Support?

Pay with a promise?

24–28 August 2013

Introduction

On earlier occasions too, I transcribed and commented parts of the text of videos (audios, in fact, recordings of internet radio programmes) by Mike Montagne. He is the originator of the MPE movement which is striving for what they call a Mathematically Perfected Economy.

Here you can see one of the earlier articles of this type, that I wrote. This time my subject will be the Youtube video “4/15 (MPE) The Secret of Oz 23.10.10”. It was uploaded on 11 November 2010.

In this spoken video, Mike Montagne explains how MPE could function in practice. That interests me, so I’ll listen and look at the example critically, to judge the possible practical feasibility and any virtues of implementing MPE.

So far I have been very critical, but I’ll try to look at the matter with an open mind.

As before, 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.

Some confusion

I quote from the block of text transcribed here in full:

[...] you might have a man who raises fowl, chickens, and another man raises feed. And the man who raises feed, builds [...] the infrastructures to double his production next year, [...]
   
And he says to his neighbor that he’s built all these facilities to double his fowl production the next year, but he not gonna be able to grow the additional feed that he needs.

Mike Montagne mixed up the two players in this story at least once. OK, it doesn’t matter, one man grows chicken feed and the other raises fowl, that much is clear. Later in the parable Mike put himself in the role of the chicken farmer.

Text vs. voice

Mike Montagne seems to like spoken videos better than typed text. My own preference is different. In typed text, as an author you can correct unimportant mistakes of the type just signalled, before publishing (and thanks to the world wide web, even after), and cut out all the hesitations.

So text draws less on the reader’s/listener’s time, also because a reader can pick his own tempo and need not adapt to that of the writer/speaker.

And there’s this other advantage that is important for me personally: I can listen to music while reading, not while listening to an address.

CMI

Taking a quote from this block:

[...] we might have a branch of government [...] to this, you know, branch of government, [...]. And the government branch, branch of government would say, [...]

What Mike Montagne called a “branch of government” in this 2010 video, I suppose is the same as what was later named the CMF (Common Monetary Foundry) – I referred to it here, here, here and here. In the latter article, I mentioned that Mike Montagne’s followers (perhaps he himself too) later started calling this organisation the CMI – Common Monetary Infrastructure.

I’ll call it CMI in the rest of this article too.

Contracts

Quoting from 1m14s:

«Would you, my neighbor, be willing to produce this additional feed for me, for, you know, in return for so much of my additional production?»

Quoting from 3m07s:

So he writes to me a promissory obligation, that he will produce so much feed for so much of my fowl production, and eh, I likewise issue to him, by my own hand in writing, my promissory obligation, to issue so much of my fowl production in return for so much of this feed that he’s gonna grow.

So those promissory obligations, that Mike Montagne proposes as a replacement for the existing money in the existing economy, are in fact delivery contracts. Such delivery contracts also exist in the current economic system: e.g. a franchisee supermarket might have contracts with its franchisor, stating volumes and price of products to be delivered by the purchasing organisation common to all franchisees.

Such contracts are useful, but they are not money. The products mentioned in such contracts I suppose are not on any company’s balance sheet yet, because they are not values already delivered or money already owed. They are future products.

Mike Montagne’s promissory obligation also seem to be similar to forward contracts. Those too can be useful, but they are not suitable for use as money.

Barter trade

In his example, Mike Montagne presents a two-sided (bilateral) delivery contract: the chicken feed grower promises to deliver chicken feed, and the chicken raiser promises to deliver chickens.

That means that the use the promissory obligations, which Mike Montagne proposes as the new money, is still a form of barter, but now supported by documents. The fundamental requirement of successful barter, the Double coincidence of wants, which rarely occurs and is therefore the crucial problem of barter, cannot be solved in this way.

In the parable: the chicken raiser needs the chicken feed, but what is the chicken feed grower going to do with 2000 chickens? He will have to sell most of them, so he has the new problem of finding people wanting to buy a total of 2000 chickens, in exchange for something that he needs and wants.

If he were simply paid with money as we know it, instead of with a promise to deliver chickens, trading would be so much easier, smoother, efficient and rewarding.

