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The Improbable Rise and Fall of E-Gold – plus: Head of Asheville Liberty Dollar operation arrested

June 9, 2009 /

Jackson et al. very clearly made some serious mistakes in how they ran (or didn’t run) their business. But compare the history of PayPal with that of E-Gold. Did E-Gold deserve to fall so hard?

Timberlake, the economics professor, is convinced that Jackson’s radical dream, his goal of upsetting the economic status quo and overturning the government’s monopoly on money, is what really got E-Gold targeted.

“No matter how innocent a person is you can always find a law that government agents can use to convict him of something,” Timberlake says, “And this is a perfect example of it. Any time anybody tries to produce money, the federal government is going to be on their tail.”

Threat Level: Bullion and Bandits

Meanwhile: Head of Asheville Liberty Dollar operation arrested.

Wendy McElroy notes “The Dollars do not resemble fed-issued coins except for in being round and flat;moreover the website made it very clear that the Dollars were a means of exchange among like-minded individuals who rejected Federal Reserve Notes as monopoly money” and suggests that the indictment is worded in such a way that the government could conceivably be planning on seizing all Liberty Dollars in circulation: “They seem to be giving themselves the legal muscle to steal caches of precious metal from individuals/businesses.”

See The New Currency War for more background.

Rushkoff encouraging Craig’s List to offer “craigbucks”

April 24, 2009 /

Futurist Douglas Rushkoff, famous for correctly predicting the rise of social media, is trying to convince Craigslist’s Craig Newmark to create “craigbucks.” He thinks it’s the obvious next step in the evolution of money. “People could buy and sell things exclusively on Craigslist using craigbucks,” Rushkoff enthuses. “Sure they’ll want to keep their Visas and their MasterCards, but they’ll want a specialized, alternative form of cash too.”

The idea is not as far-fetched as it may seem. Economists already have a term for this kind of community-specific money; they’re called “complimentary currencies” and they naturally take root when conditions are right. For example, in 2006, a Chinese online social network called QQ produced “QQ coins” that became widely traded, used for almost a billion dollars a year in transactions. Even though the currency was designed just to buy things on the QQ network, other websites started accepting QQ coins for payment of even non-virtual goods, and a black market sprung up to convert QQ coins directly to Yuan. The Chinese government cracked down: They feared that QQ could trigger inflation of the Yuan by increasing the total money supply in China.

Portfolio: The Future of Money: DIY Currencies

(via Disinfo)

Recession Hacking: a history of alternative currency

February 27, 2009 /

In his book The Future of Money, Lietaer points out – as the government did yesterday – that in situations like ours everything grinds to a halt for want of money. But he also explains that there is no reason why this money should take the form of sterling or be issued by the banks. Money consists only of “an agreement within a community to use something as a medium of exchange”. The medium of exchange could be anything, as long as everyone who uses it trusts that everyone else will recognise its value. During the Great Depression, businesses in the United States issued rabbit tails, seashells and wooden discs as currency, as well as all manner of papers and metal tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil, kick-started the economy of the city and solved two major social problems by issuing currency in the form of bus tokens. People earned them by picking and sorting litter: thus cleaning the streets and acquiring the means to commute to work. Schemes like this helped Curitiba become one of the most prosperous cities in Brazil.

But the projects that have proved most effective were those inspired by the German economist Silvio Gessell, who became finance minister in Gustav Landauer’s doomed Bavarian republic. He proposed that communities seeking to rescue themselves from economic collapse should issue their own currency. To discourage people from hoarding it, they should impose a fee (called demurrage), which has the same effect as negative interest. The back of each banknote would contain 12 boxes. For the note to remain valid, the owner had to buy a stamp every month and stick it in one of the boxes. It would be withdrawn from circulation after a year. Money of this kind is called stamp scrip: a privately issued currency that becomes less valuable the longer you hold on to it.

