MONEY
- Why do humans invent money?
- What has been used as money?
- How do we obtain gold?
How do we obtain silver?
From what ores do they come from?
- At first, paper money was receipt of gold deposited with
goldsmith.
Suppose a goldsmith just made out many receipts (without
any gold in his vault but no one knew of this fact.)
Would he be able to use them as money to obtain goods and
services? Do you think it is morally right?
Would he be in trouble if no one ever presents these
receipts for gold? Do you think LORD would punish him or
not?
- Suppose there is a very rich man, and he writes out many
IOU (I Owe You) for goods and services. Could these IOU
pass between the people and used as money? Is there any
difference between these IOU's and the receipts of
goldsmiths?
- In Chinese history before the Communist took over,
Kuomantang lost favour with the people because it printed
lot of money, causing rampant inflation. Can we create
money just by printing them?
- In the present day of electronics (intelligent card,
credit card, electronic money transfer, etc.), do you
think physical money may be dispensed with? If then
physical money may be dispensed with, what is the real
nature of money?
- Modern banking may be called "credit system",
what do you understand by this term?
- What is a "bank loan" in modern day banking,
since neither gold nor silver nor any physical things are
used for money? We get a "loan" from a bank,
what in fact do we get from the bank?
- When banking is nothing but a "credit system",
do you think all banks are on equal footing? Would there
be people who exploit this to make trememdous money in
foreign exchange, stock, futures? Do you think these
behaviour morally right? What position would a small
country stands in relation to big banks from big
countries?
- When borrowing is easy, especially when bankers are being
encouraged to increase their lending by a fix percentage
year by year, do you think people would use it for
gambling (speculation in stocks/futures/foreign
currency/real estate) or for real production work?
- (1990's) In many countries,where "Rule of Law"
is not upheld, bankers would lend to cronies or even to
themselves arbitrarily, without any guarantees for
repayment or without any securities/mortgages. They would
purchase expensive foreign goods, live luxurious lives,
and thus incur great deficit in balance of payment for
the banks. IMF (International Monetary Fund) would
usually step in and lend money to that country, with
repayment guaranteed by the Central Bank, and thus the
burden of repayment is borne by all population. Moreover,
because of the "floating exchange rate", the
rate of exchange of that country would be devaluated to
such a low extent that the population would find it
difficult to purchase their daily necessities. In 1990's,
many Russian banks failed, and depositors lost all their
deposits overnight. What remedies do you think should be
adopted?
- Even in countries where there are modern banking laws,
banks could still lend money wildly. What is the amount
of loan in relation to the profit of a bank? Who are to
benefit when the profits of a bank are great?
What is the eventual outcome of such wild lending? When
banks fail, do the CEO/directors/share-holders of bank
has to be responsible? What does "Limited
Company" mean? During the 1990's, many banks in
Thailand, Indonesia, Korea, Japan failed, who are to bear
the debts of those banks?
- When money is based on physical things (e.g. gold or
silver), a person cannot spend once he has exhausted his
gold/silver. But would such things happen on a
"credit system"? Do you know how much money USA
government, Canadian government, Japanese government ....
has borrowed? Do you know how much money individuals has
borrowed, on average? Do you think all these borrowings
can go on forever, or would one day come when all money
(i.e. IOU) becomes nothing? What would become to the
societies then?
- LORD's monetary system is NOT a "credit
system". Money is not IOU only, but has physical
backing. If you are to choose a physical material for
money, what is your choice? Give reasons for your choice.
What is LORD's choice?
(On steam engines, there is a governor that automatically
regulates the revolution of the engine. I think LORD's
choice has the same "governor" function in
smoothing out economic cycles very peacefully.)
- On a "credit system" banking, "loan makes
deposits" and hence would enable more loans to be
made. (What account is debited, what account is credited
when bank makes a loan?) Do you think it a right way of
doing things?
Do you think we should use such under LORD's system, or
do you think we should use a more safe and reasonable
way?
(I think we should separate "lending" and
"accounting". Bankers should be responsible for
lending ONLY, bankers should judge the productivity of
the borrower, and judge his sense of responsibility in
repayment, and lend accordingly. Whereas there should be
a "central registry of silver ownership" that
keep track of the changing hands of silver ownership in
everyday use.)
