Of leading horses to water…

Reading the main stream press is an exasperating exercise at the best of times and if that were even remotely possible, reading the press from Italy and Greece these days is beyond exasperating.

In Greece in particular, people are once again being pushed towards the country side where they are establishing agricultural communities for their survival and where in the absence of cash, economic actors are bartering with each other.

Ironically, the current aberrant juncture is pushing people towards the natural economic and social model that should serve as the basis for modern economics… but… even these enterprising souls that have decided to take charge of their own destiny fail to realize the absurdity of what academia and governments over the past century have peddled as being a desirable construct. In reading the interviews of these neo pioneers, most affirm that since government is not giving them jobs, they have decided to sort themselves out…. you can lead a horse to water, but you cannot make it drink.

Over the past century, the monetary and political elites with the assistance of favored corporations that have gradually taken over academia and our media, have subverted the concepts of capital and capital formation in a successful bid to justify and impose a monetary system that hinges on Fractional Reserve Banking thus on debt. In other words, the Federal Reserve and subsequent governing elites have instilled in people the idea that, yes, money and credit can be created liberally prior to there existing anything to exchange. Moreover, the liberal creation of money and debt allows government to expand thus providing for you and your family now and during retirement. Thus liberal money and credit creation is equivalent to a good time for all.

The new reality of communities springing up in the country side and bartering with each other, clearly shows that money cannot exist prior to there being something to exchange. The new reality clearly shows that money is only a medium of exchange. Thus money cannot be “capital” and the excessive creation of money and credit cannot lead to capital formation. It is only the ingenuity and the skill of man and his propensity to forego consumption (saving) that can lead to capital formation. Money is only a medium of exchange. Thus, the only thing that can reasonably be expected of money, other than being a medium of exchange, is that it should at the very least hold its original exchange value.

But a century of indoctrination is hard to wash away. Even though members of these self sufficient communities realize they can rebuild a life in the absence of money, they don’t realize what the nature of money is and how this particular variety of money that has been imposed upon society has tied them to government instead of setting them free. Quite the contrary. These neo pioneers building a new life for themselves, still believe that government should be the provider of jobs for all.

But of course, even though that may be an arithmetical absurdity and even though their new life should make them understand the absurdity of their claims, neo pioneers cannot see the reality that is standing up and slapping them in the face.

The deliberate, aggressive, excessive and incessant creation of money and credit can only lead to large, obtrusive and aggressive government, the destitution of society and the concentration of capital in the hands of a very few members of the monetary elite.

Money cannot exist prior to there being something to exchange thus expanding government must inherently and necessarily result in your destitution and your enslavement…. the timeline may be rather long I grant you but, here you go… we are there.

A major conflict that will involve Western society is around the corner… latest by 2015


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23 Responses to “Of leading horses to water…”

  1. CK Watt Says:


    I have to accept what you say about interest rates stabilising the proposed sound money system, because my brain isn’t big enough to work it through!

    Just to clarify: is it your assumption that the new economy will have an inherent, natural tendency to grow? i.e. there do not need to be any ‘artificial’ incentives to induce people to commit to a lifetime on the treadmill? I’m thinking along the lines of house prices which a cynical person might consider to be manipulated by rationing the amount of building land available – but also the availability of credit. However it happens, house prices are high compared to the bricks and mortar in them, and people plan their whole lives around buying their way into what looks like a Ponzi scheme. Take away that ‘market’ and might the economy look quite different?

    • guidoamm Says:

      You are commingling a number of issues.

      Let’s see. Organized society is naturally inclined to grow. Thus an un-manipulated monetary system would not hinder growth. Quite the contrary.

      It is Fractional Reserve Banking that robs the many by picking a few champions till wealth is almost entirely concentrated in the hands of a few. Artificial incentives as you call them, is the way champions are picked. “Artificial incentives” are by definition not economic viable otherwise they would not be “artificial”.

      House prices do not increase because of the scarcity of land. House prices increase due to inflation. In other words, house prices increase as the currency is debased.

      • CK Watt Says:

        “You are commingling a number of issues.”

        I am sure I am! It’s just a stream of consciousness really. (but thanks for taking the time to answer my points)

        “House prices do not increase because of the scarcity of land. House prices increase due to inflation. In other words, house prices increase as the currency is debased.”

