

As for debt, there has always been debt and people that default on the debt. The difference lies in how it is eventually handled. As the Austrian business cycle explains the ramifications of the present system, it is ignored by policy makers. This leaves the Elites to move us toward a system of their choosing: probably the elimination of currency with smart cards that guarantee a transaction tax and the ability to seize assets at any time. 

There will probably be black markets, but they will be marginalized. Look around you John, do you really think people care enough or are intelligent enough to evade the trap?This leaves a very small percentage of people with the knowledge, but unable to effect a change. The Elites need do nothing. As new generations are mindfucked through education and media, we will die out and unlike the Elites, we don't create dynasties. We have to learn with each new generation.

So long,and thanks for all the fish...

Sun, 07/01/2012 - 19:35 | 2579450 Aziz
Aziz's picture

The elite have screwed up massively in the last thirty or forty years. From my perspective, they're shitting where they eat. Lots of elites have fucked up throughout history. Look at Egypt, Mesopotamia, Rome, the Romanovs, the Austro-Hungarian Empire, the Qing dynasty, the Ming dynasty, the Soviet elite. All washed away, mostly. 

Sun, 07/01/2012 - 20:21 | 2579515 Manthong
Manthong's picture

If I recall correctly, the French folks got a little peeved about what the monarchy did to the money system, too.

Sun, 07/01/2012 - 21:41 | 2579607 Sean7k
Sean7k's picture

Fascism has spread across the globe. Please explain how the Elites have failed? You might want to get out of the box.

Sun, 07/01/2012 - 20:36 | 2579537 NuYawkFrankie
NuYawkFrankie's picture

Re I never said paper is wealth

But some day soon, paper will be wealth - so long as it's toilet-paper.


Sun, 07/01/2012 - 22:04 | 2579634 Unique Snowflake
Unique Snowflake's picture

He who controls the TP, controls the universe.

Mon, 07/02/2012 - 01:11 | 2579888 putaipan
putaipan's picture

i would have greened you + 25, but ive seen too many threads hijacked by zh tp preppers with no concept of a left hand and a bucket

Mon, 07/02/2012 - 01:14 | 2579892 akak
akak's picture

The pooper has awakened!

Sun, 07/01/2012 - 17:13 | 2579185 apberusdisvet
apberusdisvet's picture

Nothing really in this post that the average ZH reader doesn't already know.  The larger question is how we all are to survive the obvious endgame of total fascist control.  It should now be obvious that, under the lastest SCOTUS ruling, the government can tax any activity it doesn't like, including any efforts to curb its power.

Sun, 07/01/2012 - 17:47 | 2579240 Irwin Fletcher
Irwin Fletcher's picture

Bank assets as %GDP is a pretty interesting chart. There's clearly an uptick near 1971 as the article states, when the world exited the gold standard, but it also looks like there's one around 2000. I'm wondering if it's due to the Swiss disconnecting the Franc and the price of gold, the repeal of Glass Steagall, or maybe something else. However I'm below average for a ZH reader in most respects.

Sun, 07/01/2012 - 20:05 | 2579484 Zero Debt
Zero Debt's picture

Greenspan's low rates perhaps?

Sun, 07/01/2012 - 18:00 | 2579271 A Lunatic
A Lunatic's picture

why bother.

Mon, 07/02/2012 - 01:13 | 2579890 putaipan
putaipan's picture

'that's what pooh said'

Sun, 07/01/2012 - 17:13 | 2579186 midtowng
midtowng's picture

There is no "market" out there. It's been corrupted from top to bottom, and governments are only part of the reason.

Sun, 07/01/2012 - 17:18 | 2579192 Zola
Zola's picture

I think ZHers should look into the seasteading projects- has been mentioned several times in the comment sections but have not seen an article on it. If contributors have more in depth knowledge of the advancement of the efforts, their input will be useful i think.

Sun, 07/01/2012 - 17:27 | 2579193 ThirdCoastSurfer
ThirdCoastSurfer's picture

The forest fire analogy seems applicable and timely here.  You cannot prevent misallocation any more than you can prevent forest fires. The longer you delay creative destruction, the more at risk you become to creating something you cannot control. Society should welcome excess, but as soon as a deveation from the trend is detected, plans should be implemented to create breaks and backfires before the fire ever starts.  This should allow the fire to burn, once it starts,  in such a way that it maximizes the benefit of the destruction with its vast potential for regrowth.  Of course allocation, like a fire, will always run true to it's nature while the same can hardly be said for those mere mortals involved. 

