From: Thomas Lee Abshier, ND
To: John F.
Date: 9/30/2011


John, thanks for the reply.  I understand your argument, and agree with it to an extent, but disagree that we are required by Biblical Law, and Godliness, to use only inherently valuable QMS symbols as money and stores of value.  The QMS (Quantity of Measurable Substance) System of money is strongly law based, and it is very difficult for anyone to abuse the money supply.  Those who save have their value securely stored, and those who borrow are truly borrowing that which has been stored by delayed consumption.  Such a system is conservative, bounded, limited, and value is traded for value.

The current banking system (Fractional Reserve Banking, Monetization (printing money) by the Federal Reserve of the National Debt to fund “entitlement” spending) has used the color of QMS to create a system where people think they are saving into a solid store of QMS fiat money, but in fact they are putting their money into a system where a few people can print/issue or consume for their own benefit without having given into the system a commensurate level of value.

In the strict QMS system you champion, all the people that want to create, work, and produce are restricted in their societal authorization to exercise their energy, initiative and creativity by the aggregate savings of the economy.  I consider this limitation to be the center of the flaw of the strict QMS system.  

Of course unlimited credit, unlimited authorization to consume by the issuance of new money dilutes the money supply, and raises prices.  Little advantage comes from an unregulated, and hence unlimited, issuance of new money to authorize new production.  

New money, created from nothing other than a contract to produce more goods and services, is not inherently inflationary.  New money can be introduced in such a way that prices do not rise.  In particular, as long as the society has an appropriate saving rate, the new money will not have a diluting effect on the money supply, and hence there will be no upward pressure on prices.

Without savings, New Money will exert an inflationary pressure on the economy.  But, that effect is moderated by several factors:

The strict QMS system sounds conservative (i.e. value in equals value out), and on a macro level, that is the ultimate effect.  But, the process of saving frees labor and resources by an extremely complex process that Adam Smith called, “The Invisible Hand”.  This fact is easily seen by noting the products not consumed by “saving” are different than the goods and services needed by the person asking for a loan to establish a new business/factory/industry.  Thus, there is no strict store of value that is accessed by authorizing a loan of “saved money.”  Saving does free labor to engage in the production of that which is in demand, but the mechanism is invisible, and cannot be legislated nor predicted.  

If society does not support the invention, creativity, and desire to produce of the entrepreneurial individual, the economy will languish.  Wise, good, and Godly giving produces wealth in return for the gift.  Consumable value is eventually increased by having faith in, and supporting the efforts of the individual who is committed to increase wealth/consumable value.  By loaning money for productivity, (i.e. extending societal credit to consume resources that will be paid back later) the prices of goods and services will eventually drop.  The system I propose consists of, 1) loaning savings for both consumption and production, 2) using the system of Fractional Reserve Banking to incrementally increase the amount of money available as saved money for loans, and 3) the creation of an appropriately limited amount of new money for loans to enable production.  

In the strict QMS system, we limit the rate of an economy’s productivity increase to that fundable by savings rate.  We impose this arbitrary limit upon ourselves because we demand that the money be strict, unalterable, inflexible, conservative, and limited to physicality of value represented by the QMS.  The QMS system gives us strict limits inside of which we can authorize creativity and the expansion of production.  As a result, the wealth expansion, the true rate of increase of valuable consumption available for the society, is limited by how much people have delayed consumption.  Which is very right and just -- but it leads to a very limited authorization to produce new wealth/consumable value.

In the QMS system, faith plays a role, but only a minor role compared to the faith required in the De Novo Money-Contract System.  In the QMS System, the bank/creditor/issuer of saved funds, trusts that the contractee will rightly use resources that have been delayed in consumption, and multiply value from that seed.  And of course faith was involved, and the system is very conservative (value conserved) and the outcome is good.  

But, I raise the question, “Is there a better system?”  Is this the best, most Godly, most righteous, most prosperous system?  Is it truly the best system that has no more faith in men producing value than others have already delayed in consumption?  Is it necessary to hold men to the iron/gold standard of having money with inherent value, rather than representing a man’s commitment to produce value.  Did not God create the world by the Word?  Are we not created in His image?  Are we not given authority over the earth and told to subdue it.  Are we not told the it is impossible to please God without faith?  Is it truly the best system to hold people to immediate and strict accountability for the amount of value that they will create based on only on the amount of delayed consumption of society, or the amount of stored gold/silver in a vault?  If examined strictly, is such a system even a strictly conservative system?  Are not such limitations actually only loosely related criteria that are used to restrict borrowing?  In fact, truly, borrowing must be limited.  But, using more causally related criteria to regulate the amount/quantity of borrowing creates a system which has within it the possibility of producing true abundance of consumable riches.

