Correspondence on Commodity Money and Credit Money

Thomas Greco’s Reply to Message from P.S.

Sent: Monday, December 15, 2003 5:18 PM
Subject: Re: NORFED

To: P.S.

From: Thomas H. Greco, Jr.

Date: December 14, 2003

Dear P,

In your message of today you said, “I need to understand what the underlying issues are that are preventing everyone seeking monetary reform from working together. Some are doing it in the non-profit arena, or are on a path toward introducing community currencies, but I hope we can find a way to build a synergy toward empowerment of the people.”

I would like to offer my views on that.

First of all there are, on the one hand, those who are aiming at monetary reform, and, on the other, those who are seeking to transcend the dominant structures of money and banking. These two approaches are quite different from one another. The former accepts as given the socio-political foundations of the present regime and does not question its basic assumptions. The latter takes little for granted and seeks to reinvent money and banking to better serve their intended purposes; it is a more thoroughgoing, more “radical,” approach that begins with a set of principles and ideals.

Most of the reform attempts, for example, accept the dogma of statism as the dominant “religion,” and believe the fallacy that the money power should rest solely in the hands of the state. A few would admit the possibility of supplementing state (or central bank) money with local community currencies, but fail to see the implications. As Beckerath says, “extension of exchange transactions without State money is in reality the beginning of a new system of settling accounts, indeed the beginning of a new economic order.”

I do not raise this point to further divide the “reformers” from the “transformers,” but to show how they might be brought into alignment toward a common goal.

If the fundamental goal is “empowerment of the people,” then action needs to be taken on every level, and every opportunity must be exploited. If we can find a way to ramp up the pressure toward empowerment, then it will ooze into every available nook and cranny and expand into every opportunity that presents itself. Sometimes it will look like a step toward reform, and sometimes it will be a new, complementary approach to mediating exchange.

There are many of us who have become aware that solving the money problem is fundamental to solving the other critical problems facing civilization, and have made it the central focus of our energies. I believe that those of us who are serious about making a contribution to solving it must first educate ourselves, learning everything we can about the principles of exchange and finance.

Why were the Wright brothers successful in achieving manned flight when so many others had failed. It is because their approach was systematic. They learned all the could about the principles of flight by reading what others had already learned, by observing the phenomenon of flight in nature, and by experimenting with different possibilities that presented themselves.

We must do the same. It is important to study the history of money and the theory of money, to observe how things work in nature, to study the systems that already exist, and to design our experiments to be unambiguous in their answers. What has and has not worked in the past? Who has proposed promising solutions that have not yet been adequately tested or demonstrated? How, where, and under what circumstances, can those proposed solutions be adapted to today’s situation?

My own inclination is toward “freedom approaches,” with a particular focus on what can be done by associations of businesses, by grassroots organizations, and even by municipal and provincial governments. I do not wish to shift control of the money monopoly from one group to another; I seek ways to transcend the money monopoly. Thanks to some very brilliant thinkers who have preceded us, I think we now have an adequate understanding of the principles needed to design exchange mechanisms that are sound, effective, economical, and fair. And, thanks to the new computerized telecommunications technologies, we have the necessary tools and infrastructure to easily implement them.

If the various approaches to solving the money problem are to be harmonized toward a common goal, we must at least have a common understanding about what money is. After 25 years of intensive research, it has only recently become clear to me that money has evolved through several different stages. We must make a clear distinction among the different kinds of money that have been used, and understand the characteristics and limitations of each. I wrote about this to some extent in an article that was published in NORFED’s recent book, The Liberty Dollar Solution To the Federal Reserve. My article entitled, New Money for Health Communities, begins on page 306.

The points I make in that article will be further elucidated in another book I expect to complete sometime next year. Everyone needs to understand that the progression in the chain of evolution of the exchange process from simple barter has been from commodity money, to symbolic money, to credit money, to credit clearing. In the meantime, I will soon post a power point presentation about this on my websites.

For now, I wish to emphasize the point that commodity money, like gold and silver, while it may offer a partial solution if and when things become chaotic, remains a primitive medium of exchange. It can serve as a store-of-value, is useful for impersonal exchange transactions, and provides portability of wealth. But ultimately, our best security is in our relationships with each other. Mutual credit clearing will ultimately provide a much more efficient and effective mechanism for exchange, if we can achieve the necessary level of organization. And, this need not be limited to small local circles, but can proliferate into a federation that can span the globe.

Earlier this year, we managed to assemble a team to establish a new website,, dedicated to promoting freedom approaches to solving the money problem. More and more people are aiding in the effort and we are gradually compiling and making accessible the most insightful and promising materials available. I particularly recommend to everyone the writings of E. C. Riegel and Ulrich von Beckerath. Yes, there is a lot there to read, but start with Riegel’s Flight From Inflation, and Beckerath’s The Practical Realization of the Milhaud Proposals. Just these two will give you a better education in money and banking than you can get at any university.

Tom Greco

Subject: Re: NORFED


In regard to your P.S., the word “primitive” means “pertaining to an earliest or original stage [of development].”

Comparing gold and silver to art, emotion, and sex, as you do, is to misuse the word.

In any case, my use of the word in relation to money implies no value judgment, just my view of the historical evolution of money, and I might add, a belief that the more evolved forms are more APPROPRIATE to the goals of personal freedom, social justice, peace, harmony, and economic equity.

In a similar vein, Tom O’Neill said, “I took the time to read through your website and was already somewhat familiar with LETS and other community credit systems. I agree with the spirit behind these initiatives, but would have to disagree that commodity based money is somehow more “primitive” than a credit-based trade system. Ultimately, the “credits” have to be redeemable for physical goods or services, which would seem to make them a supplemental derivative of commodity money…would it not?

My answer is this: I have no gold or silver. What I do have to offer to the market is goods and services. You, likewise, probably have no gold or silver, but offer other goods and services to the market. Ultimately, we each pay for the things we buy with the things we sell. In other words, goods and services buy other goods and services.

The problem then becomes, how do we transcend the barter limitation, i.e., the “double coincidence” of wants or needs.

Sure, we can use some commodities that are in general demand as an intermediary, like gold or silver, or, as was common in early post-war Europe, cigarettes, Hershey bars, and nylon stocking.

But it is much more efficient to simply sell to one another on credit, and then spend our credits to requisition whatever we may want from the market. The supply of any chosen commodity (like gold or silver) is limited and most of the gold and silver is closely held by those who run the system, the central governments and central banks. They decide the price we must pay for those commodities. But credits can be created as needed at minimal cost so all desirable trades can take place.

To be sure, credit money has been abused. The banking monopoly has perverted it into usury-debt money. The answer is not to discard credit money, but to perfect it through the establishment of mutual credit networks and independent private and community currencies.

This will not only liberate the exchange process but will help to knit a new social fabric to replace that which has been corroded by the dominant system.

Read Riegel! His exposition of the nature of money and its workings is masterful. His philosophy was strongly libertarian (with a small “l”), and his proposed solutions are elegant.



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