united for freedom 

Conventional Money

Conventional money is issued by banks as debt. To eliminate debt a nation would have to repay all of its debt back to the banks which would deprive the national economy of virtually all of its currency and still leave the interest on the debt outstanding; according to some estimates 97% of all the money we use is debt owed to banks.  In conventional economics or within this present system it is not possible to eliminate debt. Rational Exchanges specialize in reducing risk and one aspect of this is that we not only make it possible to live debt-free Exchanges make it impossible to live any other way.

Exchanges use rollars or Rational dollars. Using rollars eliminates the possibility of debt. Exchangess put local money (rollars) into the economy. Rollars have a positive value because they are not created by debt. They are secured by the assets of the members.

To introduce negative money into the economy through the agency of the government, the State issues a Bond or government issued IOU. A bank buys these from a company authorized to broker them. The central bank prints money and gives this to the purchasing bank and covers the purchase with the Bond issued by the government.

The bank has, for example, $10,000 it got by purchasing a Bond with money it borrowed from the central bank which created it on the basis of the governments IOU.  The bank can now loan this money to companies and private individuals. If Joe borrows money from the bank he now has a claim on the assets of Sue though Joe produced nothing comparable to Sue's work. This effectively amounts to robbery backed by the governments power to enforce compliance. Borrowed money is a license to rob the productive sector of the fruits of their labor.

This may require some thought. But if you grow food and I borrow money and buy this food from you, I have food and you have paper. In a complex economy you are likely to find something to purchase but even so this only means that the seller now has paper and I still have the food which I may never pay in terms of actual value produced.

Gold did not function well as a medium of exchange because gold is not discovered or mined at the same rate as the economy grows. This creates booms and busts as the relative amount of gold grows or declines.

Those who hoard gold acquire greater claims on the assets of others without actually producing anything of substance and the higher in value gold goes the more people are encouraged to hoard it, which increases its scarcity, the difficulty of buying and selling using gold and the relative price spike in the price of gold.

The person who mines gold cannot carry it around with him so he deposits it or sells it and gets paper money in exchange. This seems workable because the paper money represents a specific amount of gold. However, if the productive sector produces double the amount of goods while the gold available remains constant gold denoted dollars become twice as valuable this means that Joe with gold dollars is able to purchase twice as much from Sue. Sue,  who bought supplies with her one days work = $32.00, gold dollar and sold her goods for one days work denoted in dollars that are twice as valuable, gets $16.00. Even if we re-link free enterprise money with gold we are still giving money owners a license to rob wealth from working people (the asset makers).

The only solution is to limit the right to make money to those who also produce assets. This is the secret to positive money. Money in Rational Exchange is equity that represents assets or the value added to the asset that is the Exchange.

Joe is a person without any conventional form of money. Joe has a car that needs a cylinder head grinding. Having no conventional money he cannot take the cylinder head to a conventional business, nor is he likely to get a loan from a bank to get money to grind a cylinder head.

Joe however is part of an Exchange. So is Sue. Joe goes to Sue and asks her to grind the cylinder head. Sue has a metal working shop. In conventional terms Joe is in debt and Sue is his creditor. This happens in conventional economics when Joe and Sue are well known to each other. This creates a trust relationship. However few of us know someone with a metal fabrication business.

By joining an Exchange Joe does not owe Sue and Sue is not extending credit to Joe. Joe does not owe Sue and Sue is not owed by Joe. Joe has a debit and Sue a credit in the Exchange. Exchanges serves as a shared asset. From the perspective of the Exchange Sue added value to the Exchange. Her equity in the Exchange increased so she now has a claim on the Exchange equal to the value of the work she did. Joe has acquired value - the machined cylinder head. 

Sue can purchase bread and eggs with the rollars she has earned. For the sake of argument lets say Joe also goes to Arnold and buys bread and some ham.

In conventional economics Joe is in debt to both Sue and Arnold because both these people did work for him and he has yet to reciprocate. In conventional economics this would make Joe a bad risk and businesses would be very reluctant to do any further business with him.

Arnold and Sue would also be at risk because their business has incurred liabilities created by their extention of credit to Joe that may go uncollected. In conventional economics if Joe did not pay his bills Arnold and Sue would be adversely effected, perhaps their businesses would fail. If they want to borrow money from the bank, banks would want them to pay a higher interest rate to reflect the greater risk the liabilities represent.

In an Exchange risk is absent since the risk is shared. Joe does not owe Sue or Arnold and Arnold and Sue are not exposed to the credit worthiness of Joe. Joe owes the Exchange of which he is part owner and Arnold and Mary are owed by the same Exchange. Liabilities are liquidated by purchasing goods and services from the group - not by collecting money from a debtor.

To liquidate his credit balance Arnold goes to Mary who has an abattoir and purchases a pork leg to make ham. Mary who now has a credit balance in her account uses this to hire Joe to kill some pigs and prepare them for sale. Joe, who had a debit balance how has a credit balance due to the rollars paid to him by Mary. Joe now has a positive or credit balance and purchases more goods and services.

Conventional economics looks at the initial purchases made by Joe as the creation of debt and risk. In a rational economy there are only exchanges and all exchanges are positive. As a part-owner of the Exchange Joe not only has the ability to contribute wealth to the Exchange he has a vested interest in seeing the Exchange prosper.

Debt is not a liability when when it is internalized as remains part of the assets of a company. Joe and Sue are not discrete economic entities but part of the some company that merely transfers assets to get the best mix.

Joe's debt does not produce inflation. Nor can Joe go bankrupt because his debt is collectable by anyone and is part of the business he is in.

Joes purchase from Sue is of no more significant that a business taking a table and moving it into another room to be used by a different department.

Bankruptcy is a consequence of conventional thinking.  If Joe has no money and no one will lend him any then the only recourse to liquidate his debt is to declare him bankrupt. This cannot happen in an Exchange because everyone is able to contribute something to the Exchange.

Conventional debt allows only the creditor to claim recompense and only in the form of conventional money. Debits are collectible by anyone within the group because they are owed to the Exchange. Joe's debt to Sue was paid off by working for Mary because the debt is owed the group not the person in the group.

To start or join an Exchange contact Rational Exchange

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