Money : beginning (^)

The invention of money is very ancient, older than we usually imagine.
Certainly it is conceivable that, with and within a subsistence production and a closed economy, the exchanges and the necessity for media of exchange are very low or non-existent.

But, as soon as the number of people living together increases, then the specialization of activities (social division of labour) arises, leading to an increase of production in so far as each one focuses energies and skills, in a more active and capable way, on the endeavours he/she is keener on or better at.

The surplus that each producer makes in his own field of activity has then to be exchanged in order to satisfy a series of other needs. So, from the social division of labour emerges and spreads the desire/exigency of exchange that is one of the basic traits of any social organization, if not of human nature.
The exchanges could be conducted by:

- Barter: goods are traded with other goods. This is an effective and straightforward way of making a transaction when the range of needs is very limited and when goods are easily divisible so that a certain number of units of one good can be exchanged for the desired number of units of another good.
- The use of intermediate goods: a good that is generally accepted is employed as a medium of exchange in order to obtain the goods that are really needed.

In the course of history many goods have been used as media of exchange. They played that role for various reason, e.g. because of:

- intrinsic use value, for instance pecus (i.e. cattle) from which comes the Latin word "pecunia" which means money;
- symbolic exchange value, for instance shells or beads, which were appreciated in many communities for their aesthetic attractiveness and ornamental function.

As a matter of fact this analytical differentiation might be considered unnecessary because, from the point of view of those making the exchange, what counts is to be able to reach some specific goods. If that means to receive, at a certain stage, polished stones or tobacco or something else, this is not important as long as the people involved are willing and able to continue to carry on the process of exchange and obtain, at the end, the desired goods.

Very early, in several regions of the world, metals started to be employed as media (units) of exchange. It seems that metal coins were used in China already in the 12th century B.C. under the Chou dynasty. In Greece, the judges received as recompense for their services a proportional number of iron spits called "obelos" giving them the right to obtain some pieces of meat according to the number of spits. Later one the spits were replaced with metal coins that continued to be called "obelos" (subsequently, obolos).

The use of metals as a medium of exchange is quite understandable because of their:

- durability
- divisibility
- measurability
- transportability

We could also add that some metals, because of their relative rarity, almost universal appeal and use as ornamental objects (namely, gold and silver) had (and still have) also the quality of general desirability/acceptability, irrespective of place and time.

The invention and diffusion of easily usable media of exchange in the form of metal coins, allowing the satisfaction of personal needs through a series of multiple exchanges and so assisting in the development of human beings and communities, can be put on a par with the invention and diffusion of other powerful and useful technological devices that have contributed significantly to human progress.

Money : afterwards (^)

In the hands of the producers-consumers money is essentially a medium of exchange. But, from the beginning, the political rulers realized that money was also an instrument of power, usable in order to control people by buying their allegiance (bread and circuses) or remunerating the services of some of them (the bureaucracy, the army) for exacting obedience on all on behalf of a few.

From a political perspective money is then mainly a sign and an instrument of command. As a monetary historian put it, "The right to coin money has always been and still remains the surest mark and announcement of sovereignty." (1896, Alexander Del Mar, History of Monetary Systems)

In Western Europe, the Roman rulers controlled the coinage, and the coins usually bore the effigy of the emperor so that everybody knew where the power resided and where their possibility of buying the means of sustenance came from. As a matter of fact, many Romans, at the centre and in the periphery of the empire, were on the payroll of the state as functionaries or soldiers, or received state assistance; at a certain stage it seems that this was the case for as many as 200,000 people, just in the city of Rome.

Besides personal affluence and the support of parasitic strata, the main reason for the rulers needing vast amounts of money is the waging of wars. For the Romans wars were necessary for getting hold of new sources of gold and silver for minting coins in order to pay a swollen bureaucracy and an army that would wage further wars. This infernal circle eventually ended with the collapse of an unmanageable empire.

During the Middle Ages, kings and rulers made recourse sometimes to wealthy individuals (merchants, goldsmiths) for financing their wars. This was, for instance, the case of Edward III, King of England, who received money from Florentine bankers (Bardi, Peruzzi) granting them, besides the promise of repayment, also exclusive rights of trade.
When repayment was indefinitely postponed and finally cancelled leading to the failure of those firms (the Bardi and the Peruzzi went bankrupt at the beginning of 1345), the lending from those sources dried up completely and the rulers had to think hard in order to find new ways of having access to money.

In 1694 the need to finance the long war against Louis XIV of France led to the establishment of the Bank of England. This financial institution came out of a marriage of convenience between the business community in search, as usual, of monopolistic privileges for making money and the ruling élite, who were always very short of it.

The same type of alliance took shape in France when the Duke of Orleans, regent of the king of France, in order to find a solution to the disastrous situation of the state finances, gave permission to John Law, a Scotsman, to found the Banque Générale (1716), which became later on the Banque Royale (1718). This was in fact a state venture brought into existence for controlling/manipulating the national debt and a great part of the foreign trade. The over-issue of notes and the sale of shares for unproductive ventures very soon (1720) put an end to the illusion of solving real problems with financial tricks, at least in France and for the time being.

The constant theme in history is the continuous need of state rulers for money and for more money as expenses regularly exceed revenues, and revenues cannot be increased at will through taxation for fear of a revolution or because this would lead to economic destitution, extinguishing in the process the very source of income.

Nevertheless, in order to survive and to pursue their political aims of dominion, the state rulers find it appropriate to interfere and tamper continuously with the process of money issue and circulation. This mismanagement of money has been performed mainly through:

- money misappropriation (open and hidden expropriations)
- money misallocation (destructive and parasitic dealings).