I wrote about the problems of barter before here.

Money should be universal

Money is the solution to the problems of barter. Barter trade works with bidirectional trade transactions: two parties offer two different services or goods in two directions at the same time. They exchange them. Selling and buying by one party, and buying and selling by the other party, all those actions happen as part of that one transaction.

Money splits such a barter transaction into four different ones: one party sells in exchange for money, and buys paying such money (usually in different amounts); the other party too buys using money and sells for money.

For money to make this possible, it must be independent of specific products or services: with dollars you can buy anything, not just chicken feed. Existing money has a value of its own: originally money consisted of precious metals in coins, later also of claims to such value: banknotes and on demand bank balances.

Money should be divisible

Also, money should be arbitrarily divisible. Dollars and euros are: if you receive 3 times 100 dollars by selling something or working for it, you can spend that amount in any number of different payment amounts, provided they total 300 dollars or less.

Are promissory obligations universal?

Now let’s see how promissory obligations qualify in those respects. Remember that Mike Montagne proposes promissory obligations as a better replacement of the existing money, better because they are interest-free and do not require interference by banks.

First, Mike Montagne is “talking about smaller communities where people are more intimately familiar with each other”. Then the new money is intimately tied to specific quantities of specific products: “So he writes to me a promissory obligation, that he will produce so much feed for so much of my fowl production, and eh, I likewise issue to him, by my own hand in writing, my promissory obligation, to issue so much of my fowl production in return for so much of this feed that he’s gonna grow.

That makes this proposed new money unsuitable as money.

Later on Mike says: “[...] if society becomes more vast and we do business with people that we don’t know intimately, it is, it behooves a society to standardize this process, so that a uniform money is issued into circulation

I suspect what Mike Montagne here calls “a uniform money” is the same as what I prefer to call “universal money”: money you can use to buy anything, not just something previously determined.

The introduction of the CMI (Common Monetary Infrastructure) should realise that universality: “[...] they would each pledge before the branch of government, that they will deliver this, and that, to each other, [...]”, and: “So now the doctor, when he’s paid to deliver this baby, gets a uniform currency, it doesn’t say that it collects 50 chickens from, you know, Mike Montagne, to do this, it’s 50 dollars or whatever.

Unfortunately though, it doesn’t become clear what the relation is between those new universal “dollars or whatever”, issued by the CMI on presentation or registration of the promissory obligations, and those original promissory obligations themselves.

Can people pay with both? If so, why would they still use promissory obligations tied to specific products, if they also pay with universal dollars, which because of their being universal, are so much more comfortable?

Would we not get parallel money circuits, so effectively a doubling of the value of money? Doesn’t this make the CMI a bank, taking the promissory notes as collateral and granting credit in the form of dollars? If so, why don’t we just stick to the banks that are already there, instead of replacing them with an infrastructure that does essentially the same thing as the existing banks?

Strangely, Mike Montagne does not follow up his introduction of “dollars or whatever”, issued by the CMI, in the rest of the story. I quote:

Well, when I issue my note to deliver 2000 chickens to my neighbor, the doctor comes and he collects 50 of those chickens from me, because he has a note from my neighbor, that those fifty chickens were actually to be delivered to him, OK?
   
And in fact, he might have paid it to the mercantile store, so the mercantile store might come to me and says «These 50 chickens are mine, I have your note.». OK?“

So the CMI-issued dollars have vanished, and the promissory obligation are again used as payment. It seems Mike Montagne himself, being the originator of the MPE movement, over 40 years after developing his ideas, still doesn’t know how the CMI should actually work. I quote from the Foreword to perfecteconomy.com, dated “March 26, 2008”:

The material of these pages represents an effort of some 40 years.

Mike Montagne’s disciples, such as David Ardron in Australia, don’t know how MPE and the CMI could be implemented either, as became clear from these replies to earlier articles I wrote.

Time constraints

Existing currencies such as pounds, euros, yens and dollar, are not only universal in the sense that you can buy anything with them, they are also temporally universal: you can buy what you want now, tomorrow, next year, in ten years or never at all.