        Why, then, have house prices increased well above the average inflation rate over several decades? This is what I am groping towards: once a normal person had achieved a certain standard of living in a sound-money economy, would they ‘take it easy’? (work 6 months, take 6 months off and travel, do up an old car, teach themselves nuclear physics, make wine). I would! It’s only the commitment to buy a ridiculously over-priced brick box that I could have built myself for a quarter of the price that keeps me on the treadmill, plus a general feeling that it is the responsible thing to do. Maybe it’s the protestant work ethic. I still think that there is no proof that the economy would just grow steadily or level off if left to its own devices. I somehow imagine that the current system is cunningly constructed, or has evolved, to keep the little people on the treadmill long past the point where they could relax and enjoy what little bit of life they have left in them. Remember how the microchip was going to transform our lives with our main problem being how would we fill our leisure time. The current system just didn’t allow it to happen. Would the sound money system have allowed it to happen?

        • guidoamm Says:

          A sound money system would certainly allow you to work 6 months and take six months off provided you save during your period in employment and judiciously spend your money during your period pfaffing about.

          How do you know house prices have risen over and above the rate of inflation?

          Once again. If you understand that inflation is the expansion of the monetary base and credit, then house prices have risen nothing like inflation has.

          Government and main stream economists may say that inflation is reflected in CPI but even if that were the case, CPI over decades has been tortured and transmogrified to reflect what government wants it to reflect rather than what it really is.

          Public Debt in the USA from 1980 till today has gone from less than $2Trillion to currently $16Trillion.

          GDP in the USA from 1980 till today has gone from $6Trillion to currently around $15Trillion.


          That’s your inflation. Actually, that’s only a part of the total expansion of money and credit. But even by itself it shows you what our governments have wrought.

  2. guidoamm Says:

    CK, our difference in opinion stems from what we respectively believe constitutes wealth.

    My belief is that spending in excess of one’s production and earnings cannot lead to building intrinsic value.

    Excess spending results in debt. Arithmetically speaking, you cannot expand debt infinitely. If that were not the case, then we would not be in this predicament. If making use of debt was the solution, we could just borrow 10 Trillion today, 100 Trillion tomorrow, a 1000 Trillion next year and so on and so forth and poverty would be vanquished in a few years and we could all be rich beyond our wildest dreams.

    That’s obviously a pipe dream. It follows that continuous, aggressive and pervasisve excess consumption cannot build wealth.

    • CK Watt Says:

      Hi guido. I don’t believe that you can expand debt infinitely, and I did say “(sort of)” [irrational] when talking about bank runs. But I have an intuition that encouraging the ‘saving’ of “a medium of exchange” is no more sound than encouraging debt.

      You say

      “spending in excess of one’s production and earnings cannot lead to building intrinsic value.”

      but couldn’t that just be turned around to say

      “saving in excess of one’s consumption cannot lead to building intrinsic value.”?

      You say

      “The fact that you mention the concept of “savings bug” indicates that you fully believe the prevailing economic thought that consumption provides wealth.”

      Sort of. Without consumption there doesn’t seem any point in having wealth, so to a certain extent consumption *is* wealth. Could you supply some examples of wealth without consumption? (if that’s what you have in mind)

      You say
      “In an un-manipulated monetary system, if the propensity of economic actors was to save, interest rates would decline till the point the money would no longer be saved. Conversely, once economic actors would prefer to buy goods and services rather than save, interest rates would rise thus subduing consumption.”

      This is what I was really interested in: is there an inherent mechanism that will prevent a ‘savings bug’ taking hold, in the same way that a ‘debt bug’ has taken hold (or has been engineered) in our current system. As I understood it, in your sound money system there is a numerically-fixed ‘pool’ of currency, and if the economy expands prices fall, and vice versa. Intuitively, it feels like the mirror image of the current system, hence my suspicion that it may be just as unstable, but in the opposite direction. Hence my suspicion also, that it might be ‘gamed’ somehow by TPTB in order to keep their friends in caviar and Bentleys despite the best interests of the economy.

      • CK Watt Says:

        I think what I meant to say was this:

        “*As a society*, saving in excess of one’s consumption cannot lead to building intrinsic value.”

        In other words, a situation where everyone saves in excess of their consumption is just as unsustainable as everyone spending in excess of their earnings.

        • guidoamm Says:

          Not quite. Your saving is someone else’s capital that can be invested providing you with interest income and fostering the expansion of the economy thus increasing the wealth of other economic actors thus expanding consumption. Wealth staying within society rather than being leaked out of society to the financial sector.

      • guidoamm Says:

        I suppose that the very least that could be said is that by encouraging saving you at least promote true liberty.

        Saving in excess of one’s consumption builds the pool of funding. This dynamic keeps the wealth within society rather than leaking it out to the financial sector.

        Making saving advantageous does not imply collapsing demand. What it does imply is the expansion of wealth in the hands of economic actors rather than in the hands of the finance sector.