Sun, 07/01/2012 - 17:22 | 2579198 A Lunatic
A Lunatic's picture

Very simply, I believe that the present system is inherently undemocratic......

What's undemocratic about monetary mob rule where those with the most money make the economic rules?????


Sun, 07/01/2012 - 17:29 | 2579208 Hannibal
Hannibal's picture

Money:=  a placeholder, a symbol, invented numbers on a computer screen, a socially constructed abstract, it's,...nothing!

Sun, 07/01/2012 - 17:30 | 2579212 pragmatic hobo
pragmatic hobo's picture

"Markets are true democracies. The allocation of resources, capital and labour is achieved through the mechanism of spending, and so based on spending preferences."

another unicone hypothesis based on assumption that individuals are a rational beings. If individuals are a responsible, rational, and reasonable beings we would never have had housing bubble or euro debt bubble.

Sun, 07/01/2012 - 17:37 | 2579229 Aziz
Aziz's picture

Where the hell did I mention rational expectations? That's the biggest shitheap of moronic crud around. 

Sun, 07/01/2012 - 17:57 | 2579267 pragmatic hobo
pragmatic hobo's picture

democracy is based on belief of rational beings. It's a falacy.

Sun, 07/01/2012 - 18:02 | 2579281 Aziz
Aziz's picture

Not in my book.

Democracy just means rule by the people. The people are not wholly or even mostly rational, at least not individually. But when the people have the freedom to live out their own irrational wishes, the entire system is usually both functional and robust. 

Sun, 07/01/2012 - 18:54 | 2579395 Sean7k
Sean7k's picture

Please name one democracy where the system was both functional and robust.

Sun, 07/01/2012 - 19:43 | 2579459 Aziz
Aziz's picture

No country will ever be perfect. USA has had its ups and downs but it has lasted for almost 200 years before things starting getting really rotten.

Sun, 07/01/2012 - 21:48 | 2579615 Sean7k
Sean7k's picture

The words you used were functional and robust. The US is not a democracy. 

Sun, 07/01/2012 - 19:51 | 2579468 SgtShaftoe
SgtShaftoe's picture

The USA for a period of time, Switzerland for a time, the ancient yet unincorporated trade civilizations such as those that were in Mesopotamia before they were taken hostage by priests, kings and thieves.

It seems to go in cycles, until collapse/ reorganization. Niall ferguson's "civilization" gives a good record of them, also Tainter gives a good feel for them.

Sun, 07/01/2012 - 21:45 | 2579612 Sean7k
Sean7k's picture

The US has never been a democracy. Please see definitions. The US is a quasi Constitutional Republic.  Switzerland is closer, but not robust. It depends on its' neutrality to be left alone, yet is pressured on a regular basis. 

Sun, 07/01/2012 - 18:10 | 2579305 Peter Pan
Peter Pan's picture

Democracy was invented only so everybody could talk at the same time.

Sun, 07/01/2012 - 17:34 | 2579222 Turin Turambar
Turin Turambar's picture

Here's a much better article on The Origin of Money and Its Value:

Sun, 07/01/2012 - 17:42 | 2579233 Turin Turambar
Turin Turambar's picture

If you're sincerely interested in understanding what's wrong with things (money and banking) - HINT:  FRACTIONAL RESERVE FIAT CURRENCY!!!  Here's a nice little read by the great Murray Rothbard:

Sun, 07/01/2012 - 17:47 | 2579241 midgetrannyporn
midgetrannyporn's picture

One dollar = one vote is the democracy we have now.

Sun, 07/01/2012 - 17:54 | 2579261 Aziz
Aziz's picture

Yeah. With fractional banking it is easy to accumulate lots of dollars, and buy lots of votes. Honest money will give us more honest politics.

