Money was always a tangible medium of exchange. For centuries, people used gold and silver. Why? They decided because they believed this made sense. It was their free choice. People's gold was stored with a bank (initially gold smiths). These banks issued paper against gold: it's easier to travel around with paper.

It was a sin and a crime to issue more paper than gold in the vaults! Why? Because if people wanted to change all issued money paper back to gold, there would not be enough gold. Nowadays, this ancient criminal behaviour is the basis of our monetary economy! What went wrong?

During history governments were always eager to spend more money in order to fight useless wars or for other political reasons. There has always been pressure by governments on lowering the gold content of gold-coins (seignorage) by way of a secret tax. Finally governments legally allowed banks to issue more money than gold available in their vaults (their reserves). In the 20th century, fractional banking is accepted as the norm, after it was forbidden for ages.

Money is not always invested properly.  Every entrepreneur knows how hard it is to invest money properly and will have had a bad investment experience. In the case of a gold-standard economy this is not so much of a problem (see download freemoney example). A fractional banking economy though is built only for growth and cannot handle contractions. In our fractional banking world, there is always the risk of a credit crunch of some sort. There is even the danger of banks falling down, as we have seen in the first decade of the 21st century.

When such credit crises occur, you should wonder how on earth banks are built on such loose ground. However, when such crisis occurred in 2008, governments were stepping in, thinking they can and needed to solve the financial crisis (in 2012 we will add such examples to the Freemoney example stories). But, each time a government supports the economy, the problem gets bigger, as we saw in 2011. The best the government can do is to step out and leave it to us, the common people. Then, we will be free of debt-money and choose our own money system.

What's the alternative? Back to the gold-standard is one solution. Accepting deflation is then required: if we invest money properly,our productivity increases and prices go down. We then can consume more with the same amount of money. The governments want to make us believe deflation is bad. Central banks want to control the economy and create stable and low inflation. Please, never believe a government can and should control the economy and the actions of free man. Not in communist countries and not in our ´capatalist´ world.

Some complementary currency systems are proper alternatives too. The new Austrian School presents some interesting theories about this. Free man can and should be able to create it´s own currency, based on true demand and valued labour. Banks should increase their reserves to near 100%. Effectively defined benefit pension fund systems are the way to go forward. These funds invest only the money saved by consumer-members, so with 100% reserves. Only problem now is that they do not obey Farmer´s law and do no invest their money properly. But they could easily do.

We ourselves selected the current fractional banking financial system, which is built only for unsustainable growth, is not fair to the common people and can always result in a collapse of the banking and entire financial system. The building blocks to a fair, peacefull, stable and sustainable economy are all available to us. We just need to understand how to build such new economic system.

We will work out these topic in 2012.