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I’m not sure this is right, but what I’m getting from this is that money has a psycho-mathematical ontology. It is subject to nomothetic mathematical operators, but it is also fundamentally “of the mind”, and this renders it hard to think about except in terms of analogy and metaphor. The challenge is finding the metaphors that provide a coherent image when applied to the various facets or types of money.

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Brett, I've recently written on The Deficit Myth and The Surplus Myth, which looks at how money is created, allocated and destroyed.. and who benefits, and the impacts on the economy, looked at in accounting terms across the Profit and Loss and Balance Sheet of both the Government and the Private Sector

https://medium.com/@michael-haines/modern-monetary-theory-is-not-a-theory-its-how-the-system-works-b0c0fe59b6d6

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As to your final question, I reframe "deposits" as "receivables."

But that changes the entire frame from something sitting statically in an account, whether we call that our "deposit" or "the bank's asset," to the interplay of receivables and payables.

While I admit that a business, just ignoring the topic of overdraft accounts, would need to keep an amount in reserve against mismatch of timing issues, the basic thrust of where a business is paying its payments out of in this way of looking at accounts is not out of this static reserve but out of its receivables, or, even better, out of this balance of payables and receivables.

https://open.substack.com/pub/hardcurrency/p/payment-versus-asset-frame?r=1f57bz&utm_campaign=post&utm_medium=web --what's with the long link Substack gives us.

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I propose for loans: "fodder".

For "deposits": "fodder's autostocks"

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As always a well written story to explain these basic truths about banking and the money they create.

Just to be a bit of a spoiler, banks were invented in Italy several centuries ago and these early bankers needed a term for the amount of money put on the table by their customers. (btw. The word bank is derived from an Italian word that meant table) These bankers used the word 'deposito' for these coins put down on the table. In Dutch a fixed term debit is called a "deposito," and a payment to a (saving-) bank een "inleg" (EN:inlay) en the amount on the account a "saldo," an other Italian word. the word for bank account used to be "conto", in more modern Dutch it is "rekening" (EN:account).

I don't think there is a need to update the Dutch dictionary to clarify what banks are doing when I deposit money :-)

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Fascinating stuff Eduard. I have a real interest in language differences around this (which is why I specified at the beginning of the article that this applied to English, because there are differences in how other languages treat it). When I was writing I looked up the German terms, and they have 'einlage' for bank deposit, which must be related to the Dutch 'inleg'. Germans still use Konto to refer to account, and I remember 'rekening' from Afrikaans in South Africa too, which I guess has some relation to 'reckoning' in English (which can be used to refer to clearing of debts, paying back, revenge, calculating of what is owed etc)

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In Dutch the word conto is presently only used metaphorically, as in to give someone credit, or blame, for something "Dat kan Hans op zijn conto (bij)schrijven" (EN: Hans can add that to his account). The word "schijven" (EN: write) clearly refers to the way accounts where maintained by adding an entry to the ledger page for a person. In the preposition "bij" (EN: onto) is often dropped.

As a kid, going to the local branch of the Amsterdam savings bank to deposit what `i had been able to save from my pocket money the word "bijschijven" had a clear meaning as adding to, increasing, my holdings at that bank.

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Yes in a way, the deposit becomes a liability because the bank must be able to issue the money when the depositor requests to withdraw it.

And the entire fractional reserve banking is how our economy system prints money. Without this fractional reserve, there's no growth, and consequently, no cycles of inflation and contraction.

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I would change the language here: the 'deposit' is the 'casino chip' *issued*, and when the depositor requests to withdraw the bank must *redeem* it - the 'issuance' is the issuance of a promise to redeem, rather than the act of redemption

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This is an excellent explanation of how it works.

It seems this little article explains it even more sufficiently than the entire first chapter of Money as Debt.

It is hard for people to grapple that banks aren't digital vaults and such.

I wonder how many years it will take for everyone agrees that the 'credit creation of money' is the most accurate form of how it works.

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Glad you like it Johan! Yeah it's one of those hard-baked paradigms that's hard to dislodge. I think the issue goes deeper than what I've described here, and is related to the fact that many economists retain a 'commodity orientation to money', which is the default view on money that emerges from their default approach to the economy. This orientation means they metaphorically imagine money as a 'substance of value' and banks as intermediaries that pass this substance around. This, however, is a bigger topic for another piece!