Advocacy of a strict QMS system has within it an implicit primary defense against the threat of devaluation of the money supply and its storage of value.  In the QMS System, we strictly legislate and regulate around the fear that someone will steal our hard earned savings by various methods.  The primary concern is counterfeiting (i.e. through government issuance of “printed money”).  

The QMS system allows for nothing but 100% reserve, in other words there can be no loans at all, since all the money must be always available.  In such a system the bank is nothing more than a repository or stored value, and cannot serve as an agent of loans.  The Fractional Reserve Banking system is inherent to banking as a lending institution.  The Reserve Requirement is merely a regulatory mandate meant to accommodate the public in their need to withdraw funds on demand.  The multiplying effect of loaning, and depositing, and loaning a portion of that deposit is inherent to FRB, and is not a morally troublesome practice if we allow banks to be lenders.

The more concerning practice, of loaning money based upon the value of the loan, has the potential to greatly increase the money supply.  But, I think that such practices may actually be apocryphal, urban legend, untrue.  But, even this system is workable if in fact the loans are properly regulated in terms of proportions going to consumer vs. producer loans.  And of course, when giving the banks, or the system, latitude for discretion, it is a portal through which corruption, tyranny, oligarchy, and/or special interests can enter.  Thus, as usual, when implementing a system where there is an element of trust/discretion, such a system will only work for a moral people.  When men feel the visceral pull of the grave responsibility to a Righteous God, who delivers justice, men will regulate themselves Rightly.  Otherwise, not so much.

Again, demanding a strict QMS system of money places our focus clearly on the fear of man’s bad actions, rather than faith in God’s miraculous power to multiply a few loaves and fishes to feed the multitude.  I submit that it is a more profitable, and Godly, system to focus on submitting to God, and resisting the devil, since evil will naturally flee in the face of overwhelming goodness.  In other words, let’s create a monetary system that has Godliness, miracles, faith, love, and hope at its center.  Let us put up intelligently authorized centers of responsibility, right judgment, accountability and broad vested interest. Let us put up barriers to the perversion of the system by cheats, counterfeiters, thieves, and liars.  Such a system will require that we as a culture generally fill our hearts with a commitment to rightness and goodness, as well as understanding, wariness, and wisdom about the ways of evil.  If we focus on our commitment to prosperity, and right action, evil will find no fertile ground and die of starvation.

The question I ask is, “How do we as a people, as a society, as a Godly nation, organize ourselves into a self-aware organism?  How do we properly/Rightly self-regulate the societal organism’s internal metabolic processes of economy, such as: government, market, labor, voting, feedback, choice, capital, loans, contract, accountability, saving, delayed consumption, consumer demand, labor that meets demand, stored value, stable money to consumable ratio, freedom, mobility, opportunity, risk, investment... ?”

If we (as bank depositors) choose to put the bankers as the sole agents with authority to decide who receives “new money” issued, then we are blind, and subject to the effects of the contracts the bank oligarchy makes.  In fact, they may misjudge people in regards to their skill and/or the market demand for their product.  Likewise, without supervision, there may be intentional collusion between creditor and debtor, with the perversion of judgment of merit attendant with easy gain (bribes/corruption).  

The QMS System works well to ally the fears of a system where the power to issue new money is abused.  The QMS System makes naked theft by counterfeiting more difficult, but it does nothing to deter other white collar crimes.  

The main criticism of the De Novo Money-Contract System is that governments throughout history have used their power to issue fiat money to dilute and eventually destroy the money supply by printing money to pay for their excessive spending.  The temptation to buy votes with tax money, and then by printing money seems nearly irresistible and hence nearly inevitable.  But, this is not a problem with the morality of a fiat money system, it is a problem with the morality of people.  A fiat money system need not go down this path, but a short-sighted, greedy, or unwise people will almost certainly fall prey to the temptation of easy money.

