Abstractly Represented Money Introducing Metamoney

by MIRELO DEUGH AUSGAM VALIS on JULY 30, 20140

Part of this article appears in Issue 20
In his pocket, Joe has an old leather wallet. It contains enough banknotes to buy him a brand
new wallet of a better model he saw in a magazine. This buying power is exclusive to him, who
alone can use those bills to buy something. Likewise, if he transfers them to another person,
then instead of him, only this other person will own their buying power.
However, although Joes transferring away his banknotes can always transfer along their
control, it could never transfer along their whole property, which is not only his. The bills, as
possibly distinct from their purchasing power, do not belong to him alone. For example, he has
no right to create or destroy them: they are public. What belongs to either him or whoever else
controls any such notes is rather their buying power, which hence is privately owned.
Indeed, by always just privately owning his banknotes, Joe could sell them independently of
their purchasing power, which they could not represent. However, selling them in this way
would prevent him at least temporarily from using the same bills to buy anything. Then, by
recognizing their lost purchasing power as a monetary value, for keeping which they must
remain its representations, one can conclude:
1. All monetary value must be private.
2. All its representations must be public, or unsellable.
Still, if not Joe, then who else can sell, buy, create, or destroy his or any equivalent banknotes?
This question should be negligible if what he owns is their monetary value rather than the bills
themselves. However, since the purchasing power of each bill can change once people sell,
buy, create, or destroy other such bills, the same question becomes critical. Indeed, part of its
answer is that now commercial banks create most of the money supply by selling it, in a
process called fractional-reserve banking.
Commercial Banking
According to the Federal Reserve Bank of Chicago,
1
this is how fractional-reserve banking
originated:
Then, bankers discovered that they could make loans merely by giving their promises to pay,
or bank notes, to borrowers. In this way, banks began to create money.
Bankers also needed, howeverand still needto keep, at any given time, enough money to
provide for expected withdrawals: Enough metallic money had to be kept on hand, of course,
to redeem whatever volume of notes was presented for payment.
Hence the name fractional-reserve banking: commercial banks must hold afraction of all
deposit money as reserveswhich legally (since 1971) need no longer be metallic money but
only a public debtto meet withdrawal expectations: Under current regulations, the reserve
requirement against most transaction accounts is 10 percent.
In a fractional-reserve banking system, on which most of todays international economy relies,
commercial banks create money by loaning it, hence as a private debt.
Transaction deposits are the modern counterpart of bank notes. It was a small step from
printing notes to making book entries crediting deposits of borrowers, which the borrowers in
turn could spend by writing checks, thereby printing their own money.
For example, once a commercial bank receives a new deposit of $10,000.00, 10% of this new
deposit becomes the banks reserves for loaning up to $9,000.00 (the 90% in excess of
reserves), with interest yet without withdrawing the loaned money from the source account.
Likewise, if that maximum loan of $9,000.00 does occur and the borrower deposits it into
another account, whether in the same bank or not, then again 10% of it becomes the latter
banks reserves for loaning now up to $8,100.00 (the 90% now in excess reserves). As always,
the bank charges interest on the loaned money despite not withdrawing it from the source
account. This process could proceed indefinitely, adding $90,000.00 to the money supply,
valuable only as their borrowers resulting debt: after countless loans of recursive 90%
fractions from the original deposit of $10,000.00, that same deposit would have eventually
become the 10% reserves for itself as a total of $100,000.00.
2

Thus through stage after stage of expansion, money can grow to a total of 10 times the new
reserves supplied to the banking system, as the new deposits created by loans at each stage
are added to those created at all earlier stages and those supplied by the initial reserve-
creating action.
Yet how can credit alone create new money? How can a debt retroactively create its owed
money? Something else must be happening here, in addition to mere loans. What is it? What
else happens in the whole process of commercial banking? First, there is a deposit. Then,
there is a loan of up to a fraction (of 90%) of this deposit, at interest yet which the bank never
withdraws from the source account. Finally, the borrower can credit that loan to another
account, in the same or any other bank. Suddenly, the trillion-dollar question emerges: are
these two accounts sharing the same value?
Regarding deposit money the answer is yes: the loan can still belong to the balance of the
source account, consequently being that same deposit money.