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First article that I have received from you. Glad I subscribed!!

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Glad you subscribed too John. Thanks!

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"It (economic theory) has utterly failed to provide any useful 'models' that could give any clue as to how or why people really make decisions, or what they truly value. "

It has not only "failed to provide useful models" it has succeeded to perturb humanity and empower evil and systematise the worst in humanity, to confuse caprice with necessity, to ruin generations marring them for life, to make selfishness a virtue, to bamboozle society with empty promises, to abuse statistics to cover calamity after calamity, to coerce and stifle the world, to turn basic necessities into entertainment and entertainment into necessity and so on and so on.

This "extended life-span" is going to be short lived, increase in excess mortality is just starting to ramp up. The causes are many and compounding, Fukushima, food supply nutrient collapse, waste of resources, built in obsolescence, etc. etc.. In short, a world gone mad ensuring an economic "viability" while losing all sight of reality. Yesterday's errors are sold as requirements for today's progress that then produces bigger and more epic errors tomorrow requiring even greater "progress" to justify. But it is nothing more than bubble after bubble. Then the whole thing culminates in greater and more fantastic wars of information, bio-weaponry, corruption, commerce, social division, Psyops, etc... This is the real prize we are being rewarded, all because we confuse prerogative with "control", the former only requiring the will to bully while the latter requiring true skill, homage, respect, knowledge, the main ingredients of wisdom.

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As I said if you cannot see that the "utility" is inherent to goods/services, we cannot continue. Your statement implying that if there were no humans products/services would lose their inherent properties that make them useful, is insane. Not using a product doesn't disprove its utility. You are confusing use (verb) with utility (noun), utility is a property of the object not the user of the object. The simple proof was given.

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I’m not asking you anything more than to explain how your system works in practice given the things that people want to do, like make gifts and buy houses and gamble, etc. if you think you can force people to change just so the system accords with some purely mathematical theorem, I’m afraid you are in for a sad awakening.

Any system must accord with human nature or it is bound to fail. It’s why all the ‘isms’ fail. They are nice in theory, but get taken over by real people who are interested in power.

There are ways to improve our system, but appealing to our better natures alone is not one of them.

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What is more, I bet that if you represent what you assume is "necessary" mathematically, you will see that what we say is necessary to preserve valid records of value. Can you model your assumptions mathematically? Here is an example:

http://bibocurrency.com/images/pdfdownloads/Formal%20Stability%20Analysis%20and%20experiment%20%28final%29%20rev%203.4.pdf

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"Whether I keep the units or transfer them for any reason or have them stolen, does not alter the nature of the units."

Not true, for the unit to act as a valid measure/record of value of goods/services transacted, then each measure/record must be unseverable from each corresponding transaction. That is, it cannot itself be transacted as an "asset" as is currently affirmed by the BoE [1], and Bain & Co. [2].

If it makes no sense to transfer meter measures between different building projects, just because all the measures are in valid meter units, why would it make sense with measures of value?

The reason is because "money" is not considered to be just a record of value, it is considered to be a negotiable "asset" and to act as a license conferring rights to those who possess units, no matter how they are obtained. This conflation while intuitively compelling is logically incoherent as proven under the prism of formal logic. [3]

[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

[2] https://media.bain.com/Images/BAIN_REPORT_A_world_awash_in_money.pdf

[3] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/196-money-commodity-or-measure

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You and I will have to agree to disagree. I see money as both a measure of the value of a transaction and as a promise to pay the bearer in goods and services.

Your system does the same but you seem to only focus on on side of the transaction. When the buyers account goes down, the amount it goes down by is a measure of the resources consumed by the buyer. However the seller has the equal and opposite entry in their account which goes up by the same amount. This amount did not merely recognise the value provided by the seller, it gives the seller the right to consume resources to the value of the number of units added to their account. That is the added units are effectively a promise by society to pay the seller resources equal to the value of their account. This is evident from the table of transactions in your paper

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Answering the claim that currently money is NOT misrepresented as both a "record/measure" of value and an object of trade but rather it is "just a record of value".

