Ellen Brown does not understand monetary theory. This puts her at a great disadvantage in replying to me.
To understand this reply, you must understand my original article. It is based on both historical facts and economic analysis. It deals with an aspect of medieval taxation, the tallies. Read my article here:
When a man paid his taxes, he wanted a receipt that would prove that he had paid. This is simple to understand.
When a man owed taxes for a year, but taxes were collected twice a year, he wanted a receipt for what he paid early in the year. Then he could prove that he had paid half when he brought his coins to pay the second half.
People were illiterate. So, they needed receipts that did not involve writing.
When a taxpayer brought his first batch of coins, the sheriff took the coins, split a stick, and put notches on both sticks as to how many coins he had brought. The sheriff had a receipt (he paid me; he still owes me), and so did the taxpayer.
At the next tax day, the taxpayer brought his stick (here's what I paid; here's what I owe) with the coins he still owed. The sheriff put the two sticks together. They matched. He checked the notches on his stick with the taxpayer's stick. They matched. He took the coins. End of transaction.
Simple? Very simple. The half stick that the sheriff handed to the taxpayer was the functional equivalent of a canceled check to the Internal Revenue Service.
The sheriff took the coins to the king. He also took the tally stick. This was an IOU from the taxpayer. It was an IOU for future money.
Did the king want his payment now? (Do governments want to wait to spend taxes?) Of course not. So, how could he get ready cash? It was illegal for Christians to lend money at interest. That was the law of the church -- a really bad law. Here is what he did, as I quoted in my original criticism.
Since the king (as is generally the case) couldn't be bothered to wait until taxes fell due, and could not borrow money at interest, he would sell the tallies at a discount. The holder of the tally could then cash it in when the taxes fell due, making it (in effect) a fixed-term government bond.
This is how kings and money-lenders got around the church's silly law -- a misinterpretation of the Bible. The tallies functioned as money, but only because they could be sold at a discount -- a subterfuge to avoid the church's law.
That was what I wrote in my original critique. Does Ellen Brown understand any of this? No. She writes:
10. England's medieval wooden "tallies" were interest-free money.Your argument in your link is:
"If an IOU is a receipt for payment in money -- coins -- then is the IOU fiat money?" If your answer is "no," then it agrees with my answer.I disagree with your premise. ALL fiat money is paid by the government as a receipt for something delivered to the government. What else is the government going to do with it but pay for something? A "receipt" is not an "IOU." It's an acknowledgment of value received. If it's used as a currency, the receipt can then be traded in the marketplace for other goods and services.
She writes: "ALL fiat money is paid by the government as a receipt for something delivered to the government."
This is the opposite of what fiat money is. Fiat money paid by the government is proof that nothing was delivered to the government. This is the very definition of fiat money.
Let me explain.
Let us assume no fractional reserve banking, which is what she and I both want. Let us also assume that the bank is owned by the government, which is what she wants and I do not want.
A gold coin owner comes to the bank and hands over the coin to a teller. "I want paper money." If he deposited a one-ounce coin, he is handed a paper bill for a one-ounce coin. This receipt is called paper money. It is not fiat paper money. It is a warehouse receipt from the government. It is a government IOU. It circulates as money, but only if people trust the government.
There has been no increase in the money supply. The coin is taken out of circulation. The paper money substitutes for the coin.
This is not a fiat money currency system. This is a gold coin standard. The receipt (paper money) is an IOU for something delivered to the government (the coin). Simple.
Ellen Brown does not any of understand this. So, she says that fiat money is a receipt for something delivered to the government. This is the definition of a commodity-backed currency system.
Fiat money is issued by the government because nothing has been delivered to the government.
In The Web of Debt she argues the following: by issuing fiat money, the national government can stop imposing an income tax. What is a tax? It is money delivered to the government. Your canceled check from the tax collector is a receipt of payment. This canceled check is not money. (Sorry about that!)
Conclusion: if fiat money lets the government avoid imposing an income tax, then fiat money is not a receipt for anything delivered to the government.
Fiat money is an increase in the money supply precisely because it is not an IOU from the government for something delivered to the government in the past or to be delivered to the government in the future. That is, fiat money is fiat money: money created out of nothing. Well, not quite nothing: the government uses paper and ink. It means autonomously created money. "Fiat" is defined as follows:
1. official sanction; authoritative permission
2. an arbitrary order or decree
3. literary chiefly any command, decision, or act of will that brings something about
[C17: from Latin, literally: let it be done, from fieri to become]
This should be simple to understand. Ellen Brown does not understand it.
She does not tell the reader that the tallies served as money only because they were IOUs to coins. The government did issue tallies, but these were IOUs to coins. You can read about this here. Therefore, tallies were not fiat money. They were backed by coins.
The existence of tallies does not prove her case in favor of fiat money. For decades, Greenbacker authors have used the tallies to prove their case. They do not understand what tallies were. The tallies support the case made by the opponent of Greenbacks. Tallies were specie-backed money, not fiat money.
If you are a follower of Ellen Brown, and if you have had no difficulty understanding what I have written here, you are thinking to yourself, "This just can't be. She can't be this confused." Yes, she really is.
She wrote a 500-page defense of fiat money, yet she does not know how to define fiat money. She defines it in the way that an economist defines a gold standard, or a silver standard, or a commodity standard monetary system.
The Web of Debt is conceptually wrong, historically wrong, and self-contradictory. Her replies to my criticisms reveal that she does not know what she is talking about.
She did not honor the old rule: "When you're in a hole, stop digging."
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