Law and enforcement are God’s representatives on earth.  These agencies are charged with displaying God’s wrath against evil.  The QMS System is more easily enforced against theft because of the difficulty of expanding the money supply.  But neither the QMS nor the DNMC System can withstand unfettered expansion of the money supply.  QMS System will fail with unlimited issuance of currency backed by unlimited amounts of gold.  Likewise, the DNMC System will fail under the dilution of too-rapid, or poorly judged, issuance of credit for new production.

The foundation of any society and its monetary system is the Godliness of the nation’s people.  Thus, to ultimately solve the problem of a stable, value preserving money, we should continue to strive to educate men in the ways of Godly character.  The state should legislate righteous statutes and execute justice, and appropriate and swift punishment.  An important safeguard of the De Novo-Contract Money system is the authorization of all parties with standing complete transparency for examination of the books (records, transactions, compensation, decisions, merits/plan for production, money flow)... of those receiving, and those issuing, new money.

Many people fear, suspect, or declare the international bankers in some way are influencing something very important in the realm of markets, politics, and freedom.  A strict QMS system would probably prevent, or at least interfere with, the international bankers executing their plans for world dominance.  Creating a one world government would be much harder under a QMS System than under the current system of government-created fiat money and its Central Bank enablers.

Q: But, no system is without a cost and downside.  What are the disadvantages of a strict QMS system?
A: Expansion would probably slow to a small fraction of the rate possible under a Fractional Reserve System (FRS, our current system), and much much less than is possible under a De Novo Money-Contract System (DNMC System, my proposal).

It is not a necessary evolution or conclusion that a FRS or DNMC System must become controlled by international bankers.  Yes, certainly the money-power elite want to control the political-economic system through wars, biased education, filtered media and propaganda, social programs, legislation, administrative regulations, judicial decisions, and corporate investment.  But, neither a FRS nor a De Novo Money-Contract System necessitate its dominance by an international money-banking-cartel.  I submit that the internal transparency of the DNMC System would make such dominance impossible unless it was the will of the the shareholders, depositors, and electorate.  If the market in its broadest sense, including opinion, production, consumption, investment, and motivation were to oppose the international bankers, the force of the majority would be irresistible, and the power-elite would have no influence.  Sunlight is the best disinfectant.  Transparency exposes the works of darkness.  We surround them -- they do not surround us.  Even if the power elite do currently control the state and direction of the world, we need not follow their orders and lead.

If every bank could create a small percentage of their total assets as new money for business that was worthy, that would take the power out of the central bankers, and put it back into the hands of the people who create value and the community they live and work in.  The De Novo Money-Contract system puts bankers in a transparent partnership, and accountability relationship with the depositors of a bank.  The people always have the option of vetoing a proposed DNMC loan, since they can take their money and put it in another repository/bank.  The DNMC System puts people in a distributed network that gives some input into how their their money is invested, and how De Novo Money is directed.  

The value of money is determined by the availability of goods to consume.  The bid ask values in the bidding war for goods and services is central to the market, and should never be replaced with inflexible prices.  New technology may make a product cheaper, and changing social tastes may make a product rare and expensive or worthless depending on the supply and demand.  

In the De Novo Money-Contract System, a man is willing to use his labor, and combine it with (human and natural) resources, and apply his intelligence/knowledge/discipline, to manifesting a vision/inspiration/idea/invention, while using his faith (in divine favor and the reality of his vision), and use the tool of money to obtain the societal authorization to use money to build the machine that will produce value.  

The banking system must be built upon savings as its fundamental layer.  Savings by their very nature require a delay of consumption, which should mean that there is some unused productive or consumptive capacity available for allocating to a new productive process.

The Fractional Reserve Banking System (FRB System) allows for, and produces, a gradual increase in the money supply of the entire banking system.  The “money as Debt” cartoon declares that new loans can be created based on the value of a previously made loan.  This is probably not true.  But, this does not mean that the banking system does not increase the money supply.  

The FRB system allows banks to loan 90% of their assets.  When that 90% is loaned, that money then flows into the community (nation) via paychecks and purchases, and into the banks of the communities and become available for more purchases with their checkbook money.  

It is not realistic to assume that all the money deposited will be available for the bank to loan.  But, there will be a portion that is saved, and that will be available for the new bank to loan 90%.  Thus, more money will be loaned out due to spending and saving of the original loan.

Note, this kind of multiplication, while a fact, produces a very slow increase in the total money supply.  And, in a mature, well supplied, wealthy economy, such a slow growth is entirely acceptable.  But, in a stagnant economy, where there are a large number of unemployed willing and/or discouraged workers, this slow process of money supply expansion is too slow to ease the human suffering associated with a stagnant economy.