Money : mismanagement (^)

Throughout history rulers have rarely missed the opportunity of getting their hands on all sorts of resources to be used mainly for maintaining and strengthening their hold on power. With reference to money this has resulted in:

Money misappropriation
- Open expropriations
When in financial straits rulers have resorted to cancelling repayments of borrowed money (as in the case of Edward III of England and Charles V of Spain) or in simply appropriating somebody else's resources (as in the case of Constantine who confiscated the vast treasures of the pagan temples throughout the Roman Empire, or of Henry VIII with the dissolution of the monasteries).
Open expropriations have been used by the state during the so-called wars of religion (against either Catholics or Protestants), at the time of the establishment of national states (e.g. expropriation of Church properties in France during the revolution or in Italy after the unification) or following the seizing of power by a new regime (e.g. in the communist states with the suppression of personal ownership).
All this has permitted the state rulers to obtain the necessary financial means either through the sale of those assets or the printing of notes (e.g. the "assignats" in France) backed by the expropriated resources.
- Hidden expropriations
In the past, when the media of exchange were gold and silver coins of a fixed weight, the rulers repeatedly debased them by reducing the weight or mixing the precious metals with alloys of less value. One of the first known cases is that of the Roman emperor Nero who reduced the gold content of the aureus and the silver content of the denarius, and was later imitated by other emperors because this was the easiest way, for the state, to pay for ever growing expenditures.
In recent times, during the XX century, with the universal introduction of paper money imposed as legal tender, the over-issuing of notes by the state printing press produced the same effect of debasing the money.
All these policies have represented a hidden (or not so hidden) expropriation actuated by the parasitic debt-ridden governments at the expenses of productive individuals that were trying to live and operate within their means. This is one of the most evident cases of sensible virtuous behaviour derided and belittled by cheating and vicious masters.

Money misallocation
- Destructive dealings
The most common destination of the expropriated resources has been to pay for wars. Anton Fugger, the banker of Charles V, Ferdinand I and King Philip II of Spain was very well aware of the use of the money he was lending when he stated: "pecunia nervus bellorum" (money is the sinews of war).
The evidence in this respect is so overwhelming that Bertrand Russell could not help declaring with extreme frankness: "In view of the fact that the bulk of the public expenditure of most civilized Governments consists in payment for past wars or preparation for future wars, the man who lends his money to a Government is in the same position as the bad men in Shakespeare who hire murderers." "Obviously it would be better if he spent the money, even if he spent it in drink or gambling." (1932, Bertrand Russell, In praise of idleness)
- Parasitic dealings
The money that is not spent for wars is, in quite a large part, allocated to parasitic and highly protected strata (i.e. the state bureaucracy and its appendages). In 1914 in France 1 citizen out of 103 worked for the state, and the French state was already quite strong and pervasive. Now, according to data referring to the mid 1990's, one citizen out of almost ten works for the state (more than 5 million people). If we include state companies and associations subsidized by the state, it is one out of almost 8 (more than 7 million people) (1999, Louis Beriot, Abus de bien publique). It is quite hard to believe that they are all necessary for the promotion of the citizens' well-being.

In order just to stay afloat the state continuously needs huge sums of money. Achieving this result is possible only because the state meddles with the currency and bends it to its own ends. It follows then that the original and proper functions of money become secondary and that money mis-functions take over.

Money : functions and mis-functions (^)

Money mis-management and the resulting money mis-functions have been and are still possible because the true functions of money have been undermined by the state and the mis-functional uses have been fostered to the point that they play a domineering role.

If we see money as a technical device for facilitating and improving the economic and social relations of exchange and production, the functions of money amount essentially to:

- Lubricating the wheels of commerce (medium of exchange)
As Hume expressed it, "Money is not, properly speaking, one of the subjects of commerce; but only the instrument which men have agreed upon to facilitate the exchange of one commodity with another. It is none of the wheels of trade. It is the oil which renders the motion of the wheels more smooth and easy." (1752, David Hume, On Money)

- Igniting the spark of production (means for enterprise).
The production of surpluses in an economy that employs money as a medium of exchange and that is characterized by the presence of productive individuals and of attitudes to further production, results in the saving of these extra resources in the form of small or large sums of money. This leads to the pooling of these financial means for their investment in new business ventures like opening up novel trading avenues or setting up further industrial activities.

These two practical and fruitful functions of money (exchange and enterprise) require, in order to be performed, that money be linked, as source and use, to those who are associated with the production of freely demanded - freely exchanged goods and services. In this case money is only a subordinate device used for facilitating the satisfaction (through exchange and production) of human needs.

When and where this does not happen, we are in the presence of mis-functional uses and fallacious conceptions that assign to money capacities and properties that are alien to it. Money is then seen as an end in itself, i.e. a final good to be appropriated and kept instead of something to be just received and passed on in exchange for goods and services or for the investment in the production of goods and services. Money is hence equated, without any further qualification, to:

- Wealth
A pile of gold cannot be defined as wealth any more than a pile of bricks can be characterized as a house. We could call this the Midas fallacy. When King Midas asked the gods for the gift of transforming everything he touched into gold, what he really wanted was the purchasing power of gold; for instance the possibility of getting delicious food in exchange for gold, not the reality of delicious food transformed into gold. History is full of cases characterized by this fallacy as, for instance, Spain undergoing a long economic decline while a flow of gold was entering the country from South America (XVI century) or the United States entering into a long economic depression during the 1930’s while the coffers of the Federal Reserve were full of gold.

