THE BORSODI CONSTANT AN INFLATION-FREE CURRENCY
Dr. Ralph Borsodi (see the Plowboy Interview in MOTHER NO.
26) is chiefly famous for his successful experiments in
self-sufficient living. There's another side to the man,
however, that is of increasing importance in this time of
runaway prices: his long-term interest in inflation, its
causes and cures.
To be downright blunt about it, Borsodi does not believe
that a steadily shrinking dollar (or yen or mark or franc
or whatever) is quite the "accident" that politicians
usually make it out to be. Quite the contrary. In his view,
governments cynically and stupidly debase the purchasing
power of their currencies on purpose by printing
too much paper money. Why? Because modern politicians and
the economists who advise them are—in the
main—rather weak-willed animals who lack either the
power or the fortitude to run a country on a strictly
pay-as-we-go basis.
"It wasn't always this way," Borsodi points out. "During
most of the last century, the majority of economists
preferred gold and silver or currencies that were solidly
backed—unit for unit—by such real wealth. The
prevailing doctrine among those economists was that the
worst possible kind of money was 'printing press' money . .
. currency backed by nothing except the word of the
government which issued it. They called this fiat
money. They didn't have much regard for it.
"All right. Along came John Maynard Keynes. He was a very
influential economist in England from about 1915 to 1946
and he invented the idea that we can insure prosperity by
'controlled inflation'.
"Keynes' theory, you see, is that a government can steadily
expand a country's economy, even during periods of what
would otherwise be a recession or depression, by pumping a
little 'extra' money—a little printing press
currency—into circulation.
"Now Keynes knew that this would dilute the purchasing
power of every unit of money already in circulation. If you
have more units of money trying to buy the same amount of
goods and services, you know, prices inevitably go up. You
have inflation.
"Keynes was willing to accept this debasement of currency,
however, because he thought that a government could inflate
its currency just a little bit and just once. Then, as the
Good Times began to roll in that country once more, the
government could stop pumping the extra units of money into
the nation's economy.
"Well that was a nice thought, but politicians don't seem
to work that way. Planned inflation is just like planned
drug taking. It doesn't work. You always need a bigger
'fix' the next time around. Politicians have never
stopped inflating a country's currency once they've begun.
Quite the contrary. They just keep on giving a nation's
money supply a bigger and bigger shot in the arm until the
whole situation runs away with itself. And that's what's
happening on a global scale right now."
Borsodi traces the planet's current financial problems to
the International Monetary Conference held in Bretton
Woods, New Hampshire in July of 1944. Keynes' inflationary
philosophy was adopted on an international scale at that
meeting and, as a result, is universally accepted by heads
of state and their advisors today. Dr. Borsodi, on the
other hand, was not impressed by the idea then and he
remains unimpressed by it now.
"I like what I call 'rational systems of money'. I liked
then in 1944 and I still like them today. Fiat money is not
rational and Keynes' philosophy of economic growth can lead
only to fiat currency."
The Bretton Woods conference disturbed Dr. Borsodi so
deeply that he soon wrote a small paperback in which lie
prophesied what are substantially the economic problems
that we're experiencing right now. The booklet, published
in 1948 by The School of Living, was titled Inflation
is Coming and What to Do About It. Despite the fact
that the publication sold nearly half a million copies,
however, few individuals in positions of power seem to have
read it or to have heeded Borsodi's warnings.
And so we find nearly every nation in the world frantically
trying to run up . . . an increasingly rapid down
escalator of debased currency. It costs more and more every
day, in other words, just to stayeven
than it did the day before. During the 28 years from 1945
to 1973, the value of the United States dollar depreciated
by a good two-thirds . . . and a 1974 dollar has shrunk an
additional 10%. And there's no end to the madness in sight.
"If we continue this foolishness," says Borsodi, "we're
eventually going to witness a debacle followed by a
depression worse than that of the 1930's."
Dr. Borsodi was more or less content to write and talk
about the problem until the U.S. dollar was devalued in
1971. He and his wife were visiting a health resort in
southern California at the time and Borsodi was researching
a book in the Escondido library when he picked up a
newspaper and read of the devaluation. The book was
forgotten. Borsodi says, "I began to wonder what would
happen if, instead of writing another book about inflation,
I were to try to issue a currency that would be
inflation-free."
When he returned to his Exeter, New Hampshire home, Borsodi
began discussing his idea with the officers of all the
banks in town. He also wrote to the head of the Federal
Reserve System and talked for hours with Federal Reserve
representatives in Boston. Borsodi was very open about what
he intended to do and he took the stand that, while the
United States Constitution forbids the counterfeiting of
this nation's currency, it in no way limits the minting or
circulation of a completely alternative medium of exchange.
Although no one particularly agreed with Dr. Borsodi, no
one disagreed with him either. He now says, "I think they
probably said to themselves something like, 'Oh well, let
the old man go ahead. He can't do anything much up there in
Exeter.' I think this is the attitude they probably took
toward the whole affair."
And go ahead he did. Borsodi figured that if it was a good
idea to back a currency with gold and silver, it'd be an
even better idea to back it with a whole market basket of
commodities.
