Alternatives to Money as Store of ValueOctober 17, 2019 by Juan
Both Economics and Mercantilism use money as their store of value and tool of trade. Mercantilism was also called the Commercial system and now takes the form of E-commerce.
To buy anything online, you need a credit card or any electronic system to transfer cash payments. Prior to commercialization, the universal method was barter. For example, the Mongols and the Inca were able to sustain their empires by bartering goods and services.
How The Commercial System Spread
Coined money began in the West with Servius Tullius. In China, paper money began with the Song dynasty.
However, there was still no centralized commercial system because those societies were using either the aristocratic or tyrannical systems of imperial rule and monarchy respectively. The oligarch system of corporations and big business was still non-existent. Such a system needed lasting peace and order which did not exist.
This changed when the Spanish conquered Europe as the Hapsburgs to impose that relative peace. They then discovered silver mines in South America which allowed metal money to spread to the world. Its convenience rendered barter obsolete.
Thus, monarchial strength in Europe led to peace which led to money which led to the commercial system*.
*The strength of China and India came from the imperial system and not the monarchial one. This allowed them to hinder commercial interests, similar to how Xi Jinping is able to clamp down on tech companies. This is the opposite of the US where its leaders are subservient to commercial interests, as seen in the phenomenon of globalization and the 2008 Financial Crisis.
Because of colonization, all countries adopted precious metals, allowing the commercial money-only system to monopolize all buying and selling transactions. The showdown between the commercial and the imperial systems manifested as the Opium Wars wherein the Chinese imperial system was defeated.
However, the commercial system also created problems:
Inefficiency in running an economy: Before you can buy bread, you need to have money. To have this money, you need to sell something that you have. To sell something, you need to find a market. So to buy anything, humans need three steps
High expense and unproductive labor in financing the economy or supporting money: The monopoly of money for exchange necessitates an expensive financial system filled with bankers, financiers, tellers, accountants, lawyers, etc. to support it. This adds to the cost of the economy without adding any real value. Adam Smith calls these ‘unproductive labor’ and is the most expensive part of the economy
Lack of responsiveness, and slow progress: Since many steps are needed to procure money, there is a lag in responding to supply-and-demand opportunities. This results in missed opportunities for addressing the needs of society, or for creating advanced technologies as many promising research projects remain unfunded. A lot of deals fail because one party lacks money to complete the transaction.
Arbitrariness and volatility: Money allows economic control which can have both good and bad effects. One one hand, it keeps some stability through a central bank as the wholesaler of money. However, this same control also creates volatility when that money is hoarded by retailers such as banks and financiers.
To solve these problems, Adam Smith suggested grains and precious metals as the store of value:
Labour.. is the only universal and the only standard by which we can compare the values of different commodities at all times and at all places. From century to century, corn is a better measure than silver, because, from century to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.The Wealth of Nations Book 1 Chapter 5
This is why Superphysics will use points and bank gold to replace fiat currency*.
- Points are pegged to grains and are used for local transactions. For example, in China, the points will be pegged to rice. In the US, it will be pegged to wheat.
- Central bank gold will be used to transfer investments from one country to another. This makes the International Monetary Fund unnecessary. This gold is a fixed ratio to the actual fiat that is circulating and is different from market gold. This then leads to a gold-backed currency that makes the arbitrary printing of money illegal.
*During the transition or revalution, all fiat currency can be converted into gold-backed currency. The points system will give an idea of what its proper ratio to gold should be. This is why the points system should be implemented first. For example, if Japan implements a points system in 2020, then it can safely and confidently switch to a gold-backed currency by 2035.
Thus, a Supereconomic system will have 2 stores of value:
|Grains||Local Points||Moderate||For local transactions of basic value|
|Gold||Bank Gold and gold-backed local currencies||Slow||For foreign investments and circulation of non-basic value (wholesale money)|
Bank gold will only be used to circulate investments between countries and have nothing to do directly with commercial activity since bank gold is not legal tender (you can think of it as legal tender only between states). However, it will be the basis for gold-backed currencies which then will be used to circulate value.
Gold-backed currencies solve the fourth problem with money. However, it still suffers from Problems 1-3. This is where points come in.
Points are Pegged to Grains
To prevent the arbitrariness, we create a second store of value as points which are pegged to grains. Only banks can create bank gold, but everyone can create grains through farming. The grains represent a person’s productivity, as judged by other people. Tihs is because everyone has an idea of how important rice or wheat is in their lives.
This solves Problems 1-3:
- To buy bread without money, all you need is proof that you have productivity through your points balance
- The recording of points can be done cheaply by pen and paper. The Inca used strings called quipu. We will use cloud-based databases and APIs served by the internet.
- Letting the points be served through the internet allows real-time responsiveness
In Economics, you can buy bread or get a haircut only if you have money. But in Superphysics, you can do both by using money OR points.
This will allow the pantrynomy to keep on moving even during a financial crisis. During such an event, the pantrynomy can switch to points for its essential transactions*. Thus, we can say that points are for basics, while gold-backed currencies are for non-basics.
Are Grains Really Stable?
Adam Smith advocated wheat as the universal measure of long-term value because of its stability. The chart below shows that long-term prices of grain are more stable than those of oil or gold. Of the major commodities, oil has the highest price extremes while gold has the most volatile prices:
He also explained that the relative stability of grains over oil and metals is due to the fact that grains can be grown by anyone. The drilling of oil and the prospecting for gold, in contrast, can only be done by people who have the required capital and expertise.
..it may sometimes be of use to compare the different real values of a particular commodity at different times and places... We must in this case compare, not so much the different quantities of silver for which it was commonly sold, as the different quantities of labour which those different quantities of silver could have purchased. But the current prices of labour at distant times and places can scarce ever be known with any degree of exactness. Those of corn, though they have in few places been regularly recorded, are in general better known.. We must generally, therefore, content ourselves with them.
The stability of long term wheat prices is the major reason why Smith advocated land (or at least land rent) to be valued in wheat. Since all economies rely on land, the stability or fairness in the valuation of land will, in turn, lead to more stability in all other commodities, helping to prevent the severity of bubbles and crashes.
Points are the Next Evolution After Cashless Economies
Trade began with barter between tribes. It evolved into using coins, which later became paper cash notes. Nowadays, cash is being replaced by cashless systems. Superphysics begins the next evolutionary step by starting points-banking as the future of cashless systems.
This new system creates a whole new set of measures, transaction methods, and investment vehicles that fund productive labour directly and eliminate both inequality and employment:
- Clearing Funds as an alternative to Bonds
- Purchasing Power as an alterative to GDP
- Basic Universal Revenue as an alternative to money
- The Effort Theory of Value as an alternative to Marginal Pricing
The next post will explain how Grain-based Valuation can be implemented as Basic Universal Revenue. This will be very useful during the coming Great Stagflation which is supposed to spark this year.