- In designing a currency, I imagine that there were many more failures than successes. I think that it s helpful to note and study the failures. Perhaps theyMessage 1 of 5 , Oct 1, 2004View SourceIn designing a currency, I imagine that there were many more failures
than successes. I think that it's helpful to note and study the
failures. Perhaps they can be data points for the currency design tool
(as well as the successes). Also, failure and success is a matter of
degree and purpose.
I found a helpful article from the Federal Reserve Bank of San Francisco.
Some of the problems:
- A failure with currency (like the Continental Currency) can make
people skeptical of currencies (and this skepticism may be both good and
- The money may be difficult to redeem (like a "wildcat" bank far away
in the wilderness)
- There may be a wide variety of issuers and currencies which may make
transactions very complicated.
We might start to think of how to collect such examples. Meanwhile
we're welcome to share them here, along with our thoughts.
Colonial and Continental Currency
Historic Note graphic
Extremely rare series of 1880 note with Lyons-Roberts signatures and a
small red scalloped seal. The head is of DeWitt Clinton, Governor of New
York, Mayor of New York City, U.S. Senator. Seated figure is Christopher
The Massachusetts Bay Colony issued the first paper money in the
colonies in 1690. Other colonies soon followed suit to meet the high
demand for money fueled by trade between the colonies and the scarcity
of coin (which was the common form of money up to this date). Some of
this early money was readily accepted, but some was not redeemed in gold
or silver as promised and thus depreciated rapidly. These currencies,
however, set a precedent for the first national currency which was
issued during the War for Independence.
To finance the Revolutionary War, the Continental Congress in 1775
authorized the limited issuance of paper currency. These notes, called
Continentals, were denominated in dollars and backed by the
"anticipation" of future tax revenues, with no backing in silver or
gold. They could be redeemed only upon the independence of the colonies.
Continentals were an interesting expression of the new nation's
sovereignty, as they did not feature pictures of the crown or King of
England. In fact, some were printed from plates engraved by Paul Revere
to read "The United Colonies" and bore pictures of colonial minutemen.
Without solid backing and with rising inflation, the Continentals soon
became worthless, thus the expression "not worth a Continental." Or, as
George Washington put it, "A wagonload of currency will hardly purchase
a wagonload of provisions."
In 1777 after the Declaration of Independence was signed, the first
notes bearing the words "The United States" were issued and signed by
well-known revolutionary figures to give them credibility.
Historic Note graphic
First Charter Original series note with Allison-Spinner signatures and a
small red seal with rays. This was one of the most populr Gold Bank
notes issued in California in the 1870s.
The remnant of this experience was a deep distrust of paper money which
was not issued again by the federal authorities until the Civil War when
the Federal government first issued paper money. The Continental was
significant, however, in that it marked the first time that the worth of
U.S. currency lay in its purchasing power and not in its intrinsic value.
Free Banking Era
In 1791 the Bank of the United States received a charter to operate
until 1811, followed by the Second Bank of the United States from 1816
to 1836. These two banks, chartered by Congress rather than a state,
performed several central bank functions. Although privately owned, they
were authorized to issue paper bank notes and serve as the fiscal agent
of the government. Both banks, however, were unpopular with those
wanting easy credit--primarily the western, agrarian interests--and in
1832 Andrew Jackson vetoed the recharter of the Second Bank.
Thus followed the "Free Banking Era"--a quarter century in which
American banking was a hodgepodge of state-chartered banks with no
federal regulation or uniformity in operating laws. State Bank notes of
various sizes, shapes, and designs were in circulation. Some of them
were relatively safe and exchanged for par value and others were
relatively worthless as speculators and counterfeiters flourished. By
1860, an estimated 8,000 different state banks were circulating
"wildcat" or "broken" bank notes in denominations from ½ cent to
$20,000. The nickname "wildcat" referred to banks in mountainous and
other remote regions that were said to be more accessible to wildcats
than customers, making it difficult for people to redeem these notes.
The "broken" bank notes took their name from the frequency with which
some of the banks failed, or went broke.