That is, if certificates were printed and distributed with
the guarantee that they'd always be 100% redeemable in
fixed amounts of, say, 30 of the world's most widely used
resources . . . those certificates would automatically
increase in value as the value of the resources increased
(in terms of constantly degraded national currencies).
Whereas a dollar will now buy less than one-third as much
gold or wheat or silver or iron or tin or cotton or copra
as it bought in 1945 . . . such a certificate (which is
issued with the guarantee that it will always be
exchangeable for a fixed amount of all these
goods) will, by definition, perpetually buy the same amount
of gold or wheat or silver or iron or tin or cotton or
copra. Year after year after year after year.
By issuing a certificate firmly based on real
wealth , in other words—instead of politicians'
empty promises—Borsodi thought he could create a
medium of exchange that would be inflation-proof . . . or
"constant". And he decided to call his new currency just
that . . . the constant.
Does the idea work? Well, Borsodi presented his thoughts to
a number of people who—over a period of about three
years—have "deposited" a total of approximately
$100,000 in something called the Arbitrage International
"bank". (Deposits and withdrawals can be made by an
individual at any time just as if he or she were dealing
with a real bank, and all monies are fully protected by the
Federal Deposit Insurance Corporation.) The funds, in turn,
have been used to buy and sell Borsodi's 30 basic
commodities on the world market.
Result: The pioneers in the experiment have seen their
constants rise in value (in relation to the dollar) a
whopping 17% in just three years. Or, to put it the other
way around, a constant bought in 1970 can still be traded
for exactly one constant's worth of goods . . . while a
dollar will now buy only 85% of what it would purchase
three years ago.
Borsodi next took his idea one giant step further by
minting something he calls a globe. As Keith
Dewey—a young man who has helped Dr. Borsodi found
his alternative currency—says, "We can't call them
coins because that's against the law and we refuse to call
them medallions so we call them globes. They're the missing
link between absolute barter and trading. They have no
labels on them. No dollar sign or cent sign, and no
constant sign. All it says on a globe is that the piece of
metal contains either one-half ounce or a full ounce of
.999 fine silver. A globe, in other words, is a very
convenient barterable item. You can't keep wheat in your
pocket and you can't keep a fish in your pocket but you
most certainly can keep a globe—which has a real
worth of its own—in your pocket. And that real worth,
by the way, remains constant. No matter what a dollar bill
will buy on any particular day, a globe will always
purchase exactly its weight in silver—and a
corresponding amount of any other commodity—because a
globe is silver."
(Interestingly enough, the globe has been worth more than
its weight in silver from the first day the first globe was
minted. On top of its real worth, many people see a certain
collector's value in the "coin" . . . and other individuals
have been pleased to purchase globes at a premium price in
order to help Borsodi finance his new currency. When silver
was selling for $3.25 an ounce, for example, the going rate
for a one-ounce globe was $7.00. Now that silver is priced
at more than $6.00 an ounce, the same "coin" sells for
$10.00. And, of course—in the finest tradition of
barter—the half-ounce or ounce chunks of metal are
also worth exactly what wants, needs or desires make them
worth on any given day . . . as evidenced in the sidebar
that accompanies this article.)
So OK. So Dr. Borsodi seems to have accomplished exactly
what he set out to do. So where does he go from here?
Now that the initial test of his idea is over, Borsodi (who
is nearing 90) has handed most of the responsibility for
his alternative currency over to younger men . . . who are
in the process of scrapping the prototype setup and
establishing a truly international alternative medium of
exchange.
A limited partnership has been formed and is now conducting
experiments to determine the ideal "commodity index" to use
for backing the constant. Until the final selection is
made, constants are temporarily no longer being issued.
(Globes, however, are still available at a price of $10.00
for an ounce piece and $5.00 for a half-ounce strike from
Arbitrage International, Exeter, New Hampshire.)
The people currently working on Borsodi's concept hope to
be able to set up a public corporation by fall. At that
time, debentures will be issued by the corporation for
funds received. That is: You will be able to pay dollars or
any other national currency for Arbitrage International
debentures. Your money will then be invested in commodities
or guaranteed contracts for commodities . . . and the goods
will be used to give a stable value to the certificates
(the debentures) you hold. Owners of constants will be able
to redeem their holdings in their own national currency at
any time. Holders of constants will also be able to
exchange those holdings for commodity contracts on which
they can then take delivery, or which they can sell on the
open market for some other national currency.
This activity will be coordinated out of a bank which will
be established in Luxembourg (Arbitrage International
already maintains both a Luxembourg and a London office, in
addition to its temporary headquarters in Exeter, New
Hampshire.) If all goes well, it is hoped that the
Luxembourg bank will eventually prove a boon to developing
nations by granting self-liquidating, interest-free loans
to such commodity-exporting (exploited) countries. This
will raise the standard of living in the poorer areas of
the planet and encourage international trade.
And it will do one thing more: Give little people the world
over a safe port against the tidal wave of inflation that
threatens to engulf us all.
