Wednesday, August 21, 2013

#D: The Basic Law of Contracts - E. C. Riegel

E. C. Riegel
Human freedom is constituted in freedom of contract and in a monetary economy, fidelity of contract is based upon fidelity of the money contract. Since all contracts are expressed in terms of the money unit and the stability or meaning of the money unit depends upon the fidelity of the money contract, it is manifest that the whole superstructure of contracts and hence the whole social order rests upon the basic law of the money contract.

When a money exchange system is instituted, the participants enter into it per force of the necessity of escaping whole barter. They have found that to split barter into two halves, namely, the process whereby one trader (the buyer) receives value and the other (the seller) receives an interchangeable credit instrument, exchange is facilitated and as exchange is facilitated, so production is promoted and wealth increased.

The participants in a money exchange do not explicitly enter into contract with each other, but there is an implicit contract, even though they be unconscious thereof. As stated, money exchange springs from the necessities of trade and thus an unscientific system is acceptable in the absence of a better one.

That is why money exchange has proceeded by empiricism rather than by science. If we would end the method of trial and error and thus end the destabilization of the multifarious contracts upon which our life depends, we must understand the money contract.

The Implied Compact

When the seller accepts money in exchange for a value he has surrendered to the buyer, he expects to be able to secure an equivalent value in turn when he tenders money. But he does not expect that return to come to him from the one who received value from him. Hence there is no contract between buyer and seller. What or who is it then that gives substance to the promise that the money holds? It is the NECESSITY, common to all competitive traders, which obliges each to enter the market with goods and services and bid for money, which is indispensable to each. This free competition stabilizes the power of the money and thus assures the holder of money a value equivalent to that which he surrendered. Two stipulations are necessary to accomplish this:

a) the buyer must have appropriate limitation of money issuing power.

b) he must be dependent upon his power to effect sales competitively.

The basic compact, then, exists between each of the traders and the central money administering authority that the above named stipulations will be respected. Such observance excludes the administering authority itself from the issue power and all institutions of government that depend upon the taxing power rather than upon the competitive selling power.

With governments controlling the issue power of money, with indulgence by themselves, it is obvious that the basic law of contracts is violated, thus threatening the entire social order.

E. C. Riegel

2 comments:

  1. OK, I read all of Riegel in the 1980s and have written on the subject, being impressed by the concept "trade creates money". But in coming back to it and wanting to write informally (as in Facebook posts) have been reluctant. After many years, one thing escapes me and just don't have time to re-read everything. And that is: yes, you issue credit when sell; but how do you retire it, if it is not a commodity or a fiat? Just by spending it? And if everyone decides they have no more need to trade, say for a month, does all "money" disappear? Theoretical, I know, but I've gotten hung up on it. Thanks!

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    1. There are a few erroneous concepts concerning credit clearing and the main consideration seems to be a fear of too many money tokens floating around contributing to price inflation. But the fact is that all money does die in depreciation of assets. Every single time something is sold for less than was paid for it, whatever that difference was, that much money disappears from the accounts everywhere, never to return. This is why inflation took as long as it did after WWII to manifest, because for a while, government spending works to keep an economy going, but since the government can't tax back all that it spends, there will be inflation, guaranteed. The fact that in a Valun based economy, the money is issued by the people and whatever those Valuns buys backs those Valuns, even so, depreciation of assets destroys more money with every sale until the assets are considered worthless. Credit clearing does prevent excessive Valuns in circulation by design, but new Valuns must be issued by active producers and traders, else a price deflation is expected. The major difference between a Valun system and any of THEIRS is that THEIRS is a speculation racket involving uncleared monetary tokens as commodities, whereas when someone says, how much is your Valun in dollars, silver and gold, we can always tell them, because our measure of value doesn't change, while any of THEIRS changes.

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