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Promissory obligations to each other (c)

30 June, 1, 9 and 10 July 2013

Introduction

Continued from previous article. Still listening to video no. 98. Mike Montagne on TNS Radio, 27 November 2010.

To avoid quoting out of context (seemingly or actual), I put the full quotes in a separate chapter below. I will refer to those when taking smaller quotes from the spoken text and commenting on them. The quotes start at 6m40s, have a skip between 8m40s and 9m15s, and end at 12m00s.

Obligatory or voluntary obligations?

Taken from 6m40s:
[...] the sovereign right of every individual, to issue their promissory obligations [...], subject to an obligatory schedule of payment, retiring principal at the rate of consumption or depreciation of the related property.

Taken from 9m15s:
[...] obligation of the Common Monetary Foundry [...] to embody [...] an obligatory schedule of payment, [...]

Taken from Mike Montagne’ LinkedIn page:
Mathematically Perfected Economy™ is every prospective debtor's right to issue their promise to pay, free of extrinsic manipulation, adulteration, or exploitation of that promise, or the natural opportunity to make good on it.

OK, so money in the new system is an obligation to pay. But it is also voluntary, according to what Mike Montagne wrote here on 12 June 2008:

In mathematically perfected economy™, the individual decides and takes responsibility for the issuance of currency by assuming an interest-free monetary obligation to pay for the related asset at the rate of consumption or depreciation.
   
As is necessary to ensure the integrity of the monetary system, the republic only enforces the voluntary obligation.

So money is a promise to pay, an obligation to pay following an obligatory schedule, however it is also voluntary but nevertheless enforced by the republic? (Or the state? Or the Common Monetary Foundry on behalf of the state?)

What does this enforcement do to the sovereignty of that money issuing individual, the one who made the voluntary promise?

Also from 12 June 2008:
Neither then is the monetary obligation of mathematically perfected economy™ a true debt, because the individual does not pay the state "back" anything.

What means of power does the state or the CMF have to enforce payment, if there is no true debt? There is a voluntary obligation to pay, but that’s not a debt? In the existing economy and financial system, a financial obligation is always a debt. Seems much clearer to me.

I’m sorry, it seems I don’t manage to understand this part of MPE and CMF. Too many contradictions, too much unclarity and inconsistency.

[Note: I find that ‘unclarity’ is not an English word. But I need it, so I coin it. Obviously it means: the condition of being unclear. ‘Unclearness’ too is sadly missing from dictionaries. They are useful words and the Dutch equivalent ‘onduidelijkheid’ is quite common.
However, look at this!]

At the rate of consumption or depreciation

At the rate of consumption

Taken from 6m40s:
[...] the sovereign right of every individual, to issue their promissory obligations [...], subject to an obligatory schedule of payment, retiring principal at the rate of consumption or depreciation of the related property.

OK, at the rate of consumption or depreciation. That sounds interesting. Let’s see how that works out in practice. I buy a deep-frozen pizza at the supermarket, take it home and put it in my fridge. But I don’t eat it yet, I may eat it tomorrow.

That means there is no consumption yet. So I won’t have to pay it yet? I’ll pay tomorrow because I’ll eat it tomorrow? Will the CMF have to keep track of all the sales at the supermarket, who bought what and when, and when do they actually consume it, so payment can be enforced at that very moment of actual consumption?

Perhaps this is a somewhat childish example I’m presenting here. Perhaps consumption should be defined as ‘taking the article past the checkout and out of the supermarket’.

On the other hand, a new economic and ‘banking’ system to replace the existing one, should be defined in clear and unambiguous terms. We should know exactly what to expect to be able to weigh the consequences.

At the rate of consumption or depreciation

Taken from 10m05s:
Under Mathematically Perfected Economy therefore, a 100,000 dollar home with a 100 year lifespan, costs us only a thousand dollars a year, or 83 dollars and 33 cents a month.

At the rate of depreciation, how does that work out?

Let’s assume it’s a new house. So first, over a period of several weeks or months, a group of construction workers is building the house, and they use building materials and machines.

Payments only start after the house is finished, and only at the rate of $83.33 per month. How are the workers’ salaries paid before the house is finished? And after? $83.33 clearly isn’t enough to pay all the construction workers and the building materials.