- Value
Money is neither a value in itself nor a common measure of value but only a tool for exchange. An object has or might have a certain value and has or might have a certain price but the two aspects refer to distinct realms. There is a difference between the price of an object and its value. In several cases value and price are at odds with each other, considering that what is most valuable for human beings does not fetch a high price or any price (e.g. water, air, sun, etc.). To identify price with value is at the basis of the GDP fallacy and is a sure recipe for disaster because it encourages behaviour that favours short term money earnings that increase the figure of the GDP (for instance cutting down an entire forest and selling the timber) instead of activities that care for long term value.

- Power
Money can buy people (soldiers, bureaucrats, teachers, journalists, etc.) to support and underpin power but it is not power in itself, as rich minorities (Catholics, Protestants, Jews, aristocrats, etc.) realized personally and tragically when they were expelled, expropriated, sent to the guillotine or to the crematorium. Ideas and beliefs shared by millions in the form of collective myths or collective trust, is what power amounts to. Money on its own, without the fallacious mark forcibly bestowed on it by power, would appear for what it really is, a piece of metal, a sheet of paper or a bit of information on a computer screen.

In general, mis-functional uses of money are those when money is neither a medium of exchange nor a means for enterprise but an end in itself, whose simple possession, irrespective of the general context, is naively and erroneously equated to wealth, value and power.

A very poignant indicator of this situation (i.e. money to beget money) is the fact that “the value of world financial transactions, which was 25 times world GDP in 1995, rose to 70 times that value by 2007 (European Parliament, 2010).” (See: Thornton Matheson, Taxing Financial Transactions: Issues and Evidence, IMF Working paper, 2011)

For these mis-functional ways of using and seeing money to prevail, the state has to play a dominant role in the economic and social life of a community. Putting forward a series of fanciful pretexts, namely that many people are unable to look after their own interests, that free exchanges do not work properly to the advantage of individuals and that money is something too important to be left unsupervised, the state has intervened, cancelling any vestige of monetary freedom, similarly to what it had already done or it was doing in the field of production (e.g. regulations) and exchange (e.g. tariffs). And, as in the case of production and exchange, the state has attributed to itself the role of supreme director, conferring exclusive privileges to a series of subordinate actors while relegating most human beings to the role of disposable extras.

Money: directors, actors and extras (^)

During most of the XIX and XX centuries we see the continuous climbing of the state to a position of supremacy and control in all social and economic areas.
The suppression of laissez-faire took place both in the field of production of goods (state protectionism and formation of national cartels) and in the issue of monetary media of exchange (national central bank).

The distant antecedent of this development can be traced back to the establishment of the first central bank (the Bank of England in 1694). Its origin is linked, as already pointed out, to the needs of the English state to replenish its coffers, exhausted by lengthy wars, in order to continue the fight against France. As usual in these matters the traditional practice was followed, i.e. that of conferring to a company monopolistic privileges of imposing duties on various goods, in exchange for the advance of a certain amount of money (in this instance, the sum of £1,200,000). It was like holding hostages to ransom (the hostages being the people living in the territory controlled by the state rulers) or, to put it more mildly, using the state's subjects as security and debtors for a mortgage. So, from the start, the monetary interests of the state rulers to finance wars were taking priority over people's real needs for a commerce unhampered by controls and exactions.

The same dynamic leading to the setting up of a central bank in England is visible in the United States at the time of the North-South war. The legislation introduced between 1862 and 1865 was aimed at a compulsory absorption of legal tender (the "greenbacks") for financing the federal debt, allowing for the continuation of the war.

The same reasons are behind the establishment of most central banks. They were founded for political and military reasons that have practically nothing to do with sound economic necessities. No wonder that the state banking system is characterized by deep and widespread corruption and bad administration of which the collapse of the Banca Romana in Italy and the Panama scandal in France (both taking place towards the end of the XIX century) are amongst the most notorious cases in history.

Nevertheless, the statist inclinations and interests were so strong that, during the first half of the XX century, through Acts of Parliament or Congress, in practically every country, national (or federal) central banks were established and were given the paramount role of managing the currency as:

- Unique Issuers
- Universal Controllers
- Ultimate Resort Lenders.

In this scenario, the other banks were assigned the part of actors, whose appearance on the stage had to be approved and certified by the director (the state central bank) and whose monetary activity had to be regulated by parliamentary laws. While in the past banking originated from production and commerce and was like a by-product of it in response to the necessities of economic dealings, under state certified banking the banks arise for political and financial reasons and are subservient to political and financial interests.
The banks have accepted this subordinate role with respect to the central bank for the simple reason that, under the tutelage of the state, they enjoy exclusive, sheltered power in money dealings.

In other words, the banking system is a protected monopolistic apparatus, servicing the financial exigencies of a monopolistic master (the state and its coterie) and deriving its gains from the manipulation of money (i.e. profiting from pure and simple financial transactions) for ends that, in many cases, have little or nothing to do with facilitating exchanges of goods/services and fostering production.
In this comedy of directors (the central banks) and actors (the certified banks), most customers are the inconspicuous savers/lenders and the defenceless users/borrowers. In other words, they play the role of the exploitable and even expendable extras, like a faceless and manoeuvrable multitude in a colossal movie.

People with scant knowledge of the past assume that this has always been the case, that central banks have always existed and that money is and must be the natural reserve of the state otherwise total disorder and social bankruptcy will inevitably ensue. So, it is necessary to throw a quick glance back to a past that offered a different scenario.

Money: a forgotten past (^)

After the collapse of the Roman Empire and the waning of an imperial authority in Europe, there was, for a long period, a lack of a centre of minting. With the revival and expansion of production and commerce, especially at the turn of the first millennium, the merchants and the artisans in the cities took over the task of providing coins for facilitating exchanges. One of the most highly-regarded coins was the Florentine florin, which was accepted as a medium of trade in many regions of Europe. This could be seen as an example, amongst others, that there is no need for a central banking authority to regulate currencies as they can very well look after themselves provided that there is the freedom of individuals to accept (reputed) good coins and refuse (reputed) bad ones. Moreover, these historical facts confirm the origin of money as having been issued by traders and producers for the requirements of commerce and industry, instead of being the result of a ruler's fiat for parasitic and destructive endeavours.