Sun, 07/01/2012 - 17:59 | 2579273 Zero Govt
Zero Govt's picture

no such thing as "honest politics" ...never has been, never will

Politics (Govt) is a rotten idea from the get-go. It doesn't get any better with age, it just stinks higher the more sunlight you pour on it

so if you can't find honest politics in a rotten institution in the past 2,000 years, what makes you think you can turn everything around with some wishful thinking???

Sun, 07/01/2012 - 18:03 | 2579287 Aziz
Aziz's picture

Honesty is a matter of degrees.

Every institution is to some degree corrupt, but I'll take Thomas Jefferson over Ben Bernanke every single time.

Sun, 07/01/2012 - 18:08 | 2579298 midgetrannyporn
midgetrannyporn's picture

both are smart, both are slavers. no difference.

Sun, 07/01/2012 - 19:00 | 2579400 Sean7k
Sean7k's picture

You might want to take the time to study Jefferson. Slaver, sold out like a two bit whore on Marbury V Madison, big native American killer. His politics reflected his desire for personal wealth, not the famous ideas we associate with him. Like many politicians, he spoke out of both sides of his mouth. Our generous history makes him a hero, because it only listens to one side speak- the one they want us to hear.

Tue, 07/10/2012 - 20:16 | 2604140 Turin Turambar
Turin Turambar's picture

I see that you studied under a Lefty Revisionist with an axe to grind.

Sun, 07/01/2012 - 18:00 | 2579280 midgetrannyporn
midgetrannyporn's picture

History belies that last sentence.

Sun, 07/01/2012 - 17:52 | 2579254 Yen Cross
Yen Cross's picture

 What produces Fiat and commodities?  it's a simple common denominator.  The control of Land, that yields usable resources.

  The deliverability, and reliability of those resources gives value. The quality of resources gives a premium. (Eg; water vs xau) in the Desert.  The ability to store resources in a pristine state further enhances future value.

  The ability to use said resource in multiple applications increases future value. ect...

Sun, 07/01/2012 - 18:17 | 2579322 Turin Turambar
Turin Turambar's picture

What a bunch of nonsense.  What produces fiat?  Answer:  Force and coercion.  Only a complete idiot would suggest that, absent government force via legal tender laws, people would have no issue exchanging their goods for worthless pieces of paper or worthless little metal discs. 

Sun, 07/01/2012 - 18:25 | 2579343 Yen Cross
Yen Cross's picture

 Out of curosity?   What method of exchange do you use?  " Government Force"?

   When you enter the real World of exchange, after your  "Personal Armageddon" , the forum would love to espouse.

Sun, 07/01/2012 - 22:48 | 2579685 Turin Turambar
Turin Turambar's picture

"Out of curosity? What method of exchange do you use? " Government Force"?"

Voluntary exchange.  Ever heard of it?  This means NO coercion and NO fraud.  What part of that is so hard for you to understand?

Sun, 07/01/2012 - 17:56 | 2579259 Zero Govt
Zero Govt's picture

"As the power to allocate resources (i.e. money) is widely desired, markets encourage the development of skills, talents and ideas."

I'd say it's the other way round. Producer innovation creates demand.

"Markets" is a generalised term in which economists and politics try to tag-it then Lord-it over sharp cookie individuals who are the real drivers of markets (markets in turn drives society ...forward)

"Planned economies have a track record of failure, in my view because they do not have this democratic dimension."

Planned economies are a total and compete disaster. 100% failure.

It is not the "democratic" dimension of power distribution, namely the market distributes power between competitior and consumer whereas the State hoards the power into a monopoly, that kills the market... though that's tragic enough.

It is the transfer from a free market system where sharp cookie individuals compete to provide value versus the States ignoranumus people. You're replacing sharp cookies with State tossers that know jack-shit about anything. 

Take a look at Eastern European cars (the Trabbant) versus the explosion of innovation, designs, quality, accessories etc etc etc in Western Europe over the same period.

The Trabant had lower technology than most Western lawnmowers. As competition to Western cars they were beyond a sad joke. This is just one of hundreds of examples why the lazy ignorant (idealistic) uncompetitive State brain cannot compete on any issue with the private sector and why all State and public-private 'enterprise' is a pale pathetic shadow of the free market

"Planned economies have a track record of failure, in my view because they do not have this democratic dimension.."


