I have always been mystified by conjuring and those people who are entertained by it. Not in the sense that I wonder how ‘illusions’ are accomplished, I just can’t understand how anyone could be entertained by such a banal pastime.

The ‘art’ of conjuring is derived from a few embarrassingly simple tricks based on observed crowd psychology. But these tricks are not enough on their own to create successful illusions. The audience has to suspend logical thought and to be complicit with the creation of ‘magic’. The real mystery in conjuring is: Why does the audience comply?

Which brings us to ‘Sawing the Lady in Half’ and Democratised Money.

‘Sawing the Lady in Half’ is an illusion I am sure you are familiar with. An assistant, usually female, is placed in a box which is then divided up one or more times with a sword or saw. The assistant wiggles fingers and toes which protrude from strategically placed holes in the box and then re-emerges, reintegrated and unscathed at the end of the trick.

Of course the assistant was not really cut into pieces and brought back together.   It is obvious. Only a credulous fool could profess not to understand the trick.

Yet when it comes to the world of finance and fiscal policy it appears the world is full of credulous fools.

Across the financial spectrum from Keynesian left to libertarian right a debate is raging, as to whether the global financial system is experiencing inflation or deflation. Some see indicators for inflation. Some see indicators for deflation. But it can’t be both can it? Nobody seems to know. Just like the Sawn Lady Trick the fools in the audience look at the wiggling fingers of inflation and the wiggling toes of deflation and gasp in confusion and wonder at this disintegrated/integrated system.

But if the money system is not a whole then what is it?

In response to the 2008 financial crisis, governments around the world implemented extraordinary fiscal measures, ostensibly for the purpose of stabilising the world financial system. Primary among these measures was a massive increase in the supply of money across the globe and the synchronised lowering of interest rates, effectively to zero.

I explained elsewhere the effect of these measures was not to privilege one national currency against another, but rather to diminish all state issued currency. If the role and power of all state issued currency is being diminished, what will take up the slack in the system?

Since the first bout of serious financial deregulation in the Nineties the scene has been set for the introduction of ‘Democratised’ Money, which is in matter of fact a plethora of privately issued currencies. This is the privatisation, not of money, (money is private anyway!) but of the MONEY FUNCTION,


The MONEY FUNCTION comprises the services money provides equally to all members of society, irrespective of how much money you have or indeed whether you have any money at all. The MONEY FUNCTION is part of the SOCIAL COMMONS.

I know these ideas are quite hard to get your head around from the outset, so let me offer a simple illustration which will help you to understand.

In the ‘old days’ (pre Credit Crunch), anyone could deposit money in a bank and the bank would pay interest. When you deposited money in your bank or building society you were equal to a big company or hedge fund. Everyone who put money into a bank was entitled to interest.

The rules and processes that governed the way that money was issued and utilised in capitalism meant that earning interest was a universal social benefit; a SOCIAL COMMONS.

These rules and conventions have now been changed. Post 2008 no ordinary depositor can get interest on savings. Effectively this part of the MONEY FUNCTION which was a SOCIAL COMMONS has been taken away from millions, even billions of ordinary people world-wide.

The right to earn interest on money is no longer a universal MONEY FUNCTION; it has been ‘Democratised’. Contrary to what you think the word ‘democracy’ means, ending universal access to common MONEY FUNCTIONS is what the Democratisation of Money all about.

But not to worry!

Since the universal SOCIAL COMMONS of earning interest on state issued money has gone, the small scale saver is ‘free’ to find a private provider who will offer a return on deposits, (of course, there may be a few ‘strings’ attached). And of course the ‘free market’ will have provided these new ‘charged for’ Democratised MONEY FUNCTIONS in response to the clamour from the ‘man in the street’ for a place to put his pennies proving once again that capitalism serves the interests of the people!

So how does this tie in to the inflation and deflation debate?

Inflation and deflation are part signalled and part controlled by interest rates. Since the interest earning function is no longer universal, the full feedback loop provided by interest rates within the system is no longer available. The system has been hobbled. It is  like cutting three fingers off a blind man and then being surprised when you find he can no longer read Braille as well as he could!

But this is only the smallest part of the absurdity.

Interest earning is not the only MONEY FUNCTION that is being stripped away from state issued currency. This is not the place to list all such MONEY FUNCTIONS. Suffice it to say that when this programme of amputation is finished the only MONEY FUNCTION left will be that of exchange.


Because that is the only function that is not potentially profitable. That one will be left to the state.

As each MONEY FUNCTION and its corresponding feedback loop is progressively stripped away and ‘Democratised’ , the system as a whole will become progressively ‘blind’ until there will be no way for you, me or anyone else to calculate a generalised rate of inflation, or deflation for that matter. The Monetarists will have in some twisted sense succeeded in their plan to destroy inflation!

State issued currencies are displaying seperate and distinct rates of inflation compard to nascent ‘private’ currencies such as derivatives and other ‘financial instruments’. This multi currency world is becoming increasingly unstable; just look at the seemingly inexplicable fluctuations in value of Gold, Oil and other commodities and the derivatives and swaps that  are traded on the back of them. Determining a general rate of inflation/deflation and producing policy will become as impossible as navigating by compass in a world with three or four North Poles.

What economists of the ‘left’ and ‘right’ have failed to understand is that the seemingly endless debate over inflation and deflation only makes any sense at all in the context of a cohesive money system. The dissolution of a  state guarenteed money Social Commons  is the true story of the Credit Crunch and its aftermath. It is the creation and implementation of the Democratised Money system that will determine what happens nationally and internationally over the next decade.

When people begin to see the effects of privately issued currencies in their private lives and on the global stage there will be a profound political and economic realignment across the world.

To return to the Sawn Lady: So long as there are only two sets of fingers and two sets of toes wiggling it is possible to maintain the illusion that there is one body in the box. But if there are four sets of fingers and seven sets of toes wiggling even the most stupid audience member will start to realise that something is not quite right.

Then the trick will be over. Then what?

I am more troubled than ever by the question that I asked at the beginning: Why does the audience comply?

Why does the audience agree to divert itself with something that is obviously by any logical measure impossible?

I can think of no possible answer that is not more than a little frightening.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s