During the Middle Ages the merchants devised new forms of transferring money (like the letter of payment, the forerunner of the modern cheque) in order to avoid the inconvenience of carrying the heavy weight of coins on long journeys and the risk of being robbed on the way to a fair. This again shows that there is no need of a central authority or legislative bodies to conceive and regulate instruments of payments. They arise and are implemented following experience and necessity.

Further developments concerning the use of money were the "commenda" and the "societas maris" that represent partnerships between investing individuals and entrepreneurs/traders for the carrying out of a common economic venture. Once the business is completed, the resulting profits (or losses) are shared by the associates according to the rules of the agreement.
Over and over again historical events show that, given the freedom to set up contracts, people are bound, sooner or later, to find amongst themselves arrangements for the fruitful use of resources, without the need for external intervention.

With regard to poor people, access to money resulted from the initiative and care of groups that had nothing to do with the state. In 1462 the Franciscans in Italy established "montes pietatis" that granted to the poor loans (initially free of interest) secured by pledges (to be eventually sold at auction in case of default). In later times, during the industrialization of Europe, savings banks, credit co-operatives, building societies and the like, serviced and supported the workers and the needy. So, even when affluence was not widespread as it is in our age, people left free to intervene without suffocating state regulations were capable of inventing and setting up instruments for the circulation of money down to the most penniless strata. We can only imagine the variety of caring and prosperous economic associations we might have by now if that freedom had been kept alive.

Besides all these experiences in the management of money, expressing the true function of it as facilitator of exchanges and stimulator of productive enterprises, what is most forgotten and wilfully avoided in state-oriented economic teaching is the interesting history of Free Banking in Holland and Scotland.
Holland, a region relatively poor up to the XVI century, became, in a quite short span of time, a centre of long distance trade and of free banking. The freedom of trading and industry generated all sorts of profitable opportunities and channelled money (for economic investment) towards Holland, further increasing exchanges and production and making it, at the beginning of the XVII century, the richest region of Europe. While Spain was decaying under the weight of plundered gold and state regulations, the Bank of Amsterdam, that is the shareholders and the depositors, were financing trade and related production on a huge scale. At that time, every year more than 600 ships were leaving the port of Amsterdam for the Baltic regions, more than 60 were heading to the Far East and around 80 to America, without the state placing any impediment on the movement of goods in and out of the country or on the means and forms of payment.

An experience of (partial) free banking took place also in Scotland between 1716 and 1845. It was characterized by free access to banking activity and the existence of various currencies issued by banks in competition; there were no specific banking norms but the common law of contract was applied. During the free banking period, Scotland was transformed from a poor agricultural economy with a personal income half of that in England to an industrial region with pro-capita income almost equal to that in England.

All these experiences have been minimised, obliterated or considered just impractical in the state dominated world of the XX century. This position might be acceptable if the financial situation of the world during that century had not been characterized by either depression or inflation and, ultimately, by a combination of the two called stagflation. These phenomena have taken place even in (or thanks to) the presence of a series of national and international banking institutions, dominated by states, with substantial regulatory power.
It is then necessary to focus briefly on the recent and current situation of monetary affairs under state management.

Money : an uneasy present (^)

The monetary situation during the first half of the XX century was characterized by:

- The end of the convertibility of national currencies into a generally (i.e. internationally) accepted commodity like gold or silver. This, in conjunction with increasingly protectionist state economic policies, led to a collapse of international trade and to a long depression.

- The coming to total dominance of central national banks geared to satisfying state interests of a purely political and financial nature, like state expenses for the bureaucracy, the army, the nationalized enterprises, the welfare recipients and so on. Most central banks presided, until recently, over the monopolistic issue and compulsory circulation of national currencies.

Throughout most of the XX century, a part from small coins, money was (and could only and exclusively have been) a piece of paper printed by the state (legal tender) whose issue was not necessarily backed by any economic reality (goods and services) nor strictly linked to people's needs for exchange and enterprise. The monetary sphere was the exclusive reserve of the central bank whose decisions were subservient to the political and financial exigencies and aims of the state.

These two aspects were still predominant in the post world war period with the remarkable exception represented by West Germany, where the shocking experience of the hyper-inflation of the 20's led to the re-establishment of a central bank (the Bundesbank) quite independent from the central government (except for government granted legal monopoly and power in monetary matters).

During the second half of the XX century a monetary reality dominated by the state brought about a situation of continuous inflation. "Inflation" - as pointed out by Milton Friedman - "occurs when the quantity of money rises more rapidly than output [of goods and services]." (1992, Milton Friedman, Money Mischief). When the issue and circulation of money is free from political meddling and is under the responsibility and risk of the producers-consumers of goods and services (within a totally free dynamic of investments and exchanges) the necessary amount of monetary instruments would result through a series of continuous and voluntary adjustments. Failure to do so (constantly and willingly) would be tantamount, for the economic dealers, to self-inflicted damage.

It is a different case when money is issued and put into circulation following the requirements of a political agenda. In actual fact, the institution that promoted inflation, i.e. the state, is also, not by chance, the one most rewarded by it. An inflationary policy brings to the state:

- Political gains
Inflation, originating from the issue of money for political reasons, equates to the manufacturing of illusions. It gives to producers and savers the impression they are bettering their situation because there is plenty of money, or more money, in their pockets. However, if their economic situation has really improved (materially and not just monetarily) this is mainly because of technological progress that increases production and reduces costs. It is certainly not because of monetary arrangements by the state like the printing of sheets of paper called money.