From a previous comment in another thread,

___________________________________________________________________________________

For money to be a record of value attributed to goods and services transacted, then each record can only correspond to one instance of goods and services. Consider the following:

John transacts value x giving rise to record X and Martha transacts value y giving rise to record Y. Then:

value represented (x +y ) = records X+Y

Now if John lends Martha record X to represent value y then we have:

value represented (x + y) = Record X. Which doesn't work.

Which is why Central Banks had to (finally) admit that Banks do not lend their depositors funds "... bank lending creates deposits" [1]

Thus, even according to the current banking system what you describe as one person's funds being lent to another as a "security", simply doesn't happen.

What actually happens, is that each "loan" gives rise to "new money" backed by otherwise free-hold collateral and is "lent into circulation". Such that at any point in time, there is a fixed quantity of pledged collateral represented by a principal sum, over a period of time and at some rate of interest.

Thus:

P = Outstanding Principal

I = Total interest over k periods.

i = interest payment per period

p = principal contributions to payments.

k = remaining periods within the term of the loan.

And, the standard equation for outstanding debt over k periods is:

Debt = P(1+ik).

Note too, P also represents all units in "circulation" and is cancelled out when paid, such that at any period k where P > 0, then Debt > P (i.e. debt exceeds the amount of money in circulation at all points in time).

This is a simple interest model that only gives us a gist. In reality, the evaluation of the collateral generally includes its full cost and some, incorporating past interest payments and/or percent based charges, therefore introducing compounding.[2]

Giving rise to an exponential model, Debt = P(1+i)^k,

The important things here are:

1) Money is lent (created) into circulation and cancelled out when returned.

2) Money has a per unit cost (percent based) over time i.e. its use has a cost that DOESN'T CORRESPOND TO ANY DISCRETE MEASURE OF GOODS AND SERVICES PROVIDED BY THOSE CHARGING THE FEES, BUT BASED ON VALUE CREATED BY OTHERS!

3) 2/3 of all financial assets are said to be purely of the "financial economy" where they are used as profit generating "assets" on par and interchangeable with real world assets (goods and services). [3]

So, money is used as an asset and indeed considered on par with goods and services given it is used as collateral. Therefore it is not used as "just an annotation" i.e. the concepts of measure and commodity are axiomatically conflated, without noticing how those concepts, under the prism of formal logic, are necessarily mutually exclusive, constituting a misrepresentation of the facts [4]. Misrepresentation is considered fraudulent if there is reckless disregard for the truth of the misrepresentation [5].

We all need to understand fully how this is indeed the case as wittingly or not, it is the dynamics of the money system itself that acts as a "hidden hand" governing society over and beyond the will of any individual agents acting under it.

As you can see, we are not talking flippantly off the top of our heads, this is perhaps the most serious issue facing mankind, today. We therefore must all be very diligent and careful, requiring the kind of common framework that the logic and formal rigour of applied science brings and in particular dynamical systems engineering.

[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

[2] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/286-the-beast-of-compounding

[3] https://media.bain.com/Images/BAIN_REPORT_A_world_awash_in_money.pdf

[4] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/300-you-have-been-served

[5]https://thelawdictionary.org/article/3-types-misrepresentation-matter/

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My sense is that by focusing on the maths you are ignoring the underlying reality. When someone wants to buy something, there are limits to what they can buy. Under the current system the limit is either their cash holding or their access to credit. Someone has to decide their creditworthiness and then put funds at risk to stake them. In this way, a seller does not have to know anything about the buyer. Having someone simply ‘vouch’ for the buyer is not much good if the buyer defaults (by not giving back value they consume) and there is no recourse.

I still have no idea how under your system decisions are made about who gets what at what price.

Under your system, who makes the decision that A can afford to buy a house from

B at price x?

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"Someone has to decide their creditworthiness and then put funds at risk to stake them."

No, the provider of goods and services has already incorporated the risk and benefit of transacting in the cost annotated in the measure. So there is no requirement for any third party to intervene at a cost that not only doesn't correspond to any discretely measurable good or service they provide but that also compounds when applied to value chains, systematically increasing their boundless returns while increasing costs and risk beyond the real measure of value of goods and services. [1]

[1] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/286-the-beast-of-compounding

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So I just rock up to a builder and say I want a 100 million unit home, and he builds it for me. Or I want a luxury yacht and the builder just builds it for me?