This is different from a promissory note: a promise to have 50 chickens delivered only makes sense around the time when those chickens have reached the age when they can be slaughtered and eaten, or used for egg production.

What if the doctor in Mike’s story needs his payment earlier? Not possible, the chickens are still too young! What if he needs his payment much later and doesn’t even show up to collect the chickens? The chicken raiser cannot sell them to somebody else, because he promised to deliver them to the current holders of the (possibly split) promissory notes. So if note holders do not all show up in time to collect their delivery, the chicken raiser has a real problem.

These time problems too make promissory obligations, as proposed by Mike Montagne, unsuitable for use as money.

Are promissory obligations divisible?

In the story, they are. Quote:

[...] the fellow that [...] is to grow the feed, [...] his wife has to have a baby delivered [...], and he goes to the doctor and he says: «How about this note from Mike Montagne which promises to deliver, whatever, let’s just say, 2000 chickens, for, in return for this feed that I’m growing.» Uhm, «Would you be willing to take a note for 50 chickens for delivering my wife’s baby?» and the doctor says «Yes».

Who writes that new note that promises 50 chickens? The chicken feed grower? I don’t think so, because then he would still have the note for 2000 chickens, and the doctor would have one for 50 chickens. But the chicken raiser promised only 2000 chickens, not 2050.

The only logical solution is a transaction, not between just the chicken feed grower and the doctor, but one that also involves the original issuer of the promissory obligation: the chicken raiser. He can then take back the note for 2000 chickens, destroy it, and write two new promissory notes, one promising 1950 chickens, and the other one promising 50 chickens.

The chicken grower won’t like that: he’s working and won’t welcome interference by other people, who do business together, but need his assistence for making the payment, so they must interrupt his work.

The story continues:

And because the town knows both of us, they, you know, the doctor can spend his note at the mercantile store for supplies and so on and so forth.

This means the chicken raiser must be bothered again, because he issued the note for 50 chickens, which now must be split again, that is replaced by one that covers the doctor’s purchases at the mercantile store, and another one for the remaining number of chickens.

Also, the owner of the mercantile store must have detailed knowledge of the current and future value of chickens, or else he could not tell how many chickens delivery rights he requires for what the doctor wants to buy.

So this is a way of issuing money.

No it’s not. It’s still barter, including all its disadvantages.

Compare this to the existing money systems with banknotes: the mercantile store sets its prices in dollars, the doctor pays with dollar notes, which are readily dividable using smaller notes and coins. An easy, fast and simple procedure involving only the doctor and the store. Not the person the doctor obtained his dollars from. And no knowledge of chicken prices is required.

Conclusion

Promissory obligations are not suitable for use as money. They cannot solve the problems of barter.

Next article

Perhaps implementing promissory obligations using computers, in a Common Monetary Infrastructure, can improve the chances of using promissory obligation for payments.

That will be the subject of my next article.



Full video quotes for reference

I transcribed what Mike Montagne said verbatim from video no. 4/15, starting at 1m14s:

[...]. Now I asked Ellen Hodgson Brown to explain how this so-called Pennsylvania currency was non-inflationary. She couldn’t do it. She left the argument.
   
Now we, as a people, nonetheless need to understand all these things. So let’s back up, and go back to what is a promissory obligation.
   
Now, eh, as I explained in this parable of Perfect Economy you might have a man who raises fowl, chickens, and another man raises feed. And the man who raises feed, builds, eh, you know, the infrastructures to double his production next year, but he’s until that time, perhaps he’s been growing his own feed, on a certain amount of property that’s available and suited to do/doing so. But the additional feed, that he needs he can’t grow on his own property, so he approaches his neighbor.
   
And he says to his neighbor that he’s built all these facilities to double his fowl production the next year, but he not gonna be able to grow the additional feed that he needs.
   
«Would you, my neighbor, be willing to produce this additional feed for me, for, you know, in return for so much of my additional production?»
   
Well of course, the neighbor has to evaluate, well, am I, Mike Montagne, is Mike Montagne gonna be able to fulfill this debt to me, you know, and is it worth me risking cultivating my further land for these purposes when I might dedicate it to something else.

