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Written by Carlos Bondone
This first "opinion" article is a brief and simple introduction of the new scientific theories developed in extension in my book "Theory of Economic Relativity - The Solution to Monetary [currency] Crises - A critique to present economic theories: Austrians, Keynesian and Quantitativists". This idea has arisen as a result of noticing in comments from knowledgeable academics and researchers, that they declare that although they made one first reading of the book, they realized that they are in front of a "new currency, macroeconomic and economic time theory", something "very important", "complex", "solid", "dense", "of high scientific content", "etc.", reason why they need more time to study it, mainly because they are met with a new way to see economics, with new terms and a strong critique to the ones in effect. Something like saying that in the arenas of currency, macroeconomics and economic time, the whole way of thinking has to be reconsidered.
In order to make the studying of my theories easier, here goes this introduction focused in its conclusions and derivations, leaving aside the scientific method deployed in the book (formulation, corroboration and comparison of theories).
Exchange and currency
Man identified spontaneously that life in society of economically different human beings (different in their needs and their ability to produce economic goods), would allow them to improve their economy by means of the specialization of each one in their relative greater ability to produce certain economic goods. This led each individual to produce much of a good and little or nothing of others, situation that allowed them to realize the necessity to exchange the outcome of that specialized work. A form of exchange was barter, a "very expensive" instrument because of its inefficiency, since one party should have exactly what the other needs and vice versa. The need to solve the problem of exchange in barter was called liquidity. Human beings give the name currency: exchange economic good of common use to the economic good that satisfies liquidity, and during the first times he uses as such money: present economic good used as currency.
Due to the increment of exchanges, and with this the economic progress of man in society, evidently the liquidity problem became more serious and money became an obstacle as barter was, with time it was becoming "more expensive" (because the need for liquidity was increasing faster than the production-supply of money in gold form, which in Keynes' words turned into the 'barbarous relic'). But man in society discovers (again, spontaneously) that there is an economic good that let them dodge the currency conundrum with money form, and that discovery, no less, is currency in form of credit. Without getting into the scientific complexity of the subject, it is enough to emphasize that credit can perfectly function as currency to make exchanges easier and in a more economic, less expensive way than money.
Thus, we see that credit is an economic good that competes with money to satisfy the same need (liquidity).
But it is necessary to emphasize specially the fundamental underlying differences between this "simple theory" and the ones in effect, in order to begin sketching in our minds how economy should be thought under the light of these new concepts:
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Money and barter are part of what is called cash: interpersonal exchange of present economic goods.
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Credit is: interpersonal exchange of present economic goods by future economic goods.
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From both previous points, these simple but strong conclusions arise:
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Money and credit are not comparable, since credit belongs to the sphere of the interpersonal exchanges, which is at the same level of cash (which materializes in two ways: barter or money).
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The difference between barter (direct exchange) and money (indirect exchange), which all the current currency theories are based on to study currency, is totally irrelevant for economics, yet not for finance.
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Another error of considerable magnitude in current currency theories consists in treating currency theory from the theory of money alternatively, as if they belonged to the same sphere, as well as to confuse credit with money and vice versa. A clear expression that supports this confusion is the generalized definition that money is everything that acts as money, which is to say that, an automobile and a road are equal because they both transport us.
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The difference between using credit as currency and not cash (money-exchange), is the economic time, no less. Without its intervention, both instruments of exchange are equal.
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The Theory of Economic Relativity (TER) says that economic time: is the only economic good that materializes inevitably in another present economic good, it does not have life on its own, as all the other economic goods do have.
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Therefore, we can say that credit: is the interpersonal exchange of economic time.
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Interest is the price of economic time.
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Then, when the credit is used as currency, interest (its price) happens to be used as a unit of measurement in economy. But interest, for being economic time, is also subjected to the TER.
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All this deductive order of economic causality, allows us to conclude that the so called currency prices are the same entity as interest rate, when credit is used as currency.
The first conclusions are to observe that there do not exist two worlds, a real and a currency one, a real interest rate and currency one, an indirect transmission mechanism (amount of currency, prices and interest), either the economic equilibrium of the market of real goods and currency market.
Later we will observe how all the developed macroeconomic scaffolding in the 20th century falls apart, but before that, we must make a stop in the following point.
Currency in form of irregular credit
I have classified credits in two very useful entities, regular and irregular one, stressing as the relevant difference to make this distinction the one that indicates us that irregular credit is the one which does not specify the quality and amount of the present economic goods which it will be cancelled with.
It is clearly observable that what we know as paper money (PM) is an irregular credit (an analysis in depth, see it in the mentioned book). To verify this, it is enough with having in your hand a note of any country and trying to identify in what amount of a specific present economic good it will be cancelled.
On the other hand, the so called fiduciary media (FM), represent the credit that is generated through the financial system, which is payable as well in irregular credit, PM.
This way we see that legislations on financial matters consider the credits as cancelled with the use of PM and FM, which according to the theories presented here it is simply novation of debt. The same happens with the operations identified as cash in which PM and FM take part, which are in fact credit operations, and irregular.
The scientific development (in the mentioned book) on the implications of the irregular credit tells us that when it manifests as PM it originates direct appropriation of other people's wealth, and when it manifests as FM it originates indirect appropriation of other people's wealth.