This is a rare gold certificate, payable in gold coin, with the head of
Once again the need to finance a war provided the impetus for a change
in the monetary system. In 1861, to finance the Civil War, Congress
authorized Demand Notes--the first issue of paper money by the
government since the Continentals. These Notes were printed in $5, $10,
and $20 denominations, redeemable in coins on demand, and green in
color--hence the name "greenbacks." A total of about $10 million was
issued, a relatively small series. These notes, and all paper money
issued since 1861, are still valid and redeemable in current cash at
face value. While most early money is now in the hands of collectors or
museums, it is important to note the record of currency stability which
In 1862, Congress discontinued issuing Demand Notes and issued Legal
Tender Notes, also known as United States Notes. These new notes--issued
in denominations from $1 to $1,000 (later $5,000 and $10,000)--were the
first national currency used as legal tender for most public and private
debts. The design of these notes incorporated a Treasury seal, fine-line
engraving, intricate geometric lathe work patterns, and later
incorporated various forms of distinctive cotton and linen papers with
embedded red and blue fibers. Confidence in the notes waned somewhat
when the Treasury stopped redeeming them in coins during the Civil War
to save gold and silver. However, redemption resumed in 1879 following
Coin hoarding and the need to use metals for war purposes created a
shortage of coin during the Civil War and led to the circulation of
small change substitutes. In some cases these included tickets, bills,
and even postage stamps. From 1862 to 1876 the government issued more
than $368 million in Fractional Currency in three-to fifty-cent
denominations. These "paper coins," which were much smaller in size than
our present currency, were nicknamed "shinplasters," as the hardships of
war often forced troops to line their worn-out boots with them. These
fractional notes are still redeemable today.
Between 1861 and 1865 Confederate currency was being issued to millions
of Southerners, gambling that a Confederate victory would ensure the
currency would be redeemable. In an effort to debase this currency, the
North printed counterfeit Confederate money and circulated it in the
south. Inflation was soon rampant in both the north and south, but far
worse in the Confederacy. As the end of the war neared, Confederate
citizens completely lost confidence in their currency and came to rely
on barter or black-market greenbacks. In some cases Confederate soldiers
were even paid in Northern greenbacks. By the end of the war,
Confederate notes were totally worthless.
National Bank Act
Issued from 1919 to 1921, only in Ohio and Louisiana. At the left is
Washington crossing the Delaware. At the right is Washington at prayer.
This is one of four known specimens.
President Abraham Lincoln, urged by the Secretary of the Treasury,
convinced Congress to pass the National Banking Act in 1863 which
established a national banking system and a uniform national currency to
be issued by the new "national banks." The banks were required to
purchase U.S. government securities as backing for their National Bank
Notes. In 1865 a 10-percent tax was levied on State Bank notes
eliminating the profit in issuing them and basically taxing them out of
Although United States Notes were still widely accepted as a medium of
exchange, most paper currency circulating between the Civil War and
World War I consisted of National Bank Notes. They were issued from 1863
through 1932. From 1863 to 1877 National Bank Notes were printed by
private bank note companies under contract to the Federal government.
The Federal government took over printing them in 1877.
Gold and Silver Certificates
Pictured above is an extremely rare silver certificate, series of 1878,
payable at New York. The head is of James Monroe.
The economy was in turmoil in the late 19th century. The government, in
a move to increase its reserve of precious metals, offered certificates
in exchange for deposits of silver and gold.
Gold certificates, colorful and vivid, were first issued in 1863 and put
into general circulation in 1882. They are among the most attractive of
all currency issues, with the reverse a brilliant golden orange,
symbolic of the gold coin they represent. In 1933, when the country
faced a severe depression and a banking crisis, the public began to
Runs developed on both Federal Reserve Banks (which had been established
under the Federal Reserve Act in 1913) and commercial banks. In order to
deal with this crisis, only Federal Reserve Banks were permitted to hold
gold. In 1934, Federal Reserve Banks were required to turn over all gold
coin, bullion, and certificates to the U.S. Treasury in return for a new
type of gold certificate. These were never put into circulation and the
last ones were printed in January 1935. In 1964, private citizens could
once again hold gold certificates issued before January 30, 1934, but
they could no longer be redeemed in gold. This changed in 1974, and
private U.S. citizens could once again hold gold legally.
