On Solid Paper Money

Apparently, Ben Bernanke is coming to India.

When George Bush came to town, he was greeted with this article of mine in the ToI: “False Currency.” I had actually titled the piece “Counterfeiters Inc.” and I am happy to report that a senior banking journalist, Mythili Bhusnurmath, has quoted this ditty to greet Bernanke:

Dashing through the air,
In a packed-with-dollars plane,
O'er Wall St. he goes,
Laughing all the way.

Dollars on his wings,
Making spirits bright,
Oh, what fun it is to throw,
Dud dollars to all in sight.

Oh, jingle bells, jingle bells
Jingle all the way
Santa 'Ben' is coming to town,
Riding on his plane.

A month or two ago,
We thought we'd take the ride,
But soon recession came,
And now there's nowhere left to hide.

The cost is 'zero' now,
So borrow all you can,
And if you can't repay,
Why turn to 'Ben' again.

Oh, jingle bells, jingle bells
Jingle all the way…

Yet, modern “macroeconomists” invariably fail to understand money. To truly understand what money is it is better to turn away from all the confused economists, and turn to the subject of Law.

In any market exchange, “real” goods are exchanged. Before paper money, hard money like gold, silver or copper were exchanged. The introduction of paper money was based on the idea that the paper note is a “property title” that entitles the bearer to redeem the note for hard money on demand. This “promise” (which is a valid contract) is still printed on RBI notes. But the RBI’s (and the US Fed’s) paper notes are not convertible into any hard money on demand. They are “property titles without property.” This is what makes for continuous inflation. Inflation robs the poor, savers and others on fixed incomes. It benefits borrowers. This destroys the “character” of society. Remember how Max Weber said the Protestant work ethic gave rise to the spirit of Capitalism. An important aspect of this work ethic was thrift. This virtue is destroyed by inflation.

The solution thus lies in a legal system that outlaws all property titles without property. Private bankers will therefore issue notes backed 100 per cent by specie. I had earlier tinkered with the idea of an “option clause” on notes that would allow for the option of delaying redemption for a specified period, but now I reject this idea. Such option clause notes will drive all solid notes out of the markets: Gresham’s Law. And, what is worse, there will be enough room for such bankers to issue a certain percentage of “property titles without property.” This will be inflationary. And it will also, in my opinion, be a corrupt banking practice. Under the Rule of Law simple general rules should hold sway. That is, the paper note is a property title. It is to be redeemed on demand. Period. Once this is The Law, let private bankers adjust and play the game by these good rules. And let the mass of the people, wretched and poor, cheated so long by these counterfeiters, understand The Law as it pertains to Money. After all, what governs a society is opinion – especially opinion on The Law.

And what about Bernanke?

Well, Mythili said it all in her cute ditty.

The cost is 'zero' now,
So borrow all you can,
And if you can't repay,
Why turn to 'Ben' again.

The loon is heading towards hyperinflation. This is the "end game."

Also read a legal judgement on paper money from the point of view of Muslim law. Property titles without property are a fraud under Islamic law.

It is The Law of The Land that we must change.

It is not enough to throw one party out and get another party in - this, while all the bad and repressive laws remain. Governance is nothing but The Law.

Did I hear someone ask: "How do we get from here to there?"

Well, pump the donate button and then watch me raise the decibels.

We gotta fight.