The problem lies in the root of monetary value
The problem lies in the root of monetary value -- the grounds for monetary value. In order to understand this, it is necessary to clarify the history of money.
The economy is an activity in which people live. The economy started with self-sufficiency. This means procuring or producing the things necessary for life. At such a time only sharing is involved, which means distribution. Money is not yet needed.
What is needed is the use value.
Money comes into existence when the act of exchange is established. And exchange is established when it becomes necessary to exchange surplus products and deficient products when conditions of surplus or deficiency require. This starts the bartering of goods. At that time, in addition to the use value, property has taken on an exchange value. When the bartering of goods develops further, only the exchange value is specialized and money comes into existence. Even at this time, money has a value as a substance itself and it also has a use value.
In the bartering of goods in the initial stage, things themselves have a use value.
Money works as a medium for exchange. This function of money -- a means of exchange -- is the basis that forms the five characteristics of money. The first characteristic is that each party recognizes the value of money as a medium for exchange and consents to its use in such a way. The second is that money can be divided up in units. The third is that money can be measured. The fourth is that the value of money can be stored. The fifth is that money is portable and can be carried or moved.
Of the three preconditions for the establishment of the nonconvertible bills of today, first is that money has penetrated the market and a certain quantity of money required for circulation has been issued.
The second is that the function or value of money is approved in society. The third is that there is a mechanism to control the amount of money in circulation.
First of all, in order to meet the first requirement, it is necessary that money should have been somehow supplied to the market in advance. This is the role fulfilled by coined money such as gold, silver or copper coins, that is, currency by weight. Coined money or currency by weight is based on the premise that the value of money as a substance or the value of the money’s material is equivalent to the same value as the monetary value. Then, money is unilaterally released to the market by an authority as a means of settlement without the prospect of collection.
However, such money has limits depending on the capability to produce money. When the procurement of materials for money becomes difficult, financial conditions become tight.
In order to make up for such financial conditions, good faith money is distributed.
If the money supply continues to be lopsided, the amount of money in circulation becomes uncontrollable.
Because of such a situation, money comes to have excessive liquidity, which could lead to an escalation of inflation. To control this, a central bank is established outside of administrative bodies and the right to issue bills is separated from administration. With the premise that borrowing will occur, the administration builds a system to circulate money to the market using the functions of money collection and supply.
At this time, money has basically formed a part of debt.
Finally, money is changed from convertible bills to nonconvertible bills and the monetary value is used as information. The premise for this is that a nation borrows money and secures that debt and that the central bank issues bills.
When the money system was first introduced, it was generally necessary that money had to be based on the value of money itself. As such, profit is generated upon the issuance of bills because the bills themselves have value. Until the market is saturated, seigniorage profit is generated. But, the effects of seigniorage end when bills have penetrated the market. When the market becomes excessively saturated, money takes on excessive liquidity resulting in inflation.
In the seigniorage establishment stage, it is possible for the administrative cost to rely on seigniorage. Once money has reached the point of saturation, the subsequent administrative cost has to be covered by collecting and distributing money.
At this stage, money has a negative function in administration. When this negative function plays the role of a base structure, the positive function, i.e., the object economy, comes to function.
The negative economy forms a half of the present economy. Therefore, the establishment of a negative economy is important and indispensable.
Society based on a positive economy has a nature that is completely different from that of a society based on a negative economy. When currency flows in a constant direction, credits and debts in the same amount as the amount of currency in distribution are produced. If currency flows in the opposite direction, credits and debts cease to exist.
When currency flows from the negative (liabilities, capital and earnings) direction to the positive (asset and expenses) direction, credits and debts are produced. When it flows from the positive direction to the negative direction, credits and debts are cleared off.
Nations, corporations, family budgets and even central banks function based on their borrowing as a premise.
When a nation borrows money and makes investments, corporations can gain earnings, and furthermore, distribute income as personnel expenses. In this way, corporations borrow money and circulate funds. As for family budgets, people can build homes and buy cars by borrowing money.
In terms of an economic system like this, the economy would not work if borrowing were considered to be evil. Borrowing is not evil. When the amount of money in circulation cannot be controlled, problems occur.
A nation borrows money from family budgets and corporations. Family budgets and corporations borrow money from financial organizations. Financial organizations borrow money from the central bank. Money is distributed in the community when financial organizations borrow money from the central bank.
Well, then, from whom does the central bank borrow money? It borrows money from faith in the market -- from the people. The last part of this sentence is very important. From whom and under what name does the central bank borrow money? To answer this question is to clarify the principle of the monetary economy.
A device that controls the present economy is hidden in the gimmick or mechanism of money creation by the central bank. The bank’s accounting mechanism -- the structure of double-entry bookkeeping -- is a device to control the monetary economy. Also, the key to operating finance is hidden.
Money has a negative value. The monetary value comes into existence when the property value is mapped on the monetary value. That is to say, the monetary value is a shadow. Bills symbolizing the monetary value are a negative existence. Without understanding this premise, it is impossible to understand finance.
The problem of the EU lies in the mechanism to control member nations, central banks and financial organizations. The fact that all organizations cannot work within one framework prevents market control. Of course, it is unnecessary to have a centralized structure. A decentralized mechanism can work sufficiently. But, in any case, such a mechanism has to be based on a single design concept.
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