So the builders and materials suppliers probably have to live on the monthly payments from all those other house owners, of houses they built in the previous one hundred years? So workers will still also receive payment for houses their fathers and grandfathers built, assuming they too were construction workers?

OK, it can be done, but it requires a large-scale and long-term accounting by the CMF (Common Monetary Foundry) to keep track of all those obligations and their eventual fulfilment.

Meanwhile, who owns the house? The occupants? The builders together? Some independent entity that rents the house to the occupants? The CMF?

Isn’t this in fact the concept of hire purchase, or leasing with a purchase option?

What happens if the owners (whoever they may be) want to sell the house? Or if the occupants want to move to someplace else?

I see no answers to these question on MPE sites or in videos. Maybe I didn’t read and watch enough of them. So far my conclusion on this point is: too unclear, no unambiguous definitions, no clear implementation plan, the proposed new system is not viable.

At the rate of depreciation?

Was the above schedule, of paying only $83.33 a month for a $100,000 home, payment at the rate of consumption, or at the rate of depreciation? I suspect it must be consumption, consuming the facilities the house offers, consuming the possibility to find shelter in this house.

That’s because if you take depreciation as the basis the calculating the required payments, you don’t arrive at $83.33 a month: over a longer period, the value of house tends to go up, not down, even when applying an inflation adjustment.

There may also be periods when the value goes down. Anyhow, the value development varies over time. While the value of the house is going up, under MPE/CMF, does it mean the occupant (who is possibly also the owner?) will not pay $83.33 a month, but instead should receive money? If so, from whom? The CMF? But the CMF itself does not have any money, it merely does the accounting of promises by others. So who is going to pay for that house appreciation?

For payment at the rate of depreciation, a car is a better example. It does generally lose its value over time, although not at a constant rate: faster first, more slowly later. Maybe that could or should be averaged out for simplicity. But then what if the first owner of the car sells it already after a few years? Does he get the extra depreciation refunded? By whom?

Money as promise

So under MPE (Mathematically Perfected Economy), with the CMF (Common Monetary Foundry) in place, money is the promise to pay, the obligation to pay, as registered by the CMF. Does that mean that making that promise, having that promise registered at the CMF, is already the payment? Or is there a later stage of actually fulfilling the promise to pay, by actually paying?

But if the promissory obligation itself is the money, how can there be a difference between promising to pay and actually paying? Is payment the handing over of the promise? The registration of the payment?

Quoting from 8m40s:
Instead of carrying money, we might only carry a card, similar to a debit card. Physical money, automated teller machines [ATMs] and the like might largely be considered no longer necessary. [...]

Now let me try to picture this. I go to a supermarket, put articles in my shopping cart (known as a supermarket lorry in many English-speaking countries), and at the checkout I swipe my MPE-CMF new style debit card. Then my promise to pay the supermarket is electronically registered at the CMF, whereby I, as a sovereign individual, have issued my own money.

How is the supermarket going to use my promissory obligation to pay, to pay its suppliers, transport company, supermarket workers, supplier of refrigeration equipment, utility companies, etc.? Will the supermarket, via the CMF, pass on my promise, and that of other clients, to those creditors as payment? And the suppliers, e.g. a wholesaler, passes on those promises to its suppliers, like local farmers, food processing companies, international food importers?

If the money is only promises, how will they know I will eventually make good on my promises? Will the supplier of the supermarket be willing to accept my promises to pay, as payment for what the supermarket owes them, because that supplier trusts me? To be able to trust me, do they have to know about me and when exactly I bought things in the supermarket to what amount? How does that relate to privacy?

In fact, such a system of payment is very similar to what is already commonplace between companies: sending each other invoices, paying later, meanwhile granting each other trade credit. Debtors vs. creditors, accounts receivable and accounts payable. I described that in an earlier article.

In the existing economic system, such trade credit is only of a temporary nature. It is ended after a relatively short period by the actual payment. Also, trade credit is not passed on from one creditor to the next to form long chains of promises. It seems to me that that is what is going to happen if something like a CMF were implemented.

In the existing system, debtors and creditors themselves keep track of how much they owe whom, and who owes them how much and what for. Smaller companies could also outsource that work to an accounting agency.