Time in video after this quote: 3m07s. The story continues:

You know, and eh, probably knowing me, because we’re talking about smaller communities where people are more intimately familiar with each other, he might decide, yes, that he would engage in this. So he writes to me a promissory obligation, that he will produce so much feed for so much of my fowl production, and eh, I likewise issue to him, by my own hand in writing, my promissory obligation, to issue so much of my fowl production in return for so much of this feed that he’s gonna grow.

Continuing from 3m47s:

Well, in the meanwhile, the fellow that’s you know is to grow the feed, you know, his wife has to have a baby delivered or whatever, and he goes to the doctor and he says: «How about this note from Mike Montagne which promises to deliver, whatever, let’s just say, 2000 chickens, for, in return for this feed that I’m growing.» Uhm, «Would you be willing to take a note for 50 chickens for delivering my wife’s baby?» and the doctor says «Yes». And because the town knows both of us, they, you know, the doctor can spend his note at the mercantile store for supplies and so on and so forth.
   
So this is a way of issuing money.

Time in video after this quote: 4m37s. Continuing the transcription from there:

It’s promissory obligations. And what a promissory obligation does, it’s not a receipt, it’s actually a promise, to deliver, it’s a promise to deliver something at some future time, which is explicit.
   
Now, obviously if society becomes more vast and we do business with people that we don’t know intimately, it is, it behooves a society to standardize this process, so that a uniform money is issued into circulation.
   
And what would happen then, what would happen is, we might have a branch of government, which has simple responsibilities. Mike Montagne and his neighbor who grows chicken feed, would go, to this, you know, branch of government, and they would each pledge before the branch of government, that they will deliver this, and that, to each other, and that, ehm, and they would demonstrate that they are capable of doing so. And the government branch, branch of government would say, «well, OK, you’ve made that obvious, here is the money.»

Time in video after this quote: 6m00s. Next piece of text:

So now the doctor, when he’s paid to deliver this baby, gets a uniform currency, it doesn’t say that it collects 50 chickens from, you know, Mike Montagne, to do this, it’s 50 dollars or whatever.
   
Well, so, eh, what is happening here, you’re actually exchanging something which is a token of value, equivalent to whatever is to be delivered for it, so long as in fact that thing is eventually delivered.
   
So there is no concern in such a system, other than the integrity of the currency, that is, the fact that the thing of value which was promised, is in fact delivered.

Going on with the transcription from 6m48s.

So as long as such a currency is enforceable, there are no issues. Well, so now, we have this option of a branch of government, why do I say a branch of government, because, in, the idea of a republic, or of sovereign rights even, is that people have a right to exchange something and that this representation of it, this, these promissory notes or promissory obligations are bound then to represent those things. So that’s why real money, is real, is in fact an obligation, not to anyone else, but to each other, to fulfill the things that is promised by the promissory obligations, so that the money has integrity.

Time in video now 7m43s.

And what happens, what happens then, what is the natural life-cycle of a promissory note then. Well, when I issue my note to deliver 2000 chickens to my neighbor, the doctor comes and he collects 50 of those chickens from me, because he has a note from my neighbor, that those fifty chickens were actually to be delivered to him, OK?
   
And in fact, he might have paid it to the mercantile store, so the mercantile store might come to me and says «These 50 chickens are mine, I have your note.». OK? So, I deliver him the 50 chickens. But then I cancel off the 50 chickens that are owed. I cancel 50 so I owe, 1950 chickens to whoever collects from me further. Well, my neighbor comes and he collects whatever 1500 of those chickens, so I cancel off the 1500 he says that he’s issued, you know, eh, 450 chickens in notes to other people.
   
Those are all delivered as they are, and whenever somebody collects the thing of value, the principal is cancelled from existence. It’s no longer owed to anyone, it no longer represents anything. It has been fulfilled, it is null and void from that point afterwards. [...]

Time in video now 9m05s.

The rest of the text I’ll skip, because it is about things I already dealt with in other MPE debunking articles that I wrote.


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