Thus, the genesis, inspiration, and motivation for the development of a system that is both flexible and responsible to the highest standards of ethics regarding money and the retention of its associated value.  

When new money is generated, it should be for the purpose of generating new goods and services if the economy has too much consumer money chasing too few goods and services.  
The question arises, whether it is unrighteous, immoral, or otherwise improper for government or any other institution to engage in monetary policy.  And, to this question I would argue that monetary policy has an effect on the economy to a point, but if misused, or mis-timed, then it can wreck great havoc on the economy by inappropriate force application to the business cycle.  Those who are traders know that it is nearly impossible to buy or sell at the peaks or troughs of the market.  It is likewise difficult (impossible) to accurately time the top and bottom of the business cycle so as to apply counter cyclical forces so as to stabilize the economy.  Thus, we will most likely continue to have cycles, as long as the market is free.  Thus, the question is really, “Is it bad that we have a business cycle?”  Need we absolutely control and flatten it?  If we can’t flatten it, then we must learn to live with it, or moderate it the best we can.

The De Novo Money-Contract System naturally implements a diffuse economy-wide, system of counter-cyclical responses throughout the economy.  Every individual bank, corporation, small business, family, and individual is motivated to protect their own interests, and will naturally apply the counter-cyclical forces that flatten the trajectory away from stability, and thus will naturally bring a quasi-stability to the business cycle.  But, for the interested and invested parties to intelligently participate in guiding the economy and its investments in the future, requires information/data about the state of the market.  

We are tempted to give regulatory and enforcement authority to government, seeing them as wise, parental, capable, impartial, and unavoidable.  But, yielding power to the Federal government to regulate all aspects of life has led us to the untenable economic, political, social situation in which we find ourselves today.  Through the CRA the Government mandated the loans that debased the mortgage credit system.  The changes in interest rates and oil prices triggered the defaults in sub prime mortgages, which precipitated the great Recession.  Government has enabled extended unemployment at a high levels and disincentivized finding a job.  Government has created a business environment where lending institutions refuse to lend due to fears of oppressive regulatory requirements.  Businesses do not expand or start due to uncertainty about energy costs due to threatened regulations to solve the uncertain threat of global warming.  Government has created a climate of pessimism and fear in the lending community by legislating the threat of forced bankruptcy due to provisions of Dodd Frank and Sarbannes Oxley Mark-to-Market rules which require forced bankruptcy if the lending institution fails to keep assets above a given percentage in relationship to loans.  

To revoke legislation which is strangling America’s lending institutions requires that a credible alternative is offered.  The De Novo Money-Contract System is just such a proposal.  It replaces government regulation with a strong internal self-regulation.  This DNMC System would not have any secrets, on any level, about any transaction, profits, policy, loans, repayment, or the companies taking loans.  The money the banks use is loaned to them by those who save.  The money system truly is owned by the people.  The international bankers, the government, the hedge funds, brokerages, are all ultimately servants of the people, and they deserve to be meaningful participants in the evolution of the story of life, money, and production.  Capitalism and the free market are more appropriately regulated by the people who fund it and participate in it than government or the financial elite.

Saving is the foundational virtue that an economy and its people must exercise to free productive capacity for deployment in the expansion of greater production or new enterprise.  Cash, currency, loans, credit is the financial key that allows the business or entrepreneur to acquire the labor, and tools of production which will eventually enable increased consumption.  Without the reduction of consumptive pressure by saving, the resources needed to increase productive capacity will be unavailable.  

The economy is a circle with no discernable origin or end.  Levels of production, employment, payment, consumption all produce effects on the other elements of the economic circle.  For example, when prices rise for a commodity such as oil, and consumption drops due, this influences the money available for further consumption in industries that use oil, which in turn reduces the number of people employed, which reduces the amount of money spent in the economy, which reduces the production of the economy, which reduces the payroll, which reduces the consumption, which reduces employment...  The downward cycle of recession can lead to depression (deep recession).  

The downward cycle of this was precipitated by oil prices which could have been influenced by war, political unrest, environmental disaster, weather or terror related damage.  In other words, tehre are When production is low, employment is low, few dollars are available so few goods and services are prowill be high, and the available consumables low -- resulting in inflation.