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As I said before, just because money formally defined as a record/measure of value, is operated on strictly according to the logic of measure, thus maintaining its integrity as a valid stable common reference, by no means implies society cannot exercise wise control over how, when and why this or that resource is used and by whom. I turn the question around to you:

Why would one conclude that using money under its current misrepresentation is a valid means to ensure against abuse when misrepresentation is itself a legal offence [1]?

Why would one conclude that other extant social mechanisms are insufficient, making the coercive property of money's misrepresentation a requirement for society to function in a satisfactory way, when doing so necessarily invalidates money as a valid reference of value according to the logic and requirements of the science of measure?"

[1] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/300-you-have-been-served

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just because money formally defined as a record/measure of value, is operated on strictly according to the logic of measure, thus maintaining its integrity as a valid stable common reference, by no means implies society cannot exercise wise control over how, when and why this or that resource is used and by whom.

So what would be the ‘wise means’?

If you have no idea how your system would work in practice it is just a mathematical theory. It is of no practical use.

It is like string theory that has no practical use in physics. Theory appears to be internally coherent but has no testable applications in the real world

You really need to think through how many different transactions work now and explain how they would work in real life under your system… not just in a table.

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I have a perfect idea of how a passive money system would work as explained and with far more than "just a table". I also know exactly how and exactly why the current system operates chaotically and cannot and never has fulfilled its mandate. All this using proven control and stability theory and equally proven and demonstrated practice.

But your question is not about that, it is about how to ensure responsible human behaviour in general. In all human endeavours except for finance, responsible behaviour is shown to prevail and regulate best practices, producing demonstrably coherent and successful results, expressly chastising misrepresentation and negligence, while prizing due diligence and transparency.

So again I ask before giving just one of many examples of how best practices can be ensured without using an undefined system, founded on a demonstrated misrepresentation that claims breach of the logic of measure is required in order to achieve its mandate that it consistently fails at to the point of having to be saved from itself over and over again:

Why would one conclude that using money under its current misrepresentation is a valid means to ensure against abuse when misrepresentation is itself a legal offence [1]?

Why would one conclude that other extant social mechanisms are insufficient, making the coercive property of money's misrepresentation a requirement for society to function in a satisfactory way, when doing so necessarily invalidates money as a valid reference of value according to the logic and requirements of the science of measure?"

[1] http://bibocurrency.com/index.php/downloads-2/19-english-root/learn/300-you-have-been-served

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To make a long story short: a "deposit" is a social relationship between the bank and the depositor. A social relationship, here: a debt relationship, is not "issued" but arises on the basis of a legally binding agreement between two parties. Something that is "issued" must be a thing in the sense of property law, such as the casino chips that can be handed over, but what is created when a deposit is made is a debt relationship that arises between the depositor and the recipient, but which is not securitized. (Casino chips, on the other hand, are the securitization of a claim!) However, these relationships are defective as debt relationships because a debt includes a date on which the debt must be settled. Since this is not the case with "deposits", these can be correctly classified as an option right for the depositor, which gives the depositor the option of whether and when he can order the bank to pay out money to him (withdrawal) or to bring about a debt relief success in his favor (money transfer). What has become an option for the depositor is a pending obligation for the bank, which does not know whether or when it will be called upon.

It should be made clear that these debt relationships are not issued but merely documented, because an account statement is evidence of the existence of a debt relationship but not a right to claim, such as a bill of exchange. In this respect, it is an unfortunate choice to use the term "digital bank chips" for "deposit", because although an account statement INDICATES a debt relationship, it IS not a debt relationship or a claim title. This can be illustrated by the fact that you do not eat the menu in a restaurant, which SHOWS the dishes, but the menu delivered after ordering. In contrast, the corrected Webster definition is somewhat better, because it refers to the fact that the bank confirms this (new) pending obligation, even if confirming is different from issuing.

However, bankers will have little interest in informing bank customers that, as the owner of a deposit, they are giving instructions to the bank and not contracts which can be negotiated. This is because banks - as long as it is not illegal - have no right to refuse a payment instruction, so in this respect they are recipients of commands and not equal partners. The term "deposit" is therefore more a disguise of the fact that the money is owned by the bank, as correctly described in the article.

