How Can We Move to Capital as Money?

stock certificateThe last thing we need or want is some act of Congress or some other government mandate to move us to a “capital-as-money” economy.  If we’ve learned one thing it is that something as important as money should not be left to the government, a central bank, or the lending whims of a regulated banking system.  Money needs to be born as a natural outcome of free markets, free individuals, and voluntary behavior. 

Then how do we get there?  Just do it!

We are not so presumptuous as to try to offer the only roadmap to capital as money.  There are many alternative ways to skin this cat.  All can benefit from tapping into the superior natural genius and innovation of free markets and clever traders.  However, it might be worth our time to sketch one possible way movement to capital as money could happen.  

Imagine a group of individuals, businesses or entities that make frequent trades with one another.  Suppose they are interested in using broad capital index shares (i.e., equity index exchange traded funds) as a trading good and store of value.  For this purpose they could simply form a capital trading group or (heaven forbid!) trading bank.  The trading bank is not a bank in the sense of a current “fractional-reserve” bank, but rather more akin to the silver deposit bank originally envisioned in our island economy before Bob Jr. got hold of it (for more detail on that, read Capital as Money).  A capital trading bank might simply be a virtual accounting tool to keep track of cumulative trades and the resultant ownership of index ETFs.  How might this work?  Each individual in the group could make an initial “deposit” of a given number of index shares or simply prove to the satisfaction of the other members that they in fact own a number of index shares.  Then the trading of index shares for goods and services commences between the group’s members.  Of course, to avoid paying numerous brokerage fees and commissions associated with actually trading index shares, our group could simply use their own accounting mechanism to keep track of the changes in ownership without the shares actually being liquidated.  Periodically (perhaps quarterly or yearly or, in the limiting case, never, as the trading group members choose) an actual real broker trade could take place to square things up.    

Stretch your imagination, it’s not too hard to visualize such capital trading groups or capital trading “banks” forming and becoming pervasive in terms of goods and services traded and in the size of their membership.  If it happens, then our economy is effectively morphing into a capital-as-money economy.  And why not?  Especially when individuals see the advantage of using capital as a store of value.  Over time capital rewards its holders with a steadily increasing average value in terms of the goods and services for which it may be exchanged.  In a capital-as-money economy it is possible that fiat currency could still exist, but it would delightfully become less and less desired or relevant.  Given the innovation and adaptability of markets, as the process matures it is likely that the brokerage, custody, and trading functions would merge and blend with capital being traded directly for other goods and services and with a cost per transaction that was effectively zero.   

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