Thursday, March 5, 2015


Today, I read this silly work published by Forbes and written by Ph.D. economist from Australia, Steve Keen, who seems to have become a darling among anti-banking conspiracy theorists in the blogosphere. Keen claims that a recent-dead Italian economist Augusto Graziani is the only guy ever who figured out what money is.

Graziani’s own words reveals he had no idea what money is. Graziani revealed himself to be wrong on the subject of money, thoroughly.

Graziani mixed up bank credit with money and in so doing, confused himself, embarrassingly so. Stupidly, Graziani said, “So money is fundamentally the promise of a bank to its customer, and a monetary payment is the transfer of that promise from one customer to another.”

For the entire history of commercial banking, every banker worth his salt would call that credit. Never in the history of commercial banking by anyone who engages in banking and commerce would anyone confuse credit with money as Graziani has.

Money is coined metal by weight and fineness. There is no other definition of money. The Romans said so. It's their word.

It's easy to know what could be money and what isn't money. Money can exist without banking and without legislators.

Cash, which is evidence of deposits circulating in perpetuity, requires banking. Without banking there can be no cash. 

Legal tender is anything legislators deem legal to settle taxation and debt to legislators. Without legislators and their agencies of enforcement, there can be no legal tender.

It should be clear that legal tender cash, which is all that anyone has these days, couldn't be money because it requires both banking and government and it fails to settle debt. Cash is liability of bankers, the same as deposits.

Money, if it were to exist, could discharge debt in payment fully. Contemporary cash cannot do this precisely because it is irredeemable. That means, you cannot demand money (coined metal by weight and fineness) from a banker. There is reason why the technical phrase, demand deposit, exists in commercial banking.

Graziani and Keen get wrong the concept of currency as well. Currency means that which has bearer negotiability. It has never meant anything else. So if a thief buys milk from a grocer using stolen cash, the grocer gets to keep the cash by currency.

Academicians like Steve Keen and Antonio Graziani live in a fantasy land of false definition and fanciful bogus theory that fails to comport with reality. They preach a false doctrine, economics, which is quite pseudo-science.

If academicians like Keen only knew about trade, commercial banking and the jurisprudence with respect to trade, they wouldn't accept false theory such as the one perpetrated by a rather clueless Graziani.

Keen errs in the worst way that anyone could when he foolishly claims, "Banks create money by issuing a loan to a borrower; they record the loan as an asset, and the money they deposit in the borrower’s account as a liability." Heed my words: Bankers never, ever create money nor do bankers lend money.

First, no one has money. All anyone has is either cash or deposits, which can be traded through negotiable instruments like personal checks and ATM cards. Even if there were money, through the entire history of commercial banking, no banker ever lent money.

In the days of money, a banker was a merchant who bought money and debt and sold bank credits. Today, a banker is a merchant who buys cash and debt and sells bank credit. All loans are merely advances of bank credits.

About the only bit Keen gets right is his claim that “banks must be part of your economic analysis.” Of course, all regular readers of Bizarro Theater who have read The Theory of Trading Property for Profit know this.

It turns out that Keen once bet Rory Robertson, who worked as banker for Macquarie Bank. Keen bet Robertson that Australian house prices would collapse. Unsurprisingly, Keen lost.

The terms of the bet had Keen walk from Canberra to Mt. Kosciuszko — 224 kilometres — wearing a T-shirt that read: “I was hopelessly wrong on house prices”.

Long ago, beginning in the mid-1850s, the brilliant banking lawyer Henry Dunning MacLeod worked out the principles of money, credit, currency and the like. MacLeod could do so because as a lawyer and not a university theoretician, he understood property (the right of ownership) and the effects upon property through trade. MacLeod wrote excellent works debunking academician economists with their silly false theories like JS Mill and even Adam Smith.

Here is a later edition of MacLeod's Theory of Credit (1893), which many in America can read free.

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