Silver certificates were first issued in exchange for silver dollars in
1878. They offered many varieties of design and subject matter including
inventors, military heroes, a Sioux Indian, and the famous Educational
series of 1896. An 1886 $1 silver certificate is also the only piece of
U.S. paper currency to bear the portrait of a woman--Martha Washington.
For many years silver certificates were the major type of currency in
circulation. However, in the early 1960s when the price of silver jumped
to over $1.29 an ounce it was evident that further increases would make
it profitable for holders of silver coins to sell them in the open
market. To avert this crisis, Congress eliminated silver certificates in
1963, and empowered the Federal Reserve to issue $1 and $2 Federal
Reserve Notes for the first time.
Federal Reserve System
This is an extremely rare note known as a "Grand Watermelon" note
because of the shape of the zeroes. It was redeemable in coin, and it
has Rosecrans-Huston signatures and a large brown seal. The head is of
General George Gordon Meade, commander of the Union troops at the battle
In 1913 a major change in paper currency occurred with the passage of
the Federal Reserve Act aimed at resolving some long-standing money and
banking problems which had led to bank failures, business bankruptcies,
and general economic contractions. The Act created the Federal Reserve
System as the nation's central bank to regulate the flow of money and
credit for economic stability and growth. In 1914, Federal Reserve
Notes, which comprise more than 99 percent of today's paper money, were
issued by Federal Reserve Banks as direct obligations of the Federal
Reserve System.They replaced National Bank Notes as the dominant form of
Federal Reserve Notes were issued in denominations ranging from $1 to
$10,000. The $100 note has been the largest denomination printed since
1946, and in 1969 all notes greater than $100 were retired because of
The design of Federal Reserve Notes has changed little over the years.
In 1929, the size of the notes was reduced; in 1955, the inscription "In
God We Trust" was added; and in 1966, the Latin wording on the Treasury
seal was replaced by an English translation. In 1929, it was also
decided that all currency would have a portrait on the front, and
denominations under $100 would have buildings or monuments on the back.
Higher denominations had the denomination on the back.
This bill is a series of 1918 Blue Seal note with Burke-Glass signatures
and a small blue scalloped seal. The front shows the head of Salmon P.
Chase. The reverse design is the embarkation of the Pilgrims.
A New Look for Currency
In 1990 a new series of notes was introduced to improve security and
stay ahead of counterfeiters and advances in technology which make it
easier to reproduce currency. These notes include microprinting and an
embedded security strip.
A more complete redesign is being introduced starting with the issue of
new $100 bills early in 1996 and will continue as new designs for the
lower denominations are introduced at intervals of about a year. The
most noticeable changes in the $100 bill are that the portrait of
Benjamin Franklin is larger and off center and the borders are
simplified. This creates more space to incorporate a watermark in the
paper to the right of the portrait depicting the same historical figure
as the portrait.
Other new or modified features include the use of a unique security
thread which glows red when exposed to ultraviolet light, color-shifting
ink, microprinting, and fine-line printing. A universal Federal Reserve
seal appears on the new note, rather than an individual seal for each
Reserve Bank. This is expected to create some efficiencies in production
ad inventory. The Federal Reserve District letter ("L," in the case of
San Francisco) is being retained, however, and will be included in the
The Future of Currency
Despite predictions of a "cashless society" relying on electronic
payments, the public demand for currency continues to grow. Debit cards
used for purchases and transaction records could greatly reduce the need
for cash, but paper currency still has the advantage of privacy.
Did You Know?
* During much of the 17th and 18th centuries, the Spanish Dollar
coin served as the unofficial national currency of the American
colonies. To make change the dollar was actually cut into eight pieces
or "bits." Thus came the terms "pieces of eight" from these early times
and "two bits" from our time.