- Financial gains
The state as recipient of money through taxation enjoys higher revenues as a consequence of inflation because the taxpayers are pushed towards higher tax brackets (direct progressive taxation) and because, when prices rise, so does the absolute quota going to the state on exchanged goods and services (indirect taxation like VAT).
Moreover, in the presence of inflation, when the state borrows funds (selling national bonds) it repays its due with depreciated money (even taking into account high monetary rates). As pointed out by Milton and Rose Friedman, a USA ten year state bond purchased in 1968 for $37.50 would have been repaid at $64.74 in 1978; but, by that time, it took $70 to buy as much as $37.50 would have bought in 1968. If we add to this the fact that the investor had to pay a tax on the difference earned we discover that he "would have ended up paying for the dubious privilege of lending to [the] government." (1980, Milton and Rose Friedman, Free to Choose)

Summing up the monetary policies of the state central banks during the XX century it is appropriate to say that they caused first a huge depression (during the '30s) and then continuous inflation. Needless to say, the state has pointed to every possible culprit (workers, business, foreign governments, etc.) for causing inflation. One of the favourites was the increase in the price of petrol in 1973. With regard to this, the economist John K. Galbraith (who could hardly be suspected of anti-statist tendencies) remarked that "around three-fourth of the price increases [in goods and services] of 1973 occurred before the [Yom Kippur] war and before the oil prices went up appreciably." (1975, John K. Galbraith, Money)

In the last part of the XX century state economic policies even made possible what is hardly conceivable (either in theory or in practice) if individuals were left to run their own affairs and to look after their own interests instead of being run by the interests of state affairs. We refer to the contemporary presence of stagnation and inflation, namely what has been called stagflation.

At that point a change of policy became almost unavoidable, considering also that other factors were appearing on the scene:

- the crisis of state communism, which not only would weaken the stranglehold of western nation states on their citizens and their pretence of being the indispensable bulwark against communism, but would also make very clear that the idea of controlling and planning production from a central point of command is sheer hubris and folly;
- the development of information and communication technologies, which would pull down barriers to the flow of ideas, prelude to the free circulation of people and goods over ever wider horizons.
All this has had and is having repercussions on monetary arrangements. By the end of the XX century, after the abandonment of national planning, the illusion that a national central bank could control the issue and circulation of money has equally been laid to rest.

Meanwhile the information power of the human being has grown tremendously and is leading to the re-appropriation by the individual and the small group of a series of roles and functions previously dominated by the financial institutions (banks, investment funds, etc.)
In the XXI century upholding centralization and intermediation while individuals and technology are ready for decentralization and disintermediation is not any longer possible. The seeds of a very different monetary future have already been sown.

Money : a hopeful future (^)

At the beginning of the XXI century three aspects concerning money are steadily becoming more and more actual and relevant:

- The dematerialization of monetary forms. In the course of centuries money has acquired different forms, with a continuous tendency towards symbolization. The intrinsic value of the media of exchange (e.g. cattle) has given way to money as socially held value (e.g. gold) and then to money as nationally imposed value (e.g. paper money). The fulfilment of this process is the passage to a totally symbolic money to be used in parallel with a variety of forms of money. This symbolic money is similar to the electronic bits of data that flow through the Web and like the Web is the result of a myriad of small interconnected nodes (e.g. traders, customers, investors, donors, etc.) impossible to manipulate and control from a centre.

- The decentralization in the issue of monetary media. The interacting nodes are large and small producers and consumers of goods and services (e.g. material objects, information data, etc.) and they are taking over the process of producing monetary media for the requirements of production and exchange. This is still a phenomenon in its infancy but it will gain momentum when some prestigious and trustworthy firm or community engages itself in experimenting with digital money and promotes and carries out a successful experience.

- The disintermediation in the allocation of monetary means. The present record of banks and financial institutions concerning the management of savings is very poor indeed. Their performance is not better than that of a software program that examines the relevant data and suggests some investment moves. What is also outrageous is the fact that those who manage people’s money take a considerable cut out of the saving entrusted to them by the customers, irrespective of the results achieved. On the whole they are not good value for money and so it would be more sensible - and this is quite likely - that people (individually or in small associations) take back the control of their investments, using the technology already existing for doing so (e.g. share dealing via Internet) or new technological tools still to be devised.

What these tendencies and potentialities amount to is a reversal of past realities and the opening-up of a sounder and more hopeful future that should be consciously promoted and built by responsible individuals and communities. The negative aspects to be overcome and the positive ones to be implemented, for this hopeful future to come to fruition, concern:

- The issue of money. The issue of money from political and financial institutions (not linked to the production and exchange of goods and services) should be replaced by the issue of money from individuals and groups (communities, firms, merchants, entrepreneurs, etc.) involved in the production and exchange of goods and services.

- The circulation of money. The circulation of money for political or financial reasons (not motivated by the production and exchange of goods and services) should be replaced by the circulation of money oriented towards the requirements for the production and exchange of goods and services.

- The allocation of money. The allocation of money to political and financial groups (not providing goods and services required by individuals and communities) should be replaced by the flow of money to individuals and groups that provide or are willing to provide goods and services needed and demanded by other individuals and groups.

The implementation of these aspects requires a total change of scenery, already partially underway, from centralistic practices (central bank of issue) and monopolistic privileges (banking system of circulation and allocation of funds) to an open and free system based on:

- Money as Virtual Vouchers (for exchange)
- Banking as Personal Pooling (for enterprise) .