Returning to the comparison between the Strict QMS System and the De Novo Money-Contract System: The QMS system must wait for a very long time for prosperity while the money supply and corresponding production to slowly rise.  More production will not come until more people have produced, saved, and invested.   

In comparison the De Novo Money-Contract System will provide societal credit to produce, which will soon lead to consumption.  The heart of the DNMC System is delayed consumption during the time while new production is coming on line.  Allowing appropriate levels of credit, in particular new money associated with contracts to produce, will allow the most rapid level of increase of consumable wealth.  

This system is most effective when every man works, and saves a portion.  That percentage will change depending upon the productive capacity of the economy at any given time.  But for certain, the sacrifice of today will enable the bountiful consumption of some future tomorrow.  The virtue of saving requires delaying satisfaction for a season until the fruits of the harvest are ripe.  The system depends on a society of those who operate on faith and voluntarily delay consumption.  

Both the consuming and producing group must do their part responsibly.  The consuming community must exercise a degree of restraint by saving a portion appropriate for the particular economic state while the promised production comes on line.  At some point, the amount of production becomes sufficient to meet the ongoing steady-state demand, when only a maintenance level of investment need be directed toward a mature industry.  But, maturity is only a relative term since when technological advancements come, new more efficient competitors will arise and take market share with their more cost efficient production methods.  Thus, a new round of investment will ensue, probably replacing labor with machines and fewer but more skilled workers.  This frees labor for deployment to other more labor intensive efforts.  

The advancement from scarcity to abundance is facilitated by the use of money.  Money induces the idle and hungry man to devote his body, mind, and possessions to productive enterprise.  If credit is easy, if the economy is willing to consume, and labor is willing to work, and capital is willing to invest, the labor market will be in demand.  And, education is the bridge between the various positions of employment.  

When the economy invests in the tools of production, it is only a matter of time before the loan is paid.  If the investment in new productive capacity is small, then there will be only a need for a commensurate small rate of savings, and vice versa.  The more aggressively the economy is expanding, the greater the rate of savings that will be required to prevent inflation.  Obviously, more employment, more dollars available for consumption, but to the extent the new production is not yet available, the rate of savings should be maintained.  Of course, there is not just one investment with new money.  There will be many loans across the economy, and they will be in a full spectrum of completion.  Thus, the rate of savings will be variable, and a saving index should be developed as a service of each industry, sector, and the full economy.  This is the type of service that is well facilitated by either government or an industry association.  Knowing the projected and recommended rate of savings is very important to maintain the economy in a stable state.  Of course, such recommendations should be purely voluntary, but by computing, educating, and promoting, voluntary compliance could be an important tool in empowerment of the public, as well as self-stabilizing the economy.

The vision that I propose is a faith/trust-based system.  It is one where the producer is given the responsibility of creating goods and services with new money, while the consuming public consumes and saves an appropriate percentage.  If abused, the system has the potential to produce inflation and devalue the currency.  Inflation will result if the society does not save appropriately, and/or if the newly contracted business does not perform, or if the new business produces a product which the public does not consume.  

The safeguards and procedures to implement the De Novo Money-Contract system would be much more complex than the QMS system.  And yes the De Novo Money-Contract System gives God-like powers of creation to those entrusted with loaning money made from nothing.  But, this similarity does not disqualify the system as being Satanic, unGodly, or unScriptural.  In this system, we are not creating value/wealth/consumables out of nothing, we are using God’s creation, ordering it through energy and intelligent focusing of force.  The De Novo Money is a type of creation by the Word, but not nearly as dramatic as God’s creation of matter, energy, space and time.  Money is only a vehicle of social authorization.  The real creation is employing faith and works in the production of goods and services.  Money is merely a medium that authorizes consumption, either for creating tools of production, or for consuming the fruit of production.  When new money is created, it is most righteously created when it is spoken into existence in conjunction with a contract to produce value.

The De Novo Money-Contract System is probably a millennial system, since it is strongly based on faith and a moral people.  Without faith it is impossible to please God.  It is a system where men create money out of nothing.  But realize, money is not a thing, it is an authorization consume, a commitment to produce, or a recognition of service.   .   is only the authorization to consume, and that must be coupled with delayed consumption.  The real value that men create is fashioning the substrate that God gave/made, and shaping it, with labor, time, energy, intelligence.  From that energy, value comes.

Thomas Lee Abshier, ND