* More than half of a dollar bill is considered legal tender, and
only the front of a dollar bill is valuable. If you could separate the
front of a bill from the back, only the front half would be considered
* In 1955 a law was passed that all new designs for coin and
currency would bear the inscription "In God We Trust." Those words had
first appeared on a U.S. coin--the two-cent piece--in 1864.
* Until 1929 currency measured 7.42 x 3.13 inches. Since then it has
remained at its present size of 6.14 x 2.61 inches--an easier size to
handle and store. Since that size requires less paper, it is also less
expensive to produce.
* By 1865 approximately one-third of all circulating currency was
counterfeit, and the Department of the Treasury established the United
States Secret Service in an effort to control counterfeiting.
The lobby of the headquarters building in San Francisco will soon
house one of the preeminent exhibitions of historical United State
currency in existence. This Bank's collection is outstanding in terms of
the diversity of notes and rarely seen denominations and series, long
forgotten by the public. It contains more than 1,700 individual notes
and is considered by numismatists to be irreplaceable.
Many pieces in the collection date from the 1880s, with the oldest
being an 1862 $10 Legal Tender note bearing the signatures of Treasury
officials Chittenden and Spinner. The most valuable item in the
collection is one of only two known, remaining $10,000 gold certificates
printed in 1882, signed by Treasury officials Teehee and Burke and
marked with a small red seal. It is valued at over $200,000 by
numismatists. Another item, a series 1890 Treasury/Coin $1,000 note,
with Rosecrans and Nebeker signatures and a small red seal, is one of
only two known existing bills and is valued at $150,000. Several items
in the collection are the only remaining notes of their type in existence.
This collection, interestingly enough, was rediscovered in the
vaults below the Federal Reserve Bank of San Francisco in 1992. Long
forgotten in the Bank's day-to-day operations, the currency had remained
sequestered in a padlocked, steel currency cart for more than 40 years.
It was when one of the nation's foremost experts on U.S. historical
currency learned of the Bank's collection and asked to view it that the
rediscovery process began.
It is believed that at least parts of the collection were sent to
the Bank long ago from the Treasury department as historical currency
specimens. Other pieces were acquired during the 1950s when the Bank
exchanged duplicate pieces in an effort to increase the collection and
create a display--a project which never materialized at that time.
The new exhibition is an addition to the existing "World of
Economics" and will be of interest to the general public and educators
as well as numismatists. It is designed to integrate both the economic
and chronological history of the United States.
- I forgot to add successes to the subject line. As part of my part-time work, I m writing summaries of banking regulations. So I m trying to learn whatMessage 2 of 5 , Oct 1, 2004View SourceI forgot to add "successes" to the subject line.
As part of my part-time work, I'm writing summaries of banking
regulations. So I'm trying to learn what certain terms mean, such as
I stumbled upon an interesting history of Andrew Jackson's "bank war"
where he killed off the main bank of the United States (knows as the
Second National Bank because it was chartered after the first had
ended its charter). He did this by having the government remove its
funds and deposit them in state banks. The national bank responded by
causing a run on deposits and a financial panic. But this played into
Jackson's hands. There followed an era where there was no national
banks, and instead, money was issued by thousands of state banks.
This is interesting to study from the point of view of community currency.
I include below some excerpts from:
Jackson's "experiment" was underway. Deposits were beginning to be
placed in state banks known as "pet banks." The federal government
began to see an annual surplus of about $10 million and, for the first
time in the history of the United States, no federal debt existed.
The Bank, however, still held control over state banks with the
ability to ease or tighten credit and Biddle himself, still had an
ace in his deck and, most likely knowing it was his last card, he
played it. He had the Bank contract its loans which caused a national
panic. Taney saw this as evidence that it was right to remove the
deposits from the Bank, calling the institution a "monster."