"Our monopoly will eventually discredit itself through the subsidisation of graft and incompetence."


The monopolists (of Govt, The Fed and US banking) came through the Great Depression pretty much unscathed, a Depression caused by the bankers (exactly like this one). Indeed Govt grew from 2% of US GDP post Depression to a command-control semi-Marxist economy under various Democrats and the rotten "New Deal" of the 40's.

There is no change to the system (Govt) until the people (individually) reject the State for what it is, the most corrupt, ignorant, lazy, thieving parasite ever erected by a small bunch of rotten monopolists and forced on society

The Solution: Stop Paying Your Taxes

Sun, 07/01/2012 - 17:57 | 2579268 Aziz
Aziz's picture

Big difference between the Great Depression and today: by the 30s, the US was the productive base of, and creditor to, the world.

Today we are debtor to the world and consumer of last resort. 

In my view, the dollar system will destroy itself long before the people of the USA wake up. Lots and lots of suckers are being suckered into this Obama vs Romney trash.

Sun, 07/01/2012 - 18:02 | 2579282 Zero Govt
Zero Govt's picture

Obama v Romney is trash talk between 2 bankers puppets, if listening to them doesn't make you reach for the sickbag we must praise the mass rotten media for keeping the citizens of the US duped into thinking they have a choice

Sun, 07/01/2012 - 19:08 | 2579412 Sean7k
Sean7k's picture

I'm confused, first you're British and now you're American? 

Actually, we are debtors to central bankers, not the world. Whether the world takes our currency or not is, in the end, meaningless. We can inflate the value away and leave them with nothing. Collateral defines debt. We consume, because people in the world are willing to take that bet- not a good bet in my opinion.

In the thirties, we were debtors to bankers and we still are today. The only difference is the amount (the debt during WWII was as significant as today). 

Sun, 07/01/2012 - 19:29 | 2579444 Aziz
Aziz's picture

"We" as in the transatlantic English-speaking empire. 

The big problem I see for the West is in dependency on an international system of trade that has allowed us the unprecedented inflow of foreign goods at an impossibly low price. The central quandary at the heart of Western-Asian relations is as follows: if we try to inflate away our debt, they will make it more difficult for us to import from them. They don't need our dollars as much as they used to. They have already set up a dollar-exclusion-zone of bilateral trade deals that negates the need for dollars in Asia. Iran, Iraq Saudi Arabia are happy to take gold, renminbei, yen, etc for oil. The whole "they need our dollars" thing is crap. They have a whole lot of problems, but not having enough dollars is not one of them. 

My view is actually that we will end up inflating away a lot of the debt, and they will end up putting up trade barriers. The outcome of that might actually be good for America, though painful in the short term, because it would make domestic manufacturing a lot more competitive. 

Or much worse (war is always a huge misallocation of capital, except in cases of self-preservation) Asia and the West might have a proxy war. Iran looks like a good candidate.


Sun, 07/01/2012 - 21:57 | 2579624 Sean7k
Sean7k's picture

As long as oil is priced in dollars- the world will need them. As long as we remain the largest economy in the world, they will need them. The total bilateral trade in renimbi is about 500 billion dollars. Total GDP of US, China and EU= 40 trillion dollars.

You can't replace the dollar unless you have a currency large enough to maintain FX markets. SDR's? Maybe. That would require the permission of the entire G20.

Trade barriers would create massive deflation. That is an end game solution and one the bankers won't use until they are well positioned.

Sun, 07/01/2012 - 18:10 | 2579306 lakecity55
lakecity55's picture

Chevy Volt: great example of Central Planning, Comrades!

Sun, 07/01/2012 - 22:08 | 2579642 Freewheelin Franklin
Freewheelin Franklin's picture

I'd say it's the other way round. Producer innovation creates demand.


No. Producers produce products that they think consumers will want and they are willing to spend money on.

Of course, however, they do have many cheesy marketing and advertising schemes that can make people think they want certain products. But regardless, people buy products because of the anticipated satisfaction of wants. Praxeology 102.

Sun, 07/01/2012 - 17:59 | 2579275 nuinut
nuinut's picture

Whoever creates the money holds a position of great power — the choice of how to allocate resources is in their hands. They choose who gets the money, and for what, and when. And they do this again and again and again. 