Regarding account balances the answer is no: the loan can also belong to the balance of
the target account, consequently being additional deposit money.
However, if the partial balances of both accounts must represent the same deposit money,
then how can they duplicate it?
Privately Public Money
Distinguishing the letter a from its verbal sound would prevent this visual representation of
that word. Likewise, distinguishing a banknote from its exchange value as money would
prevent this concrete representation of that value.
The resulting indiscrimination between a representing entity and what it represents must
happen to all representations of something dependent on them by something independent
from them. Indeed, the letter a does not depend on its dependent word, or a banknote on its
dependent trade value as money. Likewise, bank accounts do not depend on their dependent
balance, nor precious metals on their dependent buying power. Anything that depends on
being represented by something independent from representing it becomes indistinguishable
from that representing entity.
Additionally, only by being concrete can objects remain independent from what they represent,
which they always do. Hence, each alphabet letter, banknote, precious metal, bank account, or
other self-independent representation, even if just imagined, must be concretely objective.
While conversely, because money depends on its own representation, all its concrete
representations must remain indistinguishable from their monetary value, despite this value
and those representations being always respectively private and public.
So letting money concretely represent its own exchange value is inherently problematic: the
resulting indistinction between this concrete money and that privately owned value must
privatize its otherwise public representation of the same value. Consequently, all such purely
objective representations of money will require an impossibly privatized control of their still
necessarily public, unsellable selves, whether by their private owners publicly selling, buying,
creating, or destroying them.
Even so, Joe still privately controls the exchange value of his always public banknotes. Indeed,
people have long expressed that value concretely, with not only banknotes but also countless
other objects, including precious metals and bank accounts. Yet how could they do it? How did
they solve the ownership conflict inherent in any such privately public representations of
money? How could each concrete representation of money be both private and public? The
solution was to delegate its privatized ownership to a public monetary authority.
People had no other choice: any privatized ownership of a still necessarily public entity can
only consist in the privatizing delegation of its public ownership. Then, all resulting delegates
will constitute one same body administering or governing this public entity:
the state or government, part of which must privately control any object that concretely
represents money.
However, the private and public ownerships of one same thing are still mutually exclusive.
Hence, the public authority that results from privately controlling all concrete representations of
money must rather be private. Eventually, this conflict will segregate all administration of
money by governments into a privatized part of their public selves: a central bank. Indeed, any
privatized power could only remain public as long as just part of it became private. So the
same governments will become private by delegating all their control over money to that
private part of themselves, which conversely will remain public just by belonging to them.
Finally, regardless of government structure, concrete objects can only represent money by
remaining privately public, hence while still privately owned by the public part of governments,
even if also by their central banks. For which to be possible, any government already privatized
into its own central bank must create this always privately public money by borrowing it from
that bank. Then, this government not only buys the created money from its privatized inner
self, as which it reciprocally sells it to its public whole, but also destroys that money by paying it
back to its lender bank, if ever. While conversely, that central bank becomes the original
creditor of all this privately created, publicly loaned money, of which it must create ever more to
enable paying its interest. As thus, with the resulting inflation and recursive interest payments,
the same bank owns an ever-increasing fraction of the exchange value of all its issued money.
Still, even in the absence of any central bank, once commercial banks create money by
loaning it to people who then use that money to buy public debt, or even just pay taxes,
governments already borrow their money from the banking system, despite indirectly. Then,
the partial privatization of those governments only lacks a formal, institutional expression.
Central Banking
So bank accounts must be as indistinguishable from their deposited money as any such
concrete representations are indistinguishable from the money they represent. Hence two
deposits in different accounts being always different money, even if one is just a loan of money
from the other: when depositing money borrowed from one account into another, people must
duplicate that money, by mistaking it for both accounts.
Additionally, since all money created by commercial banks remains as just balance fractions
borrowed from their client accounts, that money must be worth only as credit, or as the
corresponding debt principal. This way, except for money neither in reserves nor loansand
possibly not even in bank accounts, thus not being excess reservesbut not from loans, bank
loans are the only money supply left for paying their own interest. Consequently, such an
interest-paying, self-indebted money supply must grow at least at its own interest rate less any
other money also excluded from bank reserves: eventually, whether as loans or not, the total
money supply must increase exponentially.