Money as Virtual Vouchers (for exchange) (^)

The primary function of money is that of facilitating exchanges between different producers and consumers. The starting point of any exchange is clearly the production of something (good, service) exchangeable with something else. Money, in whatever form it appears, can be seen as a sort of voucher registering and attesting the right of a producer to receive something in exchange for what he has freely and willingly given or put at somebody else's disposal. In our time (beginning of the XXI century) money is taking the form of virtual vouchers.
The use of the qualification "virtual" to characterize money-vouchers is intended to stress two qualities of money, a formal and a substantial one, namely:

- virtual as formal quality: money is a virtual (ethereal) piece of information that does not need any material form (metal, paper) to circulate;
- virtual as substantial quality: money is the prize for virtuous (prize worthy) behaviour fruitfully and successfully applied to the production and provision of goods and services.

Value on the whole is generated through this virtuous (i.e. beneficial) behaviour. Virtuous behaviour in the economic field is the expression of

- enthusiasm (thrill)
- effort (will)
- expertise (skill)

resulting in the production of (exchangeable) goods and services.

All this has implications for the distinctive features characterizing virtual vouchers compared with legal tender. The features concern the following aspects:

- Issue
Everybody capable of producing goods and/or providing services demanded by other people generates value.
Goods and services containing economic value are generally exchanged through the medium of money. In other words, money is not only strictly linked to the production of goods and services but we could even say that it is nothing else than goods and services under a different guise. The only reason for its existence is to bring about the desired mix (type and quantity) of goods and services amongst individuals.

If exchangeable goods and services are (equivalent to) money, it follows that every producer of exchangeable goods and services is also an issuer of money, and this is how it happened to be at the time of the merchants and artisans and how it should be in any functioning economy. In contrast, whenever and wherever a non-productive entity takes upon itself and monopolises the issuing of money, we all precipitate in a very unsound state of affairs.

The Law of Say (the production creates its own demand) is valid only when the free production of goods and services satisfying the needs and requirements of individuals (as producers and consumers), is complemented and coupled with the free issue of the media of exchange. This does not mean that, all of a sudden, everybody will be issuing virtual vouchers day and night, out of thin air. We shouldn't apply past statist images to new post-stastist realities. If we are not producing goods and services to the liking of individuals that have, in their turn, produced exchangeable goods and services, there are no virtual vouchers to be issued and put into circulation. Virtual vouchers emerge only when individuals are part of a network of exchangers as givers and receivers. This is how it is/should be, even taking into account the fact that, at least for a certain time in their life, some people might be mainly givers (the young, the able-bodied, etc.) and others mainly receivers (the old, the invalid, small children, etc.).

The free flow of information permits us to continuously re-adjust the balance between production and demand, on the way to a world of instantaneous matching (between production and demand) via production-on-demand.

Even if we reason in terms of the old paradigm of over-issue or under-issue of money, it is conceivable in this case that the producers will try to avoid both situations for the simple reason that otherwise either they will be left with unused goods/services even when there are unsatisfied needs or they will receive for their goods/services depreciated or depreciating money. On the consumer's side, the issue of vouchers by untrustworthy, or just unsuccessful, producers is simply resolved with the refusal of their acceptance so that, in the end but quite soon, solid vouchers will drive out bad (or less attractive) vouchers just as good or better products are generally preferred to bad or inferior ones at the same price. The only proviso for this to happen being the universal enjoyment of complete freedom (of information, of production, of exchange, etc.).

From what has been said so far it follows that only through free production of goods and services and free issue of media of exchange can we expect a sound economic balancing that avoids the statist recurring scenarios of inflation and depression.

In the presence of a monopolistic central bank and a compulsory legal tender those adjustments were/are neither practiced (because of political and financial interests antithetic to the interests of producers and consumers) nor practicable (due to the enormous/insoluble requirements in terms of information acquisition and processing by a top decisional centre).

- Circulation
The issue of virtual vouchers by producers and providers of goods and services is clearly linked to the trust that those issuers inspire amongst individuals and the validity/acceptability enjoyed by the vouchers as a result of that trust.

Considering that we are referring to freely accepted virtual vouchers issued by different producers, it is clear that there will be different levels of validity/acceptability as, for instance:

- Local Specific. The voucher is exchangeable in a specific area and in a specific number/type of outlets. We could imagine virtual vouchers issued by an association of local shops (and progressively replacing legal tender) with discounts linked to the use of this medium of exchange.
- Local General. The voucher is exchangeable only in a specific area but is so popular (trustworthy and convenient) that it is accepted by everybody. This could be the result of the voucher being issued by a highly reputable local firm or association.
- Universal Specific. The voucher is exchangeable everywhere in the world but only at specific outlets. We can imagine the case of vouchers accepted at auction sites on the Web or at specific electronic malls.
- Universal General. The voucher is like a world currency accepted by practically everybody, not dissimilarly from what happens now when using a credit card for making payments everywhere for whatever goods or services, but without the high transaction fees or conversion charges.

The use of electronic cards (or so-called smart cards) for automatic registering of the deals will take care of this plurality in the validity/acceptability of the media of exchange and should make the transactions smoother and safer than they are now.

Furthermore, the freedom in the choice of media of exchange will give more power to the individual, who will become more responsible and careful in looking after his/her own interests in the management of this variety of virtual vouchers.

- Allocation
Virtual vouchers allow for a more flexible and more personalized allocation of money as investment in productive activities and ventures.
It is conceivable that the end of legal tender and the emergence of a variety of virtual vouchers, safely and easily transferable without the need for any intermediary institution or company, will have a huge impact not only on the circulation of goods (introducing a world of small dealers to a world of exchanges) but also on the allocation of money (introducing what is here called personal pooling).

Banks and financial institutions (e.g. investment funds, pension funds, insurance companies) currently manage most personal savings. This might not be the case in future if a full liberalization takes place that makes the process of investment easier and less costly and eliminates the monopolistic role attributed to existing financial intermediaries.