Biddle merely saw the action as the Bank fighting for its survival. On
October 7, he held a meeting with the board of directors where he
gained their approval to cease loans throughout the entire banking
It is, however, important to note that not all of the directors
approved of this course of action. The resulting financial panic
was Biddle's way of trying to twist Jackson's arm and get him to
restore the deposits to the Bank. This turned out to be fruitless
as Jackson realized that in creating the panic, Biddle had alienated
most of his supporters. The financial stranglehold that Biddle set
came at a bad time because business was beginning to expand which
meant that credit was needed. The Bank had insisted that state
banks make payments in specie, or gold and silver bank notes, and the
state banks soon began to overextend their credit by issuing specie
which exceeded its worth in gold and silver that the banks had in
This resulted in massive inflation and the treasury was filled with
worthless bank notes which made it clear that Jackson was not in
control of his "pet banks." The flood of paper money was growing
out of control and land speculation in particular was a major concern
as fraud was increasing in land sales. Jackson quickly responded
by issuing his "Specie Circular" in July of 1836. The "Specie
Circular" was a decree that only gold and silver could be accepted in
purchasing public lands. Many in Jackson's Cabinet objected
because they saw a danger in it. The danger was that Congress may have
seen it as a further abuse of executive power by Jackson and may have
tried to supersede it. Jackson went forth with the "Specie
Circular" and on July 11, 1836, Taney issued the decree.
Objections by opponents such as Henry Clay were silenced because many
believed that such criticisms were merely an attempt to create another
panic. Soon, the minting of a new dollar was announced and the
democrats cried out that it was Andrew Jackson who had restored "real
money" to the nation.
- The historical example of Andrew Jackson and the struggle between the US state and private banks is informative of an ancient struggle between state (whetherMessage 3 of 5 , Oct 6, 2004View SourceThe historical example of Andrew Jackson and the struggle between the US
state and private banks is informative of an ancient struggle between state
(whether King, Emperor or Government) and private banking interests which
is well documented.
The best recent history I have seen (which however draws unduly negative
conclusions for the future of community currencies) is 'The Lost Science of
Money' by Stephen Zarlenga of the American Monetary Institute:
There is also a video called 'The Money Masters' which also tells the tale:
Sefydliad Arian Cymunedol Cymru
Wales Institute for Community Currencies
Canolfan Dyfeisgarwch Innovation Centre
Parc Busnes Victoria Victoria Business Park
Festival Drive Festival Drive
Glyn Ebwy Ebbw Vale
NP23 8XA NP23 8XA
Tel: 01495 356722
Fax: 01495 356723
Y Prosiect Partneriaid gan Prifsygol Cymru Casnewydd, Plant Y Cymoedd ac
Time Banks UK, rhan-ariennir gan yr Cronfa Ddatblygu Ranbarthol Ewropeiaidd
A partnership between University of Wales Newport, Valleys Kids and Time
Banks UK part financed with European Regional Development Funds.
- Lucas, Thank you again for your ideas and offer of help! I think it is very helpful if you might help us think out loud. In particular, I m interested inMessage 4 of 5 , Oct 7, 2004View SourceLucas,
Thank you again for your ideas and offer of help!
I think it is very helpful if you might help us think out loud. In
particular, I'm interested in "community metrics" and how these ideas
might practically serve our online communities.
We're creating our online currency design tool so that it can accomodate
a variety of theories. I've posted a diagram of a "design feature
matrix" which we talked about in Wales.
The idea is that each of the design issues may be thought of as a
restriction that one player makes on another player. (The players are:
spenders, earners, speculators, issuers).
John, thank you for your reply regarding the bank crises.
I've been thinking that banking and taxation are two different sides of
the same coin. Banking is perhaps necessarily always "chartered" by the
government. We might think of a bank as an entity with "very good
credit" who everybody believes will always pay. When a bank gives you a
loan, what it really is doing is sharing it's good credit with you
(actually, selling it to you). The money is generally not leaving the
bank, or if it is, then it is generally going to another bank. The
bank, in loaning money to you, is generally not giving you cash, but is
instead giving a guarantee to the seller of what you want that they will
cover for you. (In a sense, it's an agreement between your bank and
their bank - from your account to their account). What this means is
that everybody is leveraging the "good credit" of the banks. This is
backed up by "reserves", but generally there is only $1 in reserves for
every $8 in outstanding accounts. What this means is that the banks are
simply "giving themselves credit" which they accept from each other.