One of the first places to experiment with this scheme was the small German town of Schwanenkirchen. In 1923, hyperinflation had caused a credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in Schwanenkirchen, told his workers that if they wouldn’t accept the coal-backed stamp scrip he had invented – the Wara – he would have to close the mine. He promised to exchange it, in the first instance, for food. The scheme immediately took off. It saved both the mine and the town. It was soon adopted by 2,000 corporations across Germany. But in 1931, under pressure from the central bank, the ministry of finance closed the project down, with catastrophic consequences for the communities that had come to depend on it. Lietaer points out that the only remaining option for the German economy was ruthless centralised economic planning. Would Hitler have come to power if the Wara and similar schemes had been allowed to survive?

Full Story: The Guardian

(via Recession Hacking Wiki)

New Currency War article appears in Digital Gold Currency Magazine

January 11, 2009 /

Interesting: my article on alternative currency, first in OVO: Money then here at Technoccult, has been reprinted at Digital Gold Currency Magazine.

Digital Gold Currency Magazine January 2009

Klintron’s 2009 survival strategies

December 29, 2008 /

Meeting more people
Indoor gardening
Excercise & ergonomics
Start using local currency
Committing to solving global problems

Full Story: Klintron’s Brain

Notes from Peter Lamborn Wilson (Hakim Bey)’s Recent Talk on Money

December 22, 2008 /

hakim bey peter lamborn wilson

Clay tablets existed in ancient Mesopotamia. Specie, that is coinage, did not. This is an invention of the ancient peoples of Asia Minor and the Greek Islands. Here we see money gaining a more explicit religious and magickal quality. Gold was plentiful in this area, and is also a malleable metal easy to imprint with both words and images. When temple sacrifices of the local bull cults became so popular that not everyone could get a piece of bull, an ingenius method was reached to give every pilgrim a symbol of involvement in the ritual- the temple token. Rather than a piece of bull, pilgrims were given a small piece of gold with a bull impressed on one face. The two sided coin comes later with an image on one side and a caption on the other. Money becomes qualitatively more magickal with this step, uniting the image and the word into a talismatic object which has a value unrelated to its real value as commodity. It is no longer simply a magickal document recording debt and / or wealth. It is a magickal object whose value comes from belief. As Peter points out: All money is fiat money. Gold has no inherent value. It’s shiny, and makes cool jewelry and all that, but it is not what the anarcho-capitalist types will have you believe, a universal medium of exchange. Sure, it holds value over millenia (particlarly with regard to silver), but there is not reason to use gold more than say, diamonds or uranium or coal or any other commodity in limited supply. Quoth Mr. Wilson: “Money is proof that magick works, it is perhaps the only proof.”

Black Sun Gazette: A Redux Request: Hakim Bey on Money

More potential business models for Twitter

December 19, 2008 /

I did my Five potential business models for Twitter article without searching the web for other ideas deliberately, mostly as an exercis. So now that it’s done I’ve spent some time researching other ideas. Mostly the same old things: ads or selling the company. Here are a couple other ideas I liked:

Charge for having more than 1,000 followers

Charge for business use of the API.

I still like the payment system idea the best.

Hakim Bey speaking in NYC!

December 14, 2008 /

If you’re in NYC, don’t miss this. This is an exceedingly rare opportunity.

The Libertarian Book Club/Anarchist Forum presents…

Tuesday, December 16, at 7:00pm

PETER LAMBORN WILSON’s CHAOS DAY of 2008
THE MAGIC OF MONEY AND THE FUTURE OF CAPITALISM

“The History of Money since Sumeria to its Apotheosis as Pure Imagination in the 21st Century”

Peter Lamborn Wilson on finance as a form of gnosticism, a long historical view of the current crisis, and the prospects for resistance and revolution in the 21st century.

The event will take place at The Living Theatre, 21 Clinton Street, Manhattan (just south of Houston St) (212-792-8050). Coming from uptown, take the F or V train to “2nd Avenue” (exit front of train on 1st Ave, walk east along Houston and turn right on Clinton) or coming from downtown, take the F, V, M or Z train to “Delancey – Essex” and walk east on Delancey three blocks and turn left on Clinton for 2 and a half blocks.

Everybody is welcome and invited to come and to have their say.

There is no set fee for the presentation, but a contribution to aid the LBC is suggested.