Such a firm would then be similar to the CMF that Mike Montagne proposes: it keeps track of other companies’ obligations to pay, without being party in the transactions themselves. There are no financial claims or obligations between debtors and the accounting agency (other than for the obvious fee for their registration work), nor between creditors and the accounting agency. The claims and obligations (which are a type of assets and liabilities) exist only between debtors and creditors. The accounting agency merely enters them in a computer system.

This is very different from what a bank does, although Mike Montagne misunderstands this, seeing that he wrote that “[...] the banking system merely publishes further representations of our promissory obligations *to each other* [...]”. I wrote about that subtopic in an earlier article.

In fact, a bank enters into a financial relationship with its clients. There are claims (assets) and obligations (liabilities) between the bank and its clients. The bank however does not interfere in claims or obligations between its clients. Such bilateral claims and obligations between bank clients do also exist, but the bank does not have anything to do with them.

Payment in MPE with CMF probably means passing on the debtor’s promise to pay, to the creditor.

Payment in the traditional banking system means that the debtor passes on part of its claim on the bank (the promise by the bank to pay the debtor) to the debtor’s creditor’s claim on the bank.

I think such a payment system is much more reliable and viable than what Mike Montagne proposes, because in it, to trust that payment has actually taken place, the creditor needs only trust its own bank, not a long chain of debtors’ debtors’ debtors.



Full video quotes for reference

I transcribed what Mike Montagne said verbatim from video no. 98, starting at 6m40s:
In today’s program, we have promised to teach implementation. Largely, we can understand the general implementation of Mathematically Perfected Economy, as the only true economy, only true free enterprise, and only true free market, in all of which, what I have called a Common Monetary Foundry, replaces the purported banking system, and restores the sovereign right of every individual, to issue their promissory obligations, free of exploitation, subject to an obligatory schedule of payment, retiring principal at the rate of consumption or depreciation of the related property.

From 7m43s:
All together then, the CMF certifies our creditworthiness, maintains our accounts, performs and enforces payment, and if money is to be issued in physical forms, in the chosen implementation of any given nation.

From 8m06s:
The CMF therefore issues money in the common forms were are familiar with.

From 8m19s:
As the Common Monetary Foundry is compelled to deploy practical automations, the Common Monetary Foundry largely exists as software and data, performing automatically, including deposit of pay, payment of bills, receipt of payment, and delivery of payment in electronic commerce.

From 8m40s:
Instead of carrying money, we might only carry a card, similar to a debit card. Physical money, automated teller machines [ATMs] and the like might largely be considered no longer necessary. [...]

Here I skipped a few sentences, between 8m40s and 9m15s, after which Mike Montagne continued:
The principal obligation of the Common Monetary Foundry therefore, is simply to embody our two vital facets of solution: eradication of interest and an obligatory schedule of payment, which together, as we have demonstrated, preserve an immutable value of money, eradicate inflation, deflation and maldisposition, eradicate systemic manipulation of the cost or value of money or property, and eradicate inherent, irreversible, and therefore terminal multiplication of artificial and indebtedness, the cause of the present failure.

From 10m05s:
Under Mathematically Perfected Economy therefore, a 100,000 dollar home with a 100 year lifespan, costs us only a thousand dollars a year, or 83 dollars and 33 cents a month.

From 10m25s:
In rectifying the consequences of usury, our transformation to Mathematically Perfected Economy necessarily refinances all debt under Mathematically Perfected Economy, counting all prior payments of interest instead toward principal.

From 10m44s:
Thus the basic implementation of Mathematically Perfected Economy, is something like a bank, but without any banks at all, with only the internal accounting system, administering to our fares by simple arithmetic, bound to the few indispensible principles of our fact of singular monetary solution.

From 11m16s:
In all this then, we are simply monetizing our production at virtually no cost. Mathematically Perfected Economy is practically the monetary equivalent of barter, except of course that it enjoys the further universal tokenization of a currency, mathematically perfected of all fault, and which allow [sic] us, not actually to assume debt, but to pay for our consumption of production, with no more than equal production, as we consume of it.

Time in video after this quote: 12m00s.



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