Banking as Personal Pooling (for enterprise) (^)

The banking system that has taken shape since the formation of the Bank of England (1694) and especially in the course of the XX century is characterized, on the whole, by the paramount aim of funnelling money to the state coffers.

The facts of history show that the main reason for establishing a central bank and for subjecting all the other banks to the control of the government (via the central bank) was to raise revenues for the state. In actual fact, a predominant part of the bank reserves have generally been represented by the government debt (national bonds). Under statism the banks have become a ring in the chain of state extortion (taxation) and state misallocation (destructive and parasitic uses) of money. So, the entire banking system, strictly controlled if not directly owned by the state (like in Italy and France up to recent times) has been nothing else than a sort of Aladdin's lamp, that would produce money for the ruling élite once it was (gently or roughly) massaged.

The banks have acquiesced to this "rub and rob" practice by the state in exchange for a series of favours centred on the privilege, shared with the few admitted to the banking club, of making money out of money, i.e. out of purely financial transactions. How perverse the system has become emerges from the fact that the gains from those transactions are higher than the profits for producing real and useful goods and services. For instance, in 1996 the shareholders of the seven largest US banks had an average total return of 44 %, much higher than the 28.2 % that went on average to the shareholders of the 30 USA corporations whose stock prices determine the Dow-Jones Industrial Average. This is nothing unusual. Even during the most famous depression in history in the '30s the financial circles got quite a nice return. The total income of the commission business of brokers and investment bankers (brokerage fees, interest charges) between 1928 and 1933, most of them years of economic depression, amounted, before taxes, to $2.4 billion, a very high figure that would nevertheless be surpassed in the following years. (1997, Charles R. Geisst, Wall Street).

As reality has shown over and over again, even when individuals lose some or all of their invested money, the only ones who always gain are those in charge of the investment because, whatever the result (profits or losses) they take their commission every time they deal in pieces of paper called stocks or in new financial instruments called derivatives. (2003, Frank Partnoy, Infectious Greed).

In 2002 the performance of the shares administered by the investment funds in Italy registered a loss of 31 billion euros. The same year, the same investment funds made gains of 7 billion euros in management fees. The financial portfolio of an investor in Italy is totally changed every 8 months and this is mainly due to the fact that every transaction results in the exaction of a fee and so represents a gain for the investment funds even if it doesn't improve the financial situation of the investor.

With reference to financial speculations that involve other forms and types of money and have no (or little) connection with the production and exchange of goods and services, it is fair to say that they represent a sort of huge money-spam. It follows that the freedom to speculate on currencies (i.e. reject and drop certain currencies) can be accepted only when the imposition by the states of those currencies as legal tender has been overthrown. Only in that case speculation, if it still exists, can perform the useful role of squeezing out unsound currencies and practices.
The combination of state and financial interests has resulted in

- starving productive exigencies. In England, even state promoted committees (Macmillan 1931, Wilson 1977, Cruickshank 2000) found that the flow of financial resources to industry (especially small and medium size firms) was insufficient to their needs, exposing the reluctant attitude of most British bankers towards lending for industrial development. (2002, Glyn Davies, History of Money).

- feeding parasitic strata. Money goes to parasitic strata forcibly (through taxation), cunningly (through inflation) and mischievously (through financial intermediation). The parasitic alliance between state and finance is all too evident in the expansion and administration of the state debt, which constitutes a bonus for parasitic strata (for instance, as commissions for the allocation of state bonds) and a burden for productive individuals (for instance, as higher interest rates).

We are in the worst possible scenario, where there is plenty of money in wrong/undeserving hands and for wrong/unsavoury ends while there is a dearth of it for worthy individuals and worthy endeavours.
For all these reasons and taking into account the possibilities of disintermediation offered by technology, it is necessary to envisage and promote a future where not only central banks cease to exists but also banks as purely financial institutions disappear from the scene.

Individuals and groups have to re-appropriate for themselves control over the allocation of their financial means. This is nothing new or revolutionary. In the past, as previously pointed out, artisans and merchants pooled together resources and financed new industrial and commercial ventures. Out of those poolings came practically all economic and social improvements.

In the XXI century we should see a growing number of individuals selecting projects they want to assist, anywhere in the world, and directly channelling their funds (small or big) towards them at the touch of a button. In this case they can really influence and shape reality instead of passively accepting the decisions of some banker or investment fund manager, generally more interested in short term gains and financial profitability than in his clients' long term benefit and personal well-being. Too many uneconomic or even immoral and destructive ventures (for instance, arms production and arms dealing) have been financed with people's savings, thanks to their continued trust in the present undeserving banking system.

Personal pooling requires, clearly, no interference or even worse, blocking measures by the state concerning the allocation of personal funds, anywhere in the world and for whatever venture. Another important requirement is the total absence of any taxation on the allocation and disposition of funds. Those who undergo a risk promoting productive endeavours should certainly not be penalised by an unproductive entity like the state.
What is simply needed is:

- a free and wide circulation of information concerning any economic activity;
- a modicum of personal care and acumen in administering the allocation of personal funds;
- a social mechanism that guarantees the observance of contracts everywhere and to everybody or, at least, provides the information about and the possible isolation of those who (intentionally) fail to keep their contractual obligations.

These are conditions that existed for a few in the XIX century, before the dominance of national statism, during the heyday of the international economy. With the present communication and information technology these conditions are in place for a large and ever increasing number of individuals.

The way ahead (^)

The situation at the beginning of the XXI century is in full swing.
Towards the end of the XX century, a series of financial crises centred on the state and banking system have shown the weakness and shallowness of these institutions.

