Money & Banking - In Daulatabad-upon-the-Sea

Inflationism - the employment of inflationary finance to pay the bills of The State with fiat paper money - is anti-capital. It erodes the capital - the savings - of the poor. And it rewards rich borrowers - like The State itself, and its various cronies who corner all the loans.


All this leads to "capital consumption" - the highway to "de-civilisation."


Daulatabad-upon-the-Sea will be very, very different - being a city of Pure Capitalism, and being a great centre of civilisation, hence preferring the only way there, which is "capital accumulation."


In the field of money and banking, we will "let History be our Guide": and what History says is that gold and silver coins of prescribed fineness and weight are the only real money; these monies have a "legal definition." Counterfeiting is a Serious Fraud.


Today, it is The State that engages in counterfeiting - as I argued in this brief column.


So, I hope you now get my drift.


If money is legally defined coins of gold and silver, then what should private free banking be all about?


Since we will be a "private law society" it will all depend on contracts. With a banker, the individual who deposits his money for a "fixed term" will sign a different kind of contract than one who signs one for a "demand deposit." The former will be a "loan contract" to the banker, while the latter will be a "safekeeping contract." To honour his contracts, the banker will be forced to keep a 100 percent reserve against demand deposits - and that, too, without any legislation; without any "positive law."


What will happen if a banker defaults on his contracts?


Tradition has it that any debtor who cannot repay his debts is put into a "Debtors' Prison." Such prisons existed in Olde London - and in Amsterdam, too. Rembrandt was sent into such a prison when he ran up too many debts. His house and his belongings were sold to repay his debts - and the painter was forced to live a more modest life. His extravagances were curbed.


So, in Daulatabad-upon-the-Sea, the Debtors' Prison will be a very important institution. Bankers and others who cannot repay their debts will be sent there, to live on a diet of bread and water, till their assets are auctioned and their debts repaid.


Let us now move on to paper notes issued by bakers - which serve as "money substitutes." All such notes must be redeemable on demand - or else.


That sorts the entire mess out - a mess created my Keynes' "general theory" and its consequent "monetary policy."


We "let History be our Guide."


Of course, bankers rarely ever face a problem of "insolvency." Their usual problem is "illiquidity": their assets are not instantly accessible in terms of cash. Thus, the Debtors' Prison is all that is required to keep the money and banking system on even keel.


CONTRACTS! And money as Hard Property, legally defined.