Currency and macroeconomics
Because macroeconomics is in charge of the study of economy in society (economy of a set of economic agents), it is evident that what affects the exchanges of economic goods between human beings, necessarily affects macroeconomics.
We also know that the production of economic goods has grown exponentially as a result of the interpersonal exchange of the larger production of economic goods due to specialization. The interpersonal exchange was turning from the state of cash (barter and money) to credit, which permitted to lower the costs of satisfying liquidity. But financial institutions orchestrated by man to face the liquidity problem, form an irregular currency system: economic system that adopts irregular credit as currency, which originates appropriation of other people's wealth (direct and indirect).
Then, the question is the following: Why this order? And the answer is, because the financial order world-wide is supported by the error of the present scientific theories. Paying attention to these new currency theories, it is evident that all the present macroeconomics derived from the currency theories in effect lack of suitable theoretical sustenance. Therefore, all the macroeconomic developments of the 20th century fall apart, among which we find: to introduce the stretching variable "unemployment" to explain currency disequilibrium; not to be able to explain the passage from a very expensive money (the Keynesian "barbarous relic") to a money that had to be "made more expensive" (raising the interest rate) because it was too cheap (what I call "Keynes' paradox"); to speak of zero or negative interest rate; to consider the existence of two worlds to equilibrate, a "real" and a "currency" one (S = I, IS-LM curves, 45º curves, aggregate supply and demand curves, etc.); Phillips' curves; Garrison's graphs; inflation-deflation; unemployment; Gresham's Law; neutral money; currency-price-interest transmission mechanism; etc.
Currency policy
It is evident that what is called currency policy is no more than a mere attempt to give a scientific dye to actions that, according to these new theories, configure appropriation of other people's wealth (direct and indirect).
It is necessary the presence of present economic goods so that the interpersonal exchange is configured, whether this may acquire the form of cash (barter or money) or of credit (regular or irregular).
The theories outlined here (corroborated in the aforementioned work) state that those who grant credits in irregular financial systems are the proprietors of the present economic goods that give origin to them, not the "banks", who are their recipients. In other words, the causality of the origin of credit in irregular currency systems is towards the financial system not from it.
If we already know that irregular financial systems do not generate any currency, but that it is the "market" (joint of proprietors of present economic goods) the one that determines its amount and quality (where it gets its value and prices from), the following questions arise: Why the existence of irregular currency systems? Why its regulation -amount, quality and price- in charge of the State? Is it feasible the independence of the central bank from the political power? Does the financial system as a whole escape its connivance with the political power? Whom do interests originated in irregular currency systems correspond to? etc.
These new theories make clear that there is no such a thing as currency policy, but that we will rather speak of appropriation of other people's wealth policy, where the harmed ones are those farther from the knowledge on the "financial" affairs, and the ones who benefit are those who better handle the "rational expectations".
It is not difficult to see that it is very tempting to dominate an economic good as important as currency, especially when the State is provided with the theoretical sustenance that let it benefit from two essential characteristics: concentration of currency credit in its hands, along with the faculty to determine the quality and amount of the present economic good which it will cancel that concentrated currency credit with. If we add that credit has replaced money in the role of currency, and the increasing relative importance of the interpersonal exchange as a factor for generating wealth, exchange that also requires currency as an instrument for its concretion, we see how the bank-politics set closes as a power factor that attempts on democracy. In other words, in a meeting of few the destiny of many is decided.
It is observed that economic theories made valid the behavior of the emperors to maintain their extravagances (luxuries and wars), and that those same theories validate the same actions done by an "elected State-Emperor".
SYNTHESIS OF THIS INTRODUCTION
The special thing in economics is the study of economic time, not of money neither of currency, as well as it is not correct to make money theory the same as currency theory, or to study both at the same level, as bad as it is to treat money and credit equally, and to assign to interest the quality of being the price of money and not of economic time, that when it is exchanged interpersonally configures credit.
On the other hand, in irregular currency systems, the economic good taken away from his legitimate proprietor is economic time, which is materialized inevitably in another present economic good (TER). This takes us to think that each human being will take part in the damage according to the economic goods that form their environment.
With these theories, the plain and simple truth related to the immorality of the irregular currency systems, from now on their use is exclusively political, lost the scientific sustenance that confirmed the corruption inherent to its essence.
A WORLD OF HOPE
The scientific rigor leads me to suggest that the solution to the problem that the economy presents (to palliate scarcity of man in society), comes together with the idea of generating institutions which guarantee the correct functioning of freedom, trust and solidarity; where they are not present there is no economic development, and where they exist (obviously in an imperfect form, as everything human), there is. To sum up, with a regular currency system, it is feasible to walk towards a world in which: taking advantage of the fact that we are all different, we may be each and all better, as we become more. It is not difficult to conclude then, that I present new theories that have to do with the economic world, political, legal, financial and accountable.
The conclusions of my research make raise a world of hope to me.
Buenos Aires, September 2006.
carlosbondone@gmail.com
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Translator Note: The distinction between money and currency is essential in this work. The author places the term "currency" as a more general categorization than that implied in "money". Thus, currency can acquire whether the form of money or of credit, and this last can be regular or irregular.
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