- Do you think we should charge others for every service we
provide, or for every goods we give to our neighbours?
CREDIT SYSTEM
A way to understand money markets, role of Central Bank
It is very instructive that several people participate in this
game, "CREDIT SYSTEM GAME".
Out of all the players, one is singled out to be the
Central-clearing house operator (or Central Bank Operator).
Others pretend to be farmers, fishermen, manufacturers, tailors,
service-providers, etc.
Everyone buy and sell on credit (or obtain/offer service on
credit). When they buy something, they give the other person an
IOU, e.g.
COUNTER-FOIL
Date:........ Date:.........
Owe to: ..... Owe to ..............................
Amount: $.... Amount $ ............................
No........... Serial No. ....... Owe by...........
Country..........
They pass these IOU to the Central-clearing-house operator,
who keeps accounting for them. The operator has a record book,
with final results showing:
Own Owe
--- ---
Tom $xxxxx
Mary $xxxxx
Jack $xxxxx
Henry $xxxxx
David $xxxxx
------ -----
====== =====
The operator may check his accuracy of keeping accounts by
comparing the total owned, and the total owed. They should be
equal.
This book is opened for all to see, at the end of a day.
The players may borrow from one-another, (called
"Inter-personal Loan Market", after the
"Inter-bank Money Market"), at an interest rate agreed
between themselves. Moreover, these interest rate have to be
revealed openly for all to see.
Suppose A borrows $100 from B at 5%, then B gives A an IOU to
be sent to the clearing house, (Note that borrowing under
"credit system" is nothing but exchange of 2 IOU's, one
is to be retained, one is to be presented to the
clearing-house-operator.)
Date:
Owe to A
Amount $100
Owe by (signed by B)
and A gives to B an IOU which is kept by B:
Date:
Owe to B
Amount $100
(interest 5% per day) Owe by (signed by A)
The interest rate is much exaggerated, as it is calculated per
day, so that the players may observe the effect.
Investigate the behaviour under the following rules:
RULES:
- The clearing-house-operator charges an interest of 6% of
those who owe money, and gives 6% to those who own money.
What will be the interest rate at the Inter-personal-loan
market?
- The clearing-house-operator charges 6% of those who owe
money, but gives 3% to those who own, and retains 3%
himself. Each person pays/receives his interest by IOU
from/to the operator. What will be the interest rate at
the Inter-personal-loan market?
- The clearing-house-operator charges 6% of those who owe
money, but gives none to those who own, and retains all
6% himself. What will be the interest rate at the
Inter-personal-loan market?
- The clearing-house-operator may also borrow from the
money-market. IOU from the operator is given another
name, say Operator-bond. The rate is determined by the
operator. How does the bond rate affect the money-market
rate? How does the amount of bonds issued affect the
interest in the inter-personal money market? What will be
the effect of such bonds on interest rate in the
Inter-personal-loan market ?
International Trade and Exchange Rate
- Now suppose there is another group of players, who
pretend to be another country, and trading is carried out
between the 2 countries. Assuming that they use the same
currency. What complicates the clearing houses? How they
may resolve this 2 clearing houses problem? What are the
possible solutions?
- (NOTE: The IOU have to be designed differently, so that
the country of that person may be ascertained. (e.g. Owe
by ......... of country xxx )).
Also note that cross-border inter-personal borrowing is
allowed.
What if clearing house in country A charges/gives rates
different from that in country B?
- What if one country constantly have trade surplus, and
the other, constantly have trade deficit?
- What if they use different currencies, and exchange rate
is allowed to fluctuate? What determines the exchange
rate?
- What if someone in some country is irresponsible for his
IOU?
What if someone speculates in exchange rate?
The Effect of Shares from Limited Companies
- Now let someone pretend to be directors of Limited
Companies and who exchange shares with others' IOU. What
is the meaning of "money supply"? How does the
issue of shares affect "money supply"?
(NOTE: people buy shares/stock with IOU here.)
- American president Lincoln once owed much money to others, but he worked hard to repay his debt. What is your view on the fact that the CEO, directors, shareholders would not be responsible for the debt when the company fails.
What effect of this IOU system is on the use of the earth's
resources?
[Home]