This is true only as long as people use this "money" to save in, as a store of value (SoV).

If savers of surplus value store that value in a different medium (one that cannot be reproduced at will) to that used as medium of exchange (MoE), the creator of the medium of exchange has lost their power. The power lies in the control of the savings. When savings are held in the medium of exchange they are surreptitiously removed via inflation of the supply of that medium of exchange.

By not differentiating between the monetary functions you have not accurately identified the source of the power, John. The bankers are not usurping control, rather (some of) the savers are abdicating it. The bankers are then filling the vacuum.

If a market is a true democracy as you say, then it is not a case of one man one vote, but rather votes are earned by the accrual of surplus value with which to vote. Equity is earned rather than intrinsic.

Sun, 07/01/2012 - 18:53 | 2579393 Vince Clortho
Vince Clortho's picture

Nice try.  You do not pass go.  You don't collect $200.

And you get zero credit for a pedestrian, unimaginative attempt at refuting the premise of the article.

Sun, 07/01/2012 - 20:11 | 2579495 Zero Debt
Zero Debt's picture

If your currency is used in 85% of settlements you must hold it anyway.

Tue, 08/07/2012 - 05:46 | 2684021 nuinut
nuinut's picture

But not as your savings. No one can dictate in what form you hold your savings, and they are your store of value.

Sun, 07/01/2012 - 18:08 | 2579299 lakecity55
lakecity55's picture

Ah, but we would have more freedom if PMs and Barter could also be legally used in many instances as "money."

Sun, 07/01/2012 - 18:24 | 2579342 saycheeeese
2009. I like this link. Whoever it. Is

Sun, 07/01/2012 - 18:33 | 2579358 pmm009
pmm009's picture

Great post, however, you should try to get an overlay of the increase in derivatives on this chart.  My guess is most of the increase can be explained via their creation.  Given how hard people like Larry fought to keep them from heavy regulation, and in light of the side ways  move on your chart from 85-95, there was likely something important on their minds.  They are trying to manage through a problem that they have seen coming for a long time. 

Sun, 07/01/2012 - 20:14 | 2579501 Zero Debt
Zero Debt's picture

See shadow banking

Sun, 07/01/2012 - 19:12 | 2579418 jerryj
jerryj's picture

the lack of any real feedback mechanism has always led planned economies into hideous misallocations of resources . .

How ironic that Wall Street with its monopoly now rather looks like a planned economy! e.g. subprime, Libor manipulation, HF trading . . All of which lack feedback mechanism

Sun, 07/01/2012 - 19:12 | 2579419 jerryj
jerryj's picture

the lack of any real feedback mechanism has always led planned economies into hideous misallocations of resources . .

How ironic that Wall Street with its monopoly now rather looks like a planned economy! e.g. subprime, Libor manipulation, HF trading . . All of which lack feedback mechanism

Sun, 07/01/2012 - 20:21 | 2579435 John Law Lives
John Law Lives's picture

... and to think that the Great Chairsatan doesn't consider gold to be money...

Chairsatan = Shyster!

Sun, 07/01/2012 - 20:51 | 2579556 NuYawkFrankie
NuYawkFrankie's picture

Re The Origin of Money

Hmmm..... that's a tough one - but if I had to guess, I'd say probably the Tooth-Fairy... or, failing that,  undeneath the sofa cushions, right down in those hard-to-reach places where the seams meet the frame..

Sun, 07/01/2012 - 21:54 | 2579621 Perpetual Burn
Perpetual Burn's picture

You just figured out the system is  corrupt? lol

Sun, 07/01/2012 - 22:08 | 2579626 Freewheelin Franklin
Freewheelin Franklin's picture

I think Rothbard wrote great detail about how the "first holders" of new money get the most benefit, while secondary holders get stuck with devalued dollars and price inflation.  Palyi also wrote about it.

Mon, 07/02/2012 - 13:09 | 2579631 TomGa
TomGa's picture


Two presentations explaining the Federal Reserve:


"The Creature from Jekyll Island" - Ed Griffin


The American Dream


Sun, 07/01/2012 - 23:26 | 2579765 mammoth mo
mammoth mo's picture

We are fools conditioned by television and movies to think there is a happy ending or at least one where the bad guys take it on the chin.