If you have questions, contact the Libertarian Book Club/Anarchist Forum, 212-475-7180 or e-mail: roberterler (at) erols.com

Peter Lamborn Wilson is an American political writer, essayist, and poet, known for first proposing the concept of the Temporary Autonomous Zone (TAZ), based on a historical review of pirate utopias. He sometimes writes under the name Hakim Bey.

Via Arthur

On the value of complementary currency

December 10, 2008 /

I was a little surprised at the hostility towards complementary currency over at Cryptogon, and since I can’t comment there I will comment here.

The Milwaulkie Community currency thing is obviously nothing new, LETS and Hours programs have been around for years (and Time Banking even longer than that). Like Kevin points out, you still have to pay taxes on your currency. And although I don’t think paying taxes is the worst thing in the world, the need to pay taxes in fiat causes the biggest obstacles for these currencies: you can’t pay your property taxes with ’em. You also can’t pay your mortgage. So getting food producers and landlords to accept alternative currencies is tough, and I’d wager food and rent are most people’s biggest expenses.

So what’s the point then? First of all, LETS and similar systems are a time tested recession-survival tactic (read this and this). They reduce (but don’t eliminate) dependence on fiat and the central banking system, and have enabled economies to keep doing business when fiat currency dries up. Establishing alternative systems now, and not after true systemic collapse (a la Argentina) is wise.

The more individuals and businesses in a community adopt an alt. currency, the more useful it becomes, Metcalf’s Law style. So over time getting food producers and perhaps even apartment complexes on board is plausible. I’d encourage people starting alternative currencies to target small time gardeners and people w/ basements for rent as starting points.

Of course, the real draw backs can/will come when governments feel their monopoly on currency is threatened. Read my article “the New Currency War” to find out more.

The new currency war

November 12, 2008 /

I originally wrote this in October 2007 and it was first published in OVO: Money. It has become increasingly relevant.

Since the colonial period, the United States has been fighting to control currency. In fact, this battle was part of the foundation of the country. Prior to 1764, colonists issued “Bills of Credit” to deal with a shortage of hard currency. Some were issued by “land banks” and backed by the value of land. Others were merely promises of credit. [1] In 1764 the British Parliment passed the Currency Act, which prohibited the use of these Bills of Credit. This caused significant economic hardship for the colonies, and helped set the stage for the Revolution. [2]

In an 1883 paper called “Ideas for a Science of Good Government,” Peter Cooper wrote (emphasis mine):

After Franklin had explained this [the use of paper money] to the British Government as the real cause of prosperity, they immediately passed laws, forbidding the payment of taxes in that money. This produced such great inconvenience and misery to the people, that it was the principal cause of the Revolution. A far greater reason for a general uprising, than the Tea and Stamp Act, was the taking away of the paper money. [3]

Although Cooper was in favor of government issued currency, he saw the British outlawing of the Bills of Credit as a problem. He opposed the use of these local currencies, but saw them arising out of a failure of the government: “Jefferson, the author of the Declaration of Independence, raised his voice against the curse of the local banks, which were allowed to come into being by the neglect of the Government in the performance of its duty.” [3]

Today, a host of independent currencies are available: from small and local to big and global, and they are all issued to solve perceived problems with government issued currency. But it appears that the government is none too pleased with this competition.

Indie currency

Activists on both the far left and far right of the political spectrum work to create government independent currency solutions, but it seems that the left tend to prefer local currencies. “Community currency is a tool that can help revitalize local economies by encouraging wealth to stay within a community rather than flowing out,” Susan Meeker-Lowry wrote for Z Magazine. “In many communities around the country people are taking control by creating their own currency. This is completely legal and, as organizers are finding, often very empowering.” [4]

The Local Exchange Trading System (LETS), developed in British Columbia in the 80s, is one widely used system. LETS does away with the need for a printed money, acting instead as an interest free credit system. Michael Linton, a computer programmer, created LETS to solve a simple problem: community members “had valuable skills they could offer each other yet had no money. He also saw the limitations of a one-on-one barter system. If a plumber wanted the services of an electrician, but the electrician didn’t need plumbing help, the transaction couldn’t take place.” [4]