This system works most of the time, but when things go bad there is an
expectation that somebody can "back up" the outstanding claims.
Somebody can settle them. The government is that entity which is
considered final in legal matters. It seems to me that banking requires
or implies government on some level or another so that the $1 in
reserves is truly sufficient to back up the $8 in outstanding accounts
if the bubble breaks. Government is I think needed to keep the bubble
But if there is government, then there needs to be taxation to pay for
that government. Some people would pay some of their taxes voluntarily,
but it seems force is required for the government to get all that it
needs. There is I think perhaps a relationship between the proportion
of outstanding accounts and their reserves, and the proportion of taxes
raised and what people would willingly contribute. But they do seem to
be flip sides of the same coin - I'm interested to think about this further.
This also comes up in my diagram:
- taxation may be thought of as the restriction that issuers place on
(issuers won't participate unless speculators pay taxes)
- governance (or the banking logic) may be thought of as the restriction
that speculators place on issuers
(speculators won't participate unless issuers govern soundly)
Note: by speculator I mean any kind of middleman, such as a retailer or
business owner, any person who values money as such.
John Rogers writes:
>European funded project to promote 'community currencies' in SouthHi from the Canaries! (Spain)
>These systems seek to encourage people to participate in
>community life by giving their time and skills for credits which are then
>redeemable for the services of others.
>I am particularly interested in processes of participation
>[...] What are your interests?
I find the "money" subject very interesting, even if I can't act much now.
There are documents that explain how normal currency does a dis-service
to most of us. I guess it's so shocking that it is
normal-life-unbelievable - I mean: it shatters our belief in money so
much that we tend to go on pretending we don't really understand.
People at uniteddiversity had the idea of creating a flash presentation,
much like what Ming links us up to in
(this one is about oreo cookies as a way to convey information on what
countries spend on war and other things).
People at esp (google for tav esp blueprint) are, if I understand them
well, aiming to create some software that would help in these
I'd be happy to play the dummy part in a conversation with the aim of
explaining these concepts. (It's easy as I'm foreign to economy and
complementary/alternative/community currencies.) I'd have to do it on
an oportunistic basis as I really can't commit predictable time to it.
But that's what email is for.
OTOH, I'm sure you (John) already have other priorities. If so, please
share them! It's more a matter of How can we help you?
>The historical example of Andrew Jackson and the struggle between the US
>state and private banks is informative of an ancient struggle between state
>(whether King, Emperor or Government) and private banking interests which
>is well documented.
>The best recent history I have seen (which however draws unduly negative
>conclusions for the future of community currencies) is 'The Lost Science of
>Money' by Stephen Zarlenga of the American Monetary Institute:
>There is also a video called 'The Money Masters' which also tells the tale:
>Sefydliad Arian Cymunedol Cymru
>Wales Institute for Community Currencies
- Matilda, Thank you so much for introducing yourself! and for inspiring a chain of letters - Bala, Michael and Lucas. I encourage all of us to contribute ourMessage 5 of 5 , Oct 8, 2004View SourceMatilda,
Thank you so much for introducing yourself! and for inspiring a chain of
letters - Bala, Michael and Lucas. I encourage all of us to contribute
our interests. Please, let us not worry too much about our English. We
will help each other be understood.
I had an idea of how banking and taxation are opposite sides of the same
Taxation assumes that there is a "social contract". It assumes that
individuals, as a group, can make decisions that each individual can be
held to. This is true in part, and that is why people choose to stay
"insiders" of society - otherwise they become "outsiders".
