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FRACTIONAL RESERVE BANKING AS ECONOMIC PARASITISM FRACTIONAL RESERVE BANKING ECONOMIC PARASITISM A SCIENTIFIC, MATHEMATICAL and HISTORICAL EXPOSE, CRITIQUE and MANIFESTO Privately owned money expansion is equivalent to a surreptitious, state-sanctioned plundering of money-holder wealth by private bankers, and is an insidious yet real and ubiquitous system of economic parasitism. INTRODUCTION he dynamics of money is an extremely complicated subject. It's a foremost preoccupation of humans, as in the way money system mechanics is intricately woven into major plotlines of complex and influential popular fiction works such as Rand's Atlas Shrugged’ and Stephenson's Cryptonomicon.’ Extrapolated, it even becomes a "social energy system" theme in more futuristic or outlandish forms, such as that emerging from the popular science fiction movie The Matrix.’ Possibly the full leverage of focused worldwide scientific inquiry and attention has yet to be applied to economics. Some evidence that the science is still in its infancy is that new fields of "economic physics" or "econophysics" and "computational finance" (also dubbed "phynance") have been proposed only recently.***° Phys are applying statis- tical and computational modelling techniques to come up with creative, ad hoc or highly realistic theories of money flow in, for example, large economies and stock markets.’ Objective scientific commentators sensitive to these kinds of shifts and trends could easily identify (despite the overused cliché) all the signs of an apparent Kuhnian "paradigm shift"’ in progress. The analysis presented here is heavily dependent in places on the economy-as- ecosystem concept and mostly takes it as unequivocally justified and virtually proven, even though it is not a common perspective among mainstream economists and the underlying research agenda is clearly only beginning. Nevertheless, building on it, an important additional theme proposed and explored here is that of economic parasitism. A BRIEF HISTORY OF MONEY Paper money was not used by Europeans until the Middle Ages; its introduction in that era was partly due to the discovery of its successful use in China by Marco Polo in the 13th century. The Greeks and Romans used coins. It is useful here to review some standard terminologies (see, e.g., Griffin’ and Naylor"): - Commodity money — money that is made out of a commodity, e.g., typically a precious metal, either gold or silver, i.e., coins. - Receipt money - also called "fully backed commodity money"."' A goldsmith or banker issues paper receipts or certificates always redeemable for an exact quantity of precious metal, and the receipts may be traded independently. - Fractional money - money that is backed by reserves or a commodity at only a fraction of the face value. It's also called "fractionally backed commodity money" and "bank money" or "book credit".'* For purposes here, the exact fraction is considered to be fixed in perpetuity. - Fiat money — money that is declared (sole) "legal tender" by a government, with no specifically guaranteed reserve or commodity backing; or, for purposes here, money denomination associated with arbitrarily permissible manipulation, or variation of total available quantity, via mere accounting changes unrelated to precise reserves or backing (made by the money controlling and tracking authority, not necessarily the same as the government), rather than any fixed commitment to any fraction of reserves or backing. - Paper money - For purposes here, money in the form of paper notes, i.e., "banknotes". Depending on backing, it could be receipt, fractional or fiat money. Many by Vladimir Z. Nuri © March 2002, February 2004 Email: vznuri@yahoo.com Extracted from his 62-page paper, freely available at website: http://econpapers.hhs.se/paper/ wpawuwpma/0203005.htm by Vladimir Z. Nuri © March 2002, February 2004 Extracted from his 62-page paper, freely available at website: http://econpapers.hhs.se/paper/ wpawuwpma/0203005.htm APRIL — MAY 2004 NEXUS = 11 Email: vznuri@yahoo.com www.nexusmagazine.com