LETS solves the problem by issuing credit within the system. In the above example, the plumber would owe a debt to the LETS system, and electrician would be issued credit from the system. The electrician would be able to redeem the credit from another LETS member who is either in debt or wanted credit, and the plumber would be required to make his services available to other LETS members. [4] Many variations of Linton’s original system have been created, and several “how to” kits and manuals are available for purchase, or to download for free from the Internet. [5]

Shifting the focus away from the US for a moment: during the Argentine financial crisis, the national currency of Argentina became practically worthless. [6] To help meet their needs and keep the economy working, many people turned to barter or to local currencies such as the “credito.”  [7] The credito was based, amongst other things, on LETS materials translated into Spanish. Transactions were originally recorded in a notebook, as in LETS, but eventually paper certificates were needed. By 2000, circulation of this currency had reached the equivalent of about $5 million a year. [8]

Argentina illustrates the usefulness of independent currencies when central banks fail. Local currencies, which tend not to cross state lines, seem not to get much attention from the government. I don’t know of any cases of local currencies being shut down by the government.

Towards a more perfect capitalism

Right wing proponents of alternative currencies, however, tend to favor more global forms of exchange. Advocates of “free banking” propose the dissolution of central banks like the Federal Reserve in favor of private banks issuing competing currencies. [9]

The founder of the Internet payment solution PayPal, Peter Thiel, envisioned PayPal as a way to create a more free exchange of currency globally. Thiel hoped people in foreign countries with restrictive money export laws could use PayPal to hold their currency in dollars or other more stable foreign currencies, such as the US dollar [10]. But the proprietors of precious metal backed digital currencies like e-Gold and the Liberty Dollar are more even more ambitious.

Thinkers ranging from Ron Paul [11] to Alan Greenspan [12] advocate a return to the gold standard. But some entrepreneurs act directly by issuing digital currency backed by gold, silver, or other precious metals.

Dr. Douglas Jackson founded e-gold, the first Internet currency backed 100% by precious metals, in 1996. Jackson cites gold’s stability as a currency and the Internet’s natural openness as the reasons for creating an Internet based gold currency. He believes e-gold is currency perfected: stable and market driven. In an interview in Wired in 2002 he called e-gold “probably the greatest benefit to humanity that’s ever been thought of.” [13]

The Liberty Dollar, backed mostly by silver but by other precious metals, is sold by National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code (NORFED). Founder, and former mint master of the Royal Hawaiian Mint Company, Bernard von NotHaus conceived of the currency to compete head-on with the Federal Reserve:

“For years America was saddled with a slow, poor postal service. Finally, Federal Express brought competition to this heavily subsidized government agency that no one though could change. And it responded and improved noticeably. NORFED emulates this model by bringing a superior product to America’s monetary system, its currency.” [14]

NORFED offers coins, certificates that look like something like dollar bills, and an Internet backed currency. Coins and certificates are available through “Regional Currency Offices,” and NORFED actively encourages Liberty Dollar enthusiasts to open their own RCOs and recruit others. [15]

Financial Jihad

Outside the western left/right political spectrum is the another global cultural force: Islam. While the founders of Pay Pal, e-gold, and NORFED believe themselves to be perfecting capitalism with their digital services, the Islamic founders of e-dinar, who formed a partnership with e-gold and at one point hosted 50% of e-gold’s reserve at their vaults in Dubai, believe they are destroying it. [13]

The founders of e-dinar are members of the Murabitun movement, a peculiur form of Sufism. Murabitun followers believe that paper money is haram, unlawful, according to Islamic faith. The founder of the Murabitun movement, Sheikh Abdalqadir, says: “A true study of the Qur’an and the Sunna shows us that capitalism will not be abolished on the battlefield but in the marketplace where it is practiced.” [13]