        Finally; absolutely. In a sound monetary system, the system is allowed to breathe. Interest rates swing between encouraging saving and encouraging spending just because there is no intervention. In an un-manipulated system, interest rates would increase when banks compete to acquire funds and would decrease when banks compete to deploy funds.

        Fractional Reserve Banking can only contemplate the perpetual lowering of interest rates. Stalling or ye Gods, rising interest rates spell the implosion of the system. But from inception to the arithmetical limit bringing implosion about, society is robbed to the benefit of the banking sector.

  3. ducati998 Says:


    Generally, we are on the same page. I however disagree with your analysis of money here.

    Money certainly allows the “coincidence of wants” and thus indirect exchange to take place. You need to continue the analysis further: indirect exchange allows the division of labour, which creates society. Society being the interaction of individuals peacefully exchanging based on value.

    Barter, or self-sufficiency, does not allow the division of labour to the same extent.

    jog on

  4. CK Watt Says:

    “It is only the ingenuity and the skill of man and his propensity to forego consumption (saving) that can lead to capital formation.”

    Still not entirely convinced by this. To me, it doesn’t follow that if I forego consumption today, I should automatically be able to redeem my ‘savings’ 50 years later.

    As I mentioned a few weeks ago, if the demographic balance of society changes, there is nothing that can be done to prevent the capital from evaporating – except for the government getting involved in encouraging people to have more children, or importing worker/consumer units from abroad (which could never happen of course…). My non-spending might be one of the contributory causes to the demographic shift in the first place (all these things are interconnected to some extent).

    Maybe a ‘savings bug’ takes hold, and everyone becomes a scrooge-like saver and non-spender. I don’t see why this couldn’t happen, and it seems obvious to me that the government would be (is) tempted to control this savings/spending behaviour by various means.

    • guidoamm Says:

      Hi CK

      In an environment where the currency is not being debased, your saving expands the productive capital of society thus it expands the economy thus it expands the wealth of all economic actors.

      Foregoing consumption only means that you set aside part of your earnings in order to lend them out to other economic actors so as to increase your revenue (interest) whilst contributing to the development of the productive economy. In an environment where the currency is not being debased, this dynamic enriches all economic actors.

      By debasing the currency, the monetary authority takes purchasing power away from you. Crucially, the monetary authority’s cut is taken at the very beginning of the circulation of the new currency. This is a perpetually skewed relationship in favor of the monetary authority that despite not doing anything productive, in time, still ends up owning all productive capital of society.

    • guidoamm Says:

      Bartering communities prove that money is not necessary. The guy planting cabbage foregoes consumption of cabbage to trade against candles and bread. Likewise the baker and the candle maker forego using a portion of their production to trade it with fish and shoes. Everybody works to create and produce something useful.

      Money is not necessary. But money makes exchange far easier. Not only that, but money and accounting allow the simultaneous interaction of economic actors at several levels and across borders.

      Money is only a unit of measure and, in an ideal world, a store of value. The concept of store of value is very important. If you plant cabbages, you only have a limited time you can store your cabbage till it goes bad. So as your cabbage becomes ready to be harvested you better hope to find other economic actors that have what you want at that particular time and, you further better hope, that those that have something you want may want cabbage when you have it available. This is known as the “Coincidence Of Wants”. The problem of coincidence of wants is obviated by making use of money. Hence the importance of money as a store of value. Argentina is a very good contemporary case in point.

      Debasing the currency can have no other use than to eventually make society destitute and fully dependent on the monetary authority. It is feudalism by any other name. There are no walls but you are still not going anywhere when the monetary authority decides to yank the leash.

      Debasing the currency is the purest form of theft from the many to benefit the creator of the currency. Debasing the currency most certainly does not help mitigate the effects of diminishing birth rate. Quite the contrary.

      Look at what is happening in the Middle East. In a society where up till fifteen years ago families of 6 children were awfully common (6 kids is a small family still today), today newlyweds are planning to only have two children on average. Debasing the currency that is tied to the US Dollar has caused an increase in the cost of living that makes it prohibitive to have large families.

      The deliberate and excessive creation of money and credit, is patently not a policy aimed at aiding society make a decent living. That is a mathematical reality. What is true however, is that the deliberate and excessive creation of money and credit does indeed give the impression of a rising standard of living as economic actors load up on debt. It is the ultimate pyramid scheme.

      • CK Watt Says:

        (just back from the pub, so I hope this makes sense!)

