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GOOLDIE: a bridge between civilizations

GOOLDIE: a bridge between civilizations

In a world that is increasingly in need of bridges (rather than walls) to facilitate peaceful cultural, social and economic relations between peoples, I would like to make some points about the dangerous drifts of modern economies by some principles common to very different civilizations.

I refer in particular to the conviction of interest rate on money, a prerogative that unifies at beginning the three great monotheistic religions, Roman Catholic, Muslim and Jewish.

The Catholic Church, with the positions of St. Thomas and the medieval theologians, condemned lending at interest (branded as usury); The Koran prohibits “riba”, the redemption request exceeds the sum paid; and even the Jewish religion prohibits a jew lending at interest to another jew (even if this activity could be carried out with the “Gentili”, or non-Jews).

These positions have in common the fact that the “money could not generate other money” as a “good” can not increase by itself without there being an activity involving a risk.

The difficult in understanding the concept of money resulted in the focus on the institution of “credit”, that was condamned, in different grades in the three mentioned cultures, to then be reintroduced as needed, possibly transformed opportunistically to make it acceptable.

The modern theory of capital of austrian school of economics today tells us how the interest rate is nothing else that the market price of present goods in terms of future goods. And that it originates from a universally valid rule that guides human action, that is, other things being equal, present goods are preferred to future goods. An individual will be willing to give up present goods only to obtain a higher amount of goods in the future.

The bank credit is only a part, and not the most important, of the general market in which present goods are exchanged for future goods. A human society could therefore not have the institution of bank credit and yet all the economic agents directly will invest their savings in the production and also would form a market interest rate which in this case would be determined by the profit rate (to which would tend all production processes due to the market competitive forces, which tends to make disappear pure specific entrepreneurial profit and losses).

So, it is not money that generates interest revenues, but the entrepreneurial and risky actions of men over time. And this concept is accepted, and it could not be otherwise, by all of the aforementioned cultures.

That means that the problem is in the money.

I would say that the position of the three religions against money is correct. Money can not generate money itself. Money is basically just a medium of exchange.

So, what is the underlying problem and the abuse occurred in the money management during the history?

Everything stems, in my opinion, from two original sins:

  • the counterfeiting of fiat money with respect to commodity money allowed to money producers;
  • the illegitimate transformation of the bank deposit contract, compared to its non-banking equivalent: the custody agreement.

If money is a medium of exchange, it must have a value as stable as possible over time and no one can have the immense power that comes from the ability to produce money at virtual no cost, inflating the money supply and reducing the money purchasing power.

This is what counterfeiters illegally do for their own benefit; and this is what governments legally do, always for their own benefit, through the central banks.

If the custody agreement prevents a guardian to any kind of use of the asset to be guarded, in order to let it always at disposal of the owner, otherwise the crime of embezzlement, no one should do so by changing the name to the contract.

This is what illegally does, for example, the owner of a garage that rents the car of a client without his knowledge; and this is what banks legally do using the money in the current accounts of their clients without them knowing it, and thus creating credit out of thin air with the fractional reserve mechanism.

These two original sins have the effect of creating elastic inflated money, whose offer tends to increase uncontrollably. Monetary Inflation, then, generates arbitrary ridistribution of wealth and economic cycles, with unsustainable “boom” followed by dramatic “bust”.

The three religions wanted a stable money that couldn’t generate interest. Modern economies have invented fiat money that loses purchasing power and that creates fake interest revenues; those payed by banks on current accounts that would not be sustainable without the unlawful use of that money without owners’ knowledge.

In the last thirty years it has been developed the so-called Islamic finance offering financial services based on the precepts of the Koran. His laudable central pillars are that you must donate part of your earnings to charity (Zakat), that you can not get interest on loans (prohibition of riba) and that you must be socially responsible with lawful investments (halal), not risky ( gharar) and not speculative (maysir).

It remains however the problem at the root of the evils to be avoided; the fact that the modern fiat money is sick.

Gooldie is the return to inelastic commodity money, a sound money for a healthy economy.

A bridge between civilizations.

Aurelio Mustacciuoli

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