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Thanks for the comment Renée. I think the difference in our approach is really one of public communication. When I use casino chips as metaphors it's not that I literally believe they are legally identical to bank deposits in every way or that the process is exactly the same. I use them because they are a very useful way to quickly help a member of the public break away from the traditional frame that is normally presented to them

The question you want to ask yourself is this: do you want the public to *get closer* towards understanding bank deposits or not? If the answer is 'yes', then the fine-detailed academic stuff you've written above is not going to work. You're writing for legal and money geeks, and that style will by default push the public away, whereas I'm interested in bringing people in

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In accounting terms, the bank simply makes two entries on its Balance Sheet: Debit Loan and Credit Deposit in the same name. The double entry keeps the banks books in balance, while the debit records the amount to be repaid by the borrower, and the credit records the amount of 'cash' the borrower can draw down. In fact, cash is rarely drawn out. Often, the borrower simply instructs the bank to 'pay' another party. In this case, no money goes to the new bank. Just a message telling the payee's bank to add to the payees bank account the amount specified by the borrower. At the same time, the borrower's bank reduces their deposit by the same amount.

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A moment ago you emphasized that the bank's balance sheet must be in equilibrium, and now a transfer is supposed to mean that the payer's bank merely reduces the payer's account and the payee's bank merely increases the payee's account balance? This brings both bank balances into imbalance. But the basic rule of accounting is: no entry without an offsetting entry!

So there must be something else, and that something is the transfer of funds from the payer's bank to the payee's bank. Even if this is no longer done nowadays, one can imagine that the paying bank hands over cash to the receiving bank, which balances the accounts of both banks. A balance sheet reduction at the paying bank on the one hand and a balance sheet extension at the receiving bank on the other.

This happens in a similar way if the payment is routed via a giro center or the central bank. However, this requires considerably more communication processes, which can hardly be described in a commentary. But here is exactly how it works:

https://reneemenendez.substack.com/p/who-is-transferring-money-when-a?utm_source=profile&utm_medium=reader2

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You’re right, though it’s not so simple. At the point of ‘payment’. The payers bank records a simultaneous credit being the money it owes the payees bank. During the course of a day, there a many transactions between different banks which are settled at the end of the day. Again no money transfers. Messages are sent to the Central Bank to credit and debit the various accounts of the banks. If a bank does not have sufficient in its account it can borrow from the Central Bank, which again is all done via messaging, with the Central Bank crediting the bank’s account while debiting the money loaned to the bank

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You write:

"The payers bank records a simultaneous credit being the money it owes the payees bank."

Could you please explain explicitly what the "simultaneous credit" is supposed to be? I don't understand your wording. And how does this relate to the means of payment that is to be transferred to the payees bank. Because something that is transferred must necessarily be an asset!

As for clearing and then settlement: d'accord, but that was not the issue.

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The point at which the payer's bank reduces the payer's deposit account, no money has transferred to the payee's bank. So the payer's bank owes the payee's bank the money. This debt is recorded immediately the deposit is reduced (to keep the bank's books in balance). The payee's bank does not credit the payee's account until the payment is cleared through the banking system. This can take several days. There are many transactions in any day between customers of the different banks. Each bank keeps an account with the Federal Reserve and at the end of each day a reconciliation is done to show which banks have a net debt to which other banks. The Fed is then instructed by each debtor bank to reduce their account by the amount owed to each specific creditor bank, and to increase the account of the creditor bank by the same amount. It is all done on computer. No cash is actually transferred.

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Thank you for the detailed explanation!

In my presentation, the payer's account is not debited until the central bank has issued the notification of the debit from the bank account. I.e. the balance reduction occurs only after the notification from the central bank, whereas you say that the debit from the payer's account occurs immediately and then, when the central bank's notification of the debit from the bank account arrives, the bank makes up for this loss of reserves by "canceling" its debt to the beneficiary's bank.

This type of booking is advantageous for the bank if, as you say, a transfer takes several days. As far as current accounts are interest-bearing, this procedure makes perfect sense.

Thank you once again for your kind clarification!

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