Banking assumes that there is a "diversity of interests". It assumes
that individuals (like air molecules) are not able to act as a group of
one mind and all show up at the exact same time wanting the exact same
thing. This is also true in part (otherwise we have a "conspiracy of
insiders"). James Madison appealed to the "diversity of interests" in
the Federalist Papers to argue that the USA (3 million people at the
time) was too large and too diverse to entertain "mob rule" and trample
on minority rights. Everybody was a minority in one form or another -
political, religious, social, economic - and would want minority rights
to be protected, in principle.
Both the "social contract" and the "diversity of interests" are true in
part, and true enough so that we sustain their truth. But they also
have a tendency to break down. And so they seem to get intertwined. It
would be interesting to tease that out.
I have a part-time job summarizing regulations. As I do that, I'm
thinking about how law gives rise to law. There is a saying that the
worst prince is a good prince, because there is little resistance to him
centralizing power, which will be in the hands of the bad prince when he
comes. I've also noticed that, in building database systems, every
problem suggests natural solutions, and these solutions, if implemented,
spawn new problems. There is no solution-to-end-all-solutions, but at
best we can simply choose which set of problems (which mix of solutions
and exceptions) do we want to live with (in other words, is optimal for
us). Anyways, I'm thinking about this, and I think it relates to
"participatory society". I'll be collecting information at:
and I found a nice example of the kind of history I'm interested in,
explaining the reasons for various laws or regulations:
I suppose that these are "patterns" in the sense that Christopher
Alexander meant. Not a "theme" or "great idea", but rather a "balance
of forces" that creates a space where a new set of problems can present
Again, I invite us to introduce ourselves, and respond.
Thank you, Mathilda!
Andrius Kulikauskas wrote:
>Thank you again for your ideas and offer of help!
>I think it is very helpful if you might help us think out loud. In
>particular, I'm interested in "community metrics" and how these ideas
>might practically serve our online communities.
>We're creating our online currency design tool so that it can accomodate
>a variety of theories. I've posted a diagram of a "design feature
>matrix" which we talked about in Wales.
>The idea is that each of the design issues may be thought of as a
>restriction that one player makes on another player. (The players are:
>spenders, earners, speculators, issuers).
>John, thank you for your reply regarding the bank crises.
>I've been thinking that banking and taxation are two different sides of
>the same coin. Banking is perhaps necessarily always "chartered" by the
>government. We might think of a bank as an entity with "very good
>credit" who everybody believes will always pay. When a bank gives you a
>loan, what it really is doing is sharing it's good credit with you
>(actually, selling it to you). The money is generally not leaving the
>bank, or if it is, then it is generally going to another bank. The
>bank, in loaning money to you, is generally not giving you cash, but is
>instead giving a guarantee to the seller of what you want that they will
>cover for you. (In a sense, it's an agreement between your bank and
>their bank - from your account to their account). What this means is
>that everybody is leveraging the "good credit" of the banks. This is
>backed up by "reserves", but generally there is only $1 in reserves for
>every $8 in outstanding accounts. What this means is that the banks are
>simply "giving themselves credit" which they accept from each other.
>This system works most of the time, but when things go bad there is an
>expectation that somebody can "back up" the outstanding claims.
>Somebody can settle them. The government is that entity which is
>considered final in legal matters. It seems to me that banking requires
>or implies government on some level or another so that the $1 in
>reserves is truly sufficient to back up the $8 in outstanding accounts
>if the bubble breaks. Government is I think needed to keep the bubble
>But if there is government, then there needs to be taxation to pay for
>that government. Some people would pay some of their taxes voluntarily,
>but it seems force is required for the government to get all that it
>needs. There is I think perhaps a relationship between the proportion
>of outstanding accounts and their reserves, and the proportion of taxes
>raised and what people would willingly contribute. But they do seem to
>be flip sides of the same coin - I'm interested to think about this further.
>This also comes up in my diagram:
>- taxation may be thought of as the restriction that issuers place on
>(issuers won't participate unless speculators pay taxes)
>- governance (or the banking logic) may be thought of as the restriction
>that speculators place on issuers
>(speculators won't participate unless issuers govern soundly)
>Note: by speculator I mean any kind of middleman, such as a retailer or
>business owner, any person who values money as such.