In truth these are our options: Get out of personnel debt.  Get your family out of debt.  Maybe your relatives.  Wait for the shoe to drop.  Might be never in our lifetime.  When it does expect the rich to make a killing and not  be the ones killed.

Be good to each other no matter what happens. We need each other much more than money. 

In the end it is pretty impossible to break a system that everyone grew up in and that is all we know for rewards.  A  new system of rewards based on hard work and true values would be best but hasn't be seen by most living and maybe some who think they saw it - were disillusioned.

To fight the man - you must give up wanting to be like him.  You must value what you have without wanting what others have.  You want beat the man - but you will stop losing to him.

Sun, 07/01/2012 - 23:42 | 2579784 brodix
brodix's picture

" The allocation of resources, capital and labour is achieved through the mechanism of spending, and so based on spending preferences. As money flows through the economy the popular grows and the unpopular shrinks. Producers receive a signal to produce more or less based on spending preferences. Markets distribute power according to demand and productivity; the more you earn, the more power you accumulate to allocate resources, capital and labour. As the power to allocate resources (i.e. money) is widely desired, markets encourage the development of skills, talents and ideas."

 This is the current problem in a nutshell. Money is popular and there is a great incentive to produce lots of it. Eventually the entire economy is devoted to maintaining the value of this notational wealth. What is necessary is to make money less popular. If people understood it is actually a contractual medium which is essentially owned by the institution issuing it and not actually the property of the holder(just try printing some up and find out who holds the copyrights), then people would be far more careful what value they take from other assets and convert into money. More value would be channelled into stronger communities and more durable and healthier environments and we would have a more stable monetary system.

Mon, 07/02/2012 - 03:01 | 2579966 FlyinaRage
FlyinaRage's picture

Jesus threw the money changers out of the temple two thousand years ago, and we still have never learned the lesson. Money, coin, credits, any form of monetization, allows for the accumulation of wealth in institutions that retard social progress for the benefit of the established order. This is a drastically inferior method, when given our technological innovation level and population density as it stands. Barely one quarter of the globe with limited access to the Internet, global poverty increasing steadily, environmental destruction with no plan to improve things. It is endemic, in a competitive global monetary system that losers outnumber winners, elst why would the winners even play? But when the game becomes life or death, and last years winners get to make up the rules...We need an equalizing factor, and there is none, yet we play on.

Mon, 07/02/2012 - 05:28 | 2580009 slewie the pi-rat
slewie the pi-rat's picture

"Such a system is unsustainable."

on a long enough timeline...

Mon, 07/02/2012 - 06:47 | 2580052 Fort
Fort's picture

Punishments for not paying taxes are severe and not attractive as a form of resistance. A saver one is collecting cash from your banks as soon as it comes in. Keep it all under the matrass. This is peaceful resistance. Government no longer have control and knowledge about how and where you spend your money or even how much you might actually have. Stop using electronic payment services and collect all your cash from the bank go full paper. This will in a peaceful none violent manner take down the house of cards faster than any other form of protest and rebellion.

The only violence resulting from such a popular protest will be the violence banks and governments will bestow on the population in response. That action however will quickly demonstrate who the real aggressor is in a person's day to day live. The real mafia (Government and banks) will come down on the population with a vengeance. Still if people would be able to keep it up it would be a tremendous blow against the totalitarian state and banks.  You having your cash in hand also ensure you decide what you do pay and what not. Of course there will be collections, but there are limits to collection power and you can always resist every attempt as far as you dare to take it. It would entail a lot of work for Governments and banks to actually get your money. So much it ends up hardly worth it or simply not manageable. In addition I doubt banks and governments can keep the system up for long if the 99% simply reverted to this peaceful way of rebelling against the state and the banks.

Never underestimate how shaky the foundation of all that power created truly is. Once masses learn how to rebel and have really had enough of it. It can’t be stopped it is one snow flake to much that sets off the avalanche and when it does it is out of control. Right now banks and governments are extremely vulnerable to this type of peaceful rebellion.

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