However, who does then create all needed new money? Before central banks, governments
would have done it. Later, each new central bank has created ever-increasing amounts of that
money on behalf of its government. Indeed, since the source account of any bank loan could
have been the target account of other such loans, from which it would be then
indistinguishable, banks can always replace that source account by debt instruments, including
some representing a public debt. So by becoming central banks, they can create new account
money in exchange for promises from their governments of paying it back with interest,
essentially the same way they replicate part of that money in exchange for promises from their
commercial clients of paying it back with interest. However, paying the additional interest on
this new money, now created as a public debt will demand still more money. Then, the same
banks willas they always didcreate ever more money from new public debt for paying
interest on both private and old public such self-indebted money.
3
This way, all new money
created as a private or public, interest-paying debt must recursively amplify any lack of itself
initially solved by central banks creating still more of it.
The result is an exponential growth both of the money supply and the debt it represents, then a
proportional, ever larger transfer of exchange value to the banks through inflation and interest
payments, respectively, which must collide with social-resource limits. Constructively delaying
this collision depends on a corresponding increase in the social production of wealth, which
must rather collide with natural-resource limits.
Are there any alternatives to such an unsustainable economic system?
Abstractly Represented Money
Unlike the symbol for a verbal sound, its audible self cannot become indistinguishable from
what it means. For example, the sound of the word everything cannot already be everything
and still mean it. Unlike its visual representation, that sound is not recognizable independently
of meaning something else, from which it hence must always be distinguishable.
Still, verbal sounds are not the only meaningful entities always necessarily distinguishable from
their meaning. There are also public representations of a privately known entity. For example,
the number three could represent a single, just possible number to every person while
representing the actual number five only to Joe.
Then, people could publicize a number (like five) as referencing another, private one (like
three) without ever publicizing this private (the five-like) number as conversely referencing that
public (the three-like) one. Public-key cryptography does precisely that: it uses two numbers
or keys of which, although either number means the other, only the private key can reveal its
corresponding public key. This way:
1. Any content encrypted using the public key can only be decrypted by someone who also
knows the private key.
2. Any content signed using the private key can still be authenticated by someone who only
knows the public key.
Using public-key cryptography, people can finally avoid privatizing their public representations
of money, by representing any exchange value as a private key then representing this private
key, or metarepresenting its represented value as the corresponding public key. For example,
the Bitcoin decentralized network uses public-key cryptography to build signature chains, each
link of which represents a balance transfer, or transaction. In Bitcoin, transferring the balance
of one public key to another consists in combining the target key with the transfer that resulted
in that balance, then signing this combination with the source private key. After which, any
holder of the source public key can authenticate this new transfer as originating from whoever
could sign itnecessarily by holding the source private key.
Then, money becomes a privately-signed yet public transaction chain despite never becoming
itself public. For the first time in history, representing an exchange value (as a private key)
does not require privatizing its publicly representing object (the corresponding public key). With
such a metarepresentedmoney, or metamoney, a public abstraction (a public key) can
represent an exchange value (that of a private key) without ever becoming itself privatewhich
makes its privatized control by any public authority not only unnecessary, but also impossible.
Indeed, publicly expropriating money, whether by selling, buying, creating, or destroying it,
requires privately controlling its publicly representing object, which then must be concrete. On
the contrary, abstractly representing that money prevents all privately public authorities from
having any control of its representing object, then from necessarily expropriating an increasing
fraction of its exchange value. While conversely, to avoid this privately public, hence
increasingly expropriating control, each object representing money must be abstractlike a
public key.
Finally, to be centralizedin a government or central banka public monetary authority must
privately control what represents money, which then must be a concrete object. While
conversely, to control an abstract representation of that money, this public authority must
become decentralizedin a metamonetary system, like Bitcoin.

1. Dorothy M. Nichols. Modern Money Mechanics. 1994. Written in 1961. Revised in 1968,
1975 and 1992.
2. After twelve recursive loans of 0.9 excess in reserves each, a $10,000.00 deposit would
have already become $10,000.00 (1 0.9
12
) (1 0.9) = $71,757.0463519.
3. For a unified explanation of why money becomes a both private and public debt, please
read the book Representational Monetary Identity.