        If we truly can leave money out of the equation because it’s just a means of exchange, it makes it a lot easier to understand, it seems to me. If there’s a particularly good crop of strawberries one year, and I choose to forego the consumption of them, and persuade my friends and colleagues to do the same, the strawberries rot. How has my foregoing of consumption been a benefit?

        • guidoamm Says:

          That is the problem known as “Coincidence Of Wants” that money is designed to obviate.

          Anyway, economic actors never forego 100% of their production. We are always talking about a portion of the production. Arithmetically speaking, you cannot forego consuming the entirety of your production.

          Pedantic note – In the absence of money and in the particular case of perishables such as strawberries, the portion of fresh fruit you would sell would be small in comparison to the amount of preserve you would make out of it.

    • guidoamm Says:

      CK, I’d be interested in your outlining your “evaporation of capital” theory in the event of changes in the “demographic balance”.

      • CK Watt Says:

        “I’d be interested in your outlining your “evaporation of capital” theory in the event of changes in the “demographic balance”.

        Hi Guido

        It seems to me that capital, like strawberries, is, or can be, merely transient. For example, increasing wealth tends to result in people living longer. At the same time, it seems to result in people choosing to have smaller families (for whatever reason). In those circumstances, surely the old people’s ‘savings’ cannot be expected to hold their value..?

        • CK Watt Says:

          Guido just realised that I completely missed the points in your post 29/08 3.51and went on to make, and mangle the same points myself! (Maybe I subliminally took in your points and then imagined they were my own, or maybe I was just thinking along the same lines).

          Let me try again.

          You say
          “Arithmetically speaking, you cannot forego consuming the entirety of your production. ”

          Is there anything inherent in society that might prevent a ‘savings bug’ to take hold? Arithmetically speaking, bank runs cannot continue for ever, either, and everyone can see they are irrational (sort of) but it doesn’t stop them happening – and then the government steps in to stop them.

          Goods become cheaper the more economies of scale kick in. Merely a tendency to forego consumption will result in the price of goods increasing, and the foregoing of even more consumption. Isn’t there a possibility that this could lead to a self-reinforcing spiral? Do you not think that part of government policy is (probably) the education and conditioning of the masses to ensure ‘correct’ behaviour as regards savings and spending?

          As regards smaller families: I thought that it was increasing prosperity and health care that *allowed* people to have smaller families..? (Plus the permissive 60s, widespread availability of contraception etc. Can all these factors be disentangled?)

          • guidoamm Says:

            In a fractionally reserved banking system, a “bank-run” is not at all irrational.
            A bank run happens when people realize their savings have been misappropriated.
            If people understood fractional reserve banking, an immediate and thorough bank run would quickly ensue. Fractional Reserve Banking is the misuse of funds on the part and for the exclusive gain of the bank. Not only does FRB allow banks to make use of the funds of individuals without their permission but legislation also allows banks not to share the fruit of this misappropriation with the rightful owner of the funds. However, when the misappropriation turns sour, the public sustains the loss.

            So, a bank run is not at all irrational.

            The fact that you mention the concept of “savings bug” indicates that you fully believe the prevailing economic thought that consumption provides wealth. In an un-manipulated monetary system, if the propensity of economic actors was to save, interest rates would decline till the point the money would no longer be saved. Conversely, once economic actors would prefer to buy goods and services rather than save, interest rates would rise thus subduing consumption.

            In a context of Debt Based Fiat Money and Fractional Reserve Banking the natural ebb and flow of the economy is short circuited in favor of perpetually declining interest rates that inherently result in excessive debt.

            There are only two ways to deal with debt. Debt can be paid down or it can be written off. There is no third way to deal with debt. When you debase the currency aggressively and continuously, you reach the point where your return on investment of capital will no longer suffice not only to service outstanding debt, but it won’t allow you to expand the debt either.

            At that point, the debt must be dealt with. At that point there are only two ways to deal with debt.

            Do you think China or South Korea or India or Japan might be willing to write off Western debt? If you do, then we are safe.

            If they are not willing to write it off, do you believe the West might contemplate default?…. I didn’t think so.

            So, whatcha gonna do?

  5. Patrick Donnelly Says:

    I also object to your misuse of the word “government”. Just because a more or less cohesive gang has seized some power does not legitimize them as a government. They are a gang of kleptocrats. Please examine terminology!

  6. Patrick Donnelly Says:

    No one is listening. 95% of people are sheep, requiring direct orders to do anything out of their routine. The other 5% are split into those who saw this coming and those who might learn and do something about it. But they are not reading your words. Conflicts require a line of credit.

    Write an article showing that a war can always be justified to bring money into being, but that economic collapse does not!

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