Money vs Credit

Why Money Cannot Be Credit


By Marc Gauvin

Copyright ©21/8/2014 Updated 20/11/2014,6/1/2015, 31/3/2015, 01/04/2015

Reproduction expressly granted provided attribution is given and original link is provided.

With thanks to the Money and Economy group on Face Book, in particular and alpahbetically
Ed Bry,  Sepp Hasslberger and Joseph Shirk for their invaluable editorial comments.


Some key definitions as used in this document: 

Value: The relative importance, utility or desirability attributed to different goods and services transacted over time measured numerically in a standard unit.
Price:  The particular value attributed to one or more goods and services in a given transaction.
Credit: Value given in the present on the assessment that equivalent value is forthcoming in the future. 
Payment: Reciprocation of value given.

Credit is not a cut and dry issue,  particularly in light of the fact that monetary risk assumes natural risk in forms that often cannot be insured against while valuing goods and services at the time of transacting them, is definitive. A person may go irremediably negative for perfectly understandable reasons that do not imply any need for questioning their credibility, while another, may go negative foolishly and yet another who goes positive can be abusive with their earnings.  But in all those cases, the measure of value of what was consumed can be equally valid.  That is,  the function of money is to measure value not a measure of credit or credibility,  at most it is just one more detail of many possible indicators that constitute an assessment of credibility.

When we talk about controlling credit by controlling access to units of money,  we are implying that money is a measure of credit i.e. so much money = so much credit.   The point being made here,  is that money is not a measure of credit, it is a measure of value transacted in the past. 

The wrong of money - as it is defined today - arises because its very definition as a limited and compulsory object of commercial value is what generates excesses, like alcohol or addictive drugs.   Such a definition be-gets the need for external control.  But you never hear about people needing control over wholesome things, such as how much water they drink or avocados or lemons they eat, yet, for the vast majority of the world, having sufficient quantities of drinking water is a luxury.  Likewise, if money is designed and understood properly,  there is no need to control it - just as we don't need to control the use of meters simply because some people use up too much wood.  It is the control of the use of wood that determines the right balance of meters employed not the control of the use of meters.

Thus, the question of credit is not one of controlling access to money but one of control of behaviour, which can never be reduced to money control and as it turns out,  the moment money becomes the means for controlling behaviour the world goes mad or so it seems. Today's world being a case in point,  one of extravagantly foolish reductionism while blinding us to its ill effects.

Separation of Value Measure and Credit Allocation

Managing credit is a separate and logically independent function from that of measuring value. Take a population of ten people: one produces 9 apples and transacts one to each of the others, the value transacted is 9 apples, and the credit distribution is evenly distributed among the population. Now imagine that the nine apples are distributed from 9 to just one person: does that change the value of the apples?  It doesn't. 

Thus the credit function is separate from value attribution.  Credit is a very complex, inconclusive human problem, contingent on varying social and cultural mores and moral considerations, while the value attribution is a simple conclusive mathematical division, definitive once transactions are complete.  The confusion that arises from conflating these two separate functions is due to the fallacy that underlies the current money standard, in which money is expected to represent both a measure of value as well as act as a surrogate of future value,  however that proposition is logically impossible as is shown here.  This does not mean that recording the value of goods and services transacted is meaningless, it just means that recording value can neither replace nor create value.  This clarifies many of the misconceptions that underlie our financial crisis that once dispelled, said crisis literally disappears.

The credit balance and unit access control is also contradictory,  because you need the unit as a stable measure which precludes that it be scarce or carry value to the transaction in order to measure credit in the first place.  And if you don't allow free access, then you are creating conditions whereby credit abuse is incentivised, because by making money scarce it then becomes an objective or a goal in and of itself rather than a tool to assist transactions that provide the means to gain credit.

Origin of Money = Value

Payment for real goods and services, can never consist of merely receiving some entity's promise or obligation. Thus,  using such promises/obligations (dated or not) as 'payment' is illusory and gives rise to the following questions:

  1. Where does the requirement arise for the first recipient to use a "promise/obligation" as 'payment' prior to actual redemption of goods/services from the issuer?
  2. In the case where it is not the first recipient using the "obligation" as a "credit instrument", but some other entity, where does the need arise for using someone else's promise instead of one's own? When in reality, each transaction that defers reciprocity of goods and services, should generate their own unique and independent "promise".

It seems that there is no reasonable answer to the first question, which serves to show that the practice of using such credit instruments as 'payment', arises not out of a relationship between issuer and first recipient. Because in such a limited and direct relationship, the first recipient having foregone real goods and services requires payment in more than just a promise. Thus, the only other case where such 'promises' are used as 'payment', is when it is a second, third or nth recipient of the note, who in faith accepts it in lieu of real value.  This now begs my second question above, why do these not issue their very own promises? Why is there a need for a two class society of issuers of promises and non issuers?

The historical reason, may well be associated with a minority of literate people vs a majority that is illiterate, where coins and notes etc. issued by a third literate party, served as a rudimentary 'accounting' mechanism for the illiterate. Requiring not only the accumulation of goods/services as backing, but also controlling the rate of transactions in the economy to conform to the issuer's level of accumulation rather than to the true and free potential of an economy, unhindered by accounting.  As usual,  this accounting solution comes with its cost, the benefit of accounting is now contrasted with the cost of slowing society down in order to keep within the accounting needs.