The legal apparatus concerning monetary and banking matters has produced a distorted reality where:

- Financiers/speculators buy shares with money they haven't yet earned: this is a problem because it feeds even further the speculative frenzy, attracting more and more people and pushing the prices of stocks to levels that have nothing to do with economic reality. The ¨pump and dump¨ stocks have been current practices of investment banks during the ‘90s. (2003, Frank Partnoy, Infectious Greed). The ensuing disasters have not only negative economic repercussions for the savers but also dire personal consequences for many individuals and communities.

- Bankers loan money they haven't got in reserve (fractional reserve banking). Fractional reserve banking is the legal right the banks have to lend money in excess of their reserves (even 90% in excess). This practice allowed by the law is inherently inflationary especially if the money so generated is employed in generally parasitic allocations (state bonds) or dubious ventures (financial speculations of all sorts) that give high returns at the start but spell disaster in the medium-long run. And the money lost compromises the redeemability of people's savings unless the state central bank intervenes, spreading the losses on to everybody (through inflation and taxation).

- State rulers spend money they haven't got but hope to get through taxation: this is also a generally inflationary behaviour as the money of the taxpayers is employed mainly to pay the politicians, the bureaucrats, the military personnel and other parasitic strata and is not allocated for building infrastructures and providing services that will balance/repay the money borrowed.

Furthermore, given the fact that the spending almost always far exceeds the receipts, the state is condemned to rely on continuous growth of the economy in order to get a continuous increase in tax revenues. All this is like a huge paper castle based on misplaced hopes; it is bound to collapse when the weakest link of the chain defaults on its obligations (probably a big state cancelling its debts by decree) and the situation will appear very clear to the eyes of an increasing number of individuals. At that point the trust in the state legal tender and in the state banking system will evaporate.

For the time being a crisis is resolved with an intervention by the International Monetary Fund that unloads on to everybody the burden of paying for the speculative follies of some banks and financial institutions. These supposed remedies are totally iniquitous, temporary and illusory. In fact they multiply the number of players that follow crazy rules, and this means the multiplication in number and size of the problems and the growing impossibility of finding a solution, at least within the present paradigm.

Within the current financial system dominated by the states and the banks, the small players (i.e. savers, producers, consumers) are more insecure and more at somebody else's mercy than if they were gambling in a casino. In fact, in a casino you cannot buy chips if you don’t pay fully in advance; even in the underworld of gambling somebody must have the resources in order to play or he does it at the risk of his own life and limb. In those cases no central bank or international financial institution will come to the rescue of gamblers and cheaters as happens in the statist cuckoo land - where, by the way, the higher the indebtedness the more likely the rescuing intervention.

In a rational and free world, as a matter of principle, if some people (politicians, financial speculators, bankers) use a currency to play games that alter the exchange power of that currency, nobody should be obliged to accept it as legal tender. This sensible and rightful rule would pave the way for the disappearance of the very notion of legal tender.

Another notion that should be put to rest is the idea that there should be and there might be a supreme central body capable of determining the amount of money needed at any moment by the economic system through general instruments like the discount rate fixed by the central bank. This is an absurd conviction that has all the connotations of an illusory myth; it is on a par with the other myth of bygone times purporting that a central planning agency could direct an entire economic system.
In order to overcome all these fallacies we need a new paradigm.

Conceptually and practically the new paradigm requires embarking on a very different path characterized by:

- the re-collocation of money to its proper functions linked to exchange and enterprise because only exchange and enterprise can be the proper source for issuing and the proper reason for using money;

- the re-appropriation by individuals of control over the allocation of personal funds in order to avoid their misuse (arms and wars), their misappropriation (state bureaucracy) or even their whittling down (because of hidden taxes, rapacious banking costs and transaction fees, disastrous financial speculations, and so on).

It is quite appropriate to say that the promotion of peace is strictly linked to the re-collocation of money to its proper functions and the re-appropriation by individuals and communities of control over the media of exchange and over the means for enterprise.

There are already many hopeful (albeit timid) signs that individuals are moving in a different direction. Producers of services like the Post Office (for instance in Japan and Switzerland) have entered the business of issuing smart cards. They might be imitated by supermarket chains or electronic firms, thereby implanting the concept that money is linked to production and distribution of goods and services and not to the wishes (and voracious greed) of a dominant or purely financial institution.

In the area of personal pooling, some companies already address themselves to single investors and there are good signs that newcomers on the business scene don't like the mentality of short term financial gains but prefer to allocate shares to individual savers looking for a long term investment. If these experiences multiply we could shortly see the emergence of a plurality of smart wallets managed directly by small investors who, without any financial mediator, allocate their funds to groups of producers having some specific qualities (e.g. ecologically sound, educationally oriented or based in a specific area). The micro credit of some original organizations (for instance, the Grameen Bank) has already started playing its part and showing some possible ways forward.

When these experiments and experiences reach a certain number and weight, many conventional images and myths will collapse. The human beings that in the past have moved from regional currencies to a national one and recently from national ones (the Deutsche Mark, the French Franc, the Italian Lira, etc.) to a supranational one (the Euro) will not be deterred from embarking on new experiences like virtual vouchers and personal pooling once they discover that this is possible and practicable and that their (short and long term) interests are better safeguarded if they do so.

We only need somebody (an individual, a community, a firm) somewhere (in a physical place or in the hyperspace) with a sincere heart and a practical mind, to start a new path (1976, John Zube, Stop the legal tender crime).
Money is information that needs to find the equivalent of a reliable and friendly hypertext transfer protocol to flow everywhere, unhampered by state robber barons.
When that moment comes many who refuse to be either despotic directors or disposable extras will take the chance of being, finally, responsible actors.