The very character and content for “money” has undergone a radical shift particularly as banking and central banking has attained its latest incarnation. However, even making that statement is somewhat misleading since “money” has been absent from the United States for almost a century. For the most part, nobody seems to have missed it, at least directly, as the economy has moved forward without any obvious distinction. Sure, there have been several periods of undesirable economic trends, including this “new” appearance of “secular stagnation”, but the disappearance of money and its favorable properties are not to be linked by the orthodoxy to any of those.
It is very true that you don’t know what you miss until it’s gone, and in this case there is a lot that was lost in transition. The age of fiat is not just an economic and inflationary (both consumer and asset) distention, there are very real complications – most especially the loss of power or intentional imbalance of power toward the state.
In a true money system a bank is largely as custodian, though certainly fractionalizing that property by multiplying claims on it through debt creation. However, hypothecation aside, the main property of banking remains money and property, thus banks themselves are far less intrusive and anointed. In a property system, banks occupy an important but not primary place in the economic sphere – the failure of banks is limited by fractionalization of property. In a non-money system, as we have now, banks take on not just increased importance, but even dominating all considerations of economy and finance.
True money is property; fiat currency is not. The starkest and most recent example of that difference came in the failure of MF Global a few years ago. Gold “investors” found themselves at the mercy of financial laws, leaving them as unsecured bank creditors rather than being openly and immediately able to claim property from what they believed was MF Global’s temporary bailment (forgive the lengthy quotation of my own prior thoughts):
The modern bank is a slippery creature, particularly those in the upper strata. In the case of MF Global, for example, its ultimate bankruptcy disrupted the supposedly settled idea of property law. MF Global was largely a commodity trader, meaning it bought, sold and “stored” physical goods on behalf of its customers. That would seem to place the “bank” within the realm of property law rather than securities law. After all, though the investors were conducting transactions in paper futures markets, the ultimate settlement of those futures were in goods – physical property.
What forced MF Global into bankruptcy was not its brokerage unit, but its proprietary trading and balance sheet accounting. The modern bank, again as distinct in operation, seeks to both provide financial and property services to itself and others at the same time. The means for it to do so are the legalese openings provided by financial terms like risk. Banks have found over the past four decades a sudden and profound “need” to offset embedded risk through hedging, a perfectly legitimate activity in its own right. But where this grew dark was in crossing the line from serving customers and hedging risk created by that service to intentionally speculating through that window.
The bankruptcy procedure through the CFTC recognizes this property law distinction. Subchapter IV of the Chapter 7 Bankruptcy Code was specifically written for an MF Global-type event.
“A fundamental purpose of these provisions is to ensure that the property entrusted by customers to their brokers will not be subject to the risks of the broker’s business and will be available for disbursement to customers if the broker becomes bankrupt.”
The plain language of the code even specifies the word, “property.” But MF Global was never placed in Subchapter IV, instead being brought into liquidation under SIPC. That was wholly different in that MF Global’s assets were treated not under property law but securities law. That is why investors that thought they were extended such property protections instead had to wait out the sorting of rehypothecated “collateral”, an element indistinct of anything but pure finance. That legal designation applied as much to gold accounts as others.
There are other implications to the domination of finance, as we may yet find new ways to miss the loss of money as property:
The I.R.S. is one of several federal agencies that pursue such cases [asset forfeiture] and then refer them to the Justice Department. The Justice Department does not track the total number of cases pursued, the amount of money seized or how many of the cases were related to other crimes, said Peter Carr, a spokesman…
Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited. [emphasis added]
The whole of that New York Times article is directed toward the IRS seizing bank accounts of people it simply “suspects” of doing something wrong. And in each case, the word “property” is used to question the validity of the tactic; everyone in the article refers to the IRS taking their “property.” But as MF Global showed all too well, “money” is not what people think it is especially when in the form of ledger money as involved with that modern bank. Your deposit account at your local bank, or national behemoth, is a financial claim and is not subject to the same property distinctions and protections as real money. That applies equally to the cash you carry – again, not property of anything but the US government.
The loss of property in financial affairs is a serious problem where nobody shows much appreciation that it was ever any different (again, forgive another self-quotation):
With money so withered as it has been there is no shelter, but more importantly there is no escape. That is the important point of privacy and property, in that the state has appropriated all economic and monetary space for itself. What you claim as your wealth in your accounts, whether that be a bank account or a 401(k), is nothing more than a government unit of measure, pliable at the whims of Ivy League PhD’s who have shown little understanding of any of this in favor of total subservience to nothing more than overly simplistic regression equations. And so if their statistical models tell them you need to become poorer because that is for “the greater good”, there is nothing in between that outcome and your right to avoid it; a fate all the more galling given how “the greater good” has a universal empirical track record of never turning out that way.
It is, as even the New York Times makes painfully plain, not just Ivy League PhD’s in the bowels of “our” central bank that is to condition worry, we now have over-active bureaucrats everywhere taking the license to use fiat in whatever means “necessary.” Property is not just a legal distinction, it forms the very basis of actually (in practice beyond simple theory) limited government. That it has been lost in economics is the condition of repeated bubbles and now stagnation; I can only hope that is the worst of it.