So once again, we see how by not having an Implementation Agnostic Problem Statement for defining the function of money, we are lead to adopting flawed paradigms of the past, where logical functions are skewed by antiquated social conditions and circumstances.

In today's world, nothing is stopping us from allowing every transaction to produce its very own and independent promises thus eliminating the need to confuse promises with payment as well as the need for any centralised issuers of 'reliable' promises.

Effective Decentralised Credit Control for Passive BIBO Currency Systems

The only issue that is not addressed by Passive BIBO Stable Money systems is the issue of direct control of 'credit' as this is not within the scope of defining money as a representation of a measure of value,  but a question of social governance.  But that doesn't mean there cannot be control.  The question is, if given the nature of Passive systems and the following (below) properties of the units and accounts, can peer behaviour actively control the risk of non-reciprocation?:

  1. 'Currency' units have no intrinsic or commercial value.
  2. Each transaction produces its own set of units that resolve against existing balances, modifying them accordingly.
  3. Units are therefore never scarce.
  4. Units are not subject to being bought, sold or rented.
  5. Unit utility is limited to that of recording value with the sole purpose of supporting value divisibility of indivisible goods and services and recording unreciprocated value contributions ( aka 'liquidity function').
  6. Units do not ever act as surrogates of the value they represent.
  7. Account and System balances and related statistics are public information, while transaction details are private.

Transaction Types and System Balance dynamics

There are four permutations of transactions that affect the aggregate system's balance (note the system balance is either zero or negative and represents the measure of value yet to be reciprocated via goods and services):

  1. Positive buys from negative (reduces system balance)
  2. Negative or zero buys from postive or zero (increases system balance)
  3. Negative or zero buys from negative (system balance unaffected)
  4. Positive buys from positive or zero (system balance unaffected)


Fig. 1 Transaction Type Dynamic

Only type B increases the net negative system balance or level of unreciprocated wealth.  Therefore, by all users being informed of both the system balance and current individual user balances (not transaction details),  producers can protect themselves by directing business by discriminating towards the other types until such time that the system negative balance and statistics resume to normal levels. 

Enlightened Peer Interaction

Added to this rudimentary mechanism, is the fact that any habitual business relations are naturally subject to peer perusal. That is, Joe can talk to Mary about Mike's curious persistent negative balance vs Mike's competitors' positive or 'reasonable' negative balances particularly in terms of any given current aggregate system balance.  Since money is not a surrogate value and is only used for the purpose of measuring divisions of value, then all have an interest in minimising their liabilities as well as that of others - or at least, with those they deal with on a regular basis.  Since individual negative balances can represent a risk to the whole supply chain/network, and since units cannot be put up for sale or rent (i.e are not income generating), then all have a common incentive to actively limit non-reciprocation in the system. By contemplating risk in such an integral fashion, rather than uniquely in terms of individual balances, balances no longer represent the single determining factor i.e. no matter what one's individual balance, all activity not only chimeras are approved by the whole value chain network.  

In summary,  systems where 'currency' cannot effectively be used as a surrogate to the value it represents, but rather is limited to recording the value of transacted goods and services as well as providing a means for divisibility of the value of otherwise indivisible goods and services (aka 'liquidity'), there exists a rational and common incentive on the part of most, if not all users, to limit risk related to excessive system balances via informed peer to peer interaction and pressure. This comes about by virtue of the fact that any persistent growth in aggregate system balance represents a risk to ALL value chains. Thus and given public access to trading partners' balances and common peer knowledge from habitual social, business, and trade relations, peers can organise themselves to identify and avoid Type B transactions until the system risk is reduced. 

Essentially,  when currency function is purely that of providing stable and reliable information that all have access to, users will have an incentive to use that information to curtail risk rather than multiply risk as is the case with the current paradigm where currency is a commercially negotiable entity. 

Note, that to the degree users of Passive BIBO Currencies are exposed to non passive systems (in terms of access to resources),  such sound peer control becomes increasingly undermined.  Also,  it has been proven that the current paradigm's proposition of presenting currency as both a unit of account, as well as a negotiable asset, has no sound basis in science or logic - and for that matter, in law or so it would seem.

Our True Motive to Create is to Share

We forget, that there is a whole bunch of compelling and even compulsory reasons to create and share value that are not contingent on getting something in return from others.

If boats don't exist and we want to sail the sea, we don't build a boat to get paid we do it to sail the sea. Thus, contributing to a common project implies the opportunity to participate in the result.  In this light, the motive of recording value is not to be paid in the future,  but to be recognised in the present.  

That is the real motivation prior to  The Money PSYOP which focuses on being paid under the assumption that we are more likely not to be included,  no matter how we have contributed.  But it is that very proposition that creates the angst that we will not be included and remembered. What this takes away from us,  is the opportunity to achieve and have the honour to generously share the result.  Instead,  The Money PSYOP creates the reason not to share and not be included in the common project,  it itself is the root of the very distrust it proposes to attenuate.


Break out of  "The Money PSYOP" and give your kids

a future they can be proud of you for by supporting the MSTA


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