“Fatwa Concerning the Islamic Prohibition of Using Paper-Money as a Medium of Exchange,” a Murabitun text by Umar Vadillo, states: “After examining all the aspects of paper money, in the Light of the Qur’an and the Sunna, we declare that the use of paper money in any form of exchange is usury and therefore haram” because paper money (and, by extension, credit and debit cards) is “nothing but a pure symbol with no reality attached except the imposition of law.” [13]

Vidillo says: “You want to be radical? You don’t need to blow up the bank, just burn your bank account. For that you need an alternative. What is the alternative? E-dinar.” [13]

The current status of e-dinar is a bit mysterious. e-gold used be partners with e-dinar [[13], but according to e-dinar’s web site e-dinar officially split with e-gold in 2004 after being acquired by an unnamed “Large International Corporation” in 2003. [16]

The state responds

It would seem, though, that the larger reach of global alternatives lead to larger interventions by the government. Of all the major players in independent currency game, e-gold has probably had the worst legal trouble. “In December 2005, the Secret Service and FBI raided the company’s headquarters and seized roughly $800,000 in assets,” according to the Washington Post. [17] This lead e-gold to beef up their security measures, even creating new software designed to detect e-gold customers committing crimes. [18] The new security measures didn’t stop a federal indictment from being leveled against the company in April of 2007. The company was served with 4 indictments, including operating an illegal money transfer operation and money laundering. [17]

Then, on Wednesday May 9th, 2007 the United States government seized the holdings of 58 e-gold accounts, forcing 48 bars of gold to be redeemed for approximately $77 million dollars. As of this writing, all the funds are still in in the US government’s control pending the outcome of lawsuit filed against e-gold’s parent company. [19] However, e-gold and its subsidiary Omnipay maintain business as of this writing.

In 2006 The United States Mint issued a press release stating that circulating Liberty Dollars is a federal crime. The press release implies that Liberty Dollars are deceptively similar to US currency, and that NORFED intends them to be used as legal tender. [20] As of this writing, I am unaware of any case against any persons in the United States for using the Liberty Dollar.

NORFED responded with a civil lawsuit. On March 20, 2007 von NotHaus filed against the US Mint, asking “the court to declare that the use of the Liberty Dollar is not a ‘federal crime,’ as claimed by the U.S. Mint. And the organization further asked the court to enter a permanent injunction against the U.S. Mint requiring it to remove any reference that the use of Liberty Dollars is a federal crime from its website.” [21 As of this writing, the case remains unsettled. But on November 14th, 2007 the situation took another turn: the FBI raided Liberty Dollar on charges of circulating illegal currency, mail fraud, wire fraud, and money laundering. The affidavit also described Liberty Dollar as a “multi-level marketing scheme.”  [22]

Von NotHaus has described the raid as “a direct assault against the US Constitution and your right to own and use gold and silver in any way you chose”  and dismissed the mail fraud, wire fraud and money laundering charges as fantasy. [23]

Pay Pal, eventually burdened with legal problems, banned the use of PayPal for gambling, pornography, and several other uses in 2004. [24]

Conclusion

It is important to note that e-gold and NORFED may well be guilty of the crimes it has been charged with, it remains to be seen how they will come out in court. NORFED and e-gold have many competitors, so the international, gold back Internet currency business continues. However, the struggles of these companies, and the fact that they are being held liable for what their customers use their services for, is illustrative of the control the US government exerts over currency. If the Federal Reserve were held accountable every time legal tender were used in criminal transactions, surely the Fed would have been shut down by now. Why are companies like e-gold held to a different standard? Why are they asked to act as de facto law enforcement?

And all of this raises the question: why is there such a demand for alternative currencies? Shouldn’t the state be spending its time trying to correct the problems the Fed (or shutting it down), instead of trying to shut down those who are trying to solve problems the government is not?

References:

1. ushistory.org “Currency Act,”  http://www.ushistory.org/declaration/related/currencyact.htm Retrieved 10/30/07.

2. u-s-history.com “Currency Act,”  http://www.u-s-history.com/pages/h1212.html Retrieved 10/30/07.

3. Cooper, Peter. “Ideas for a Science of Good Government,”  http://www.u-s-history.com/pages/h1212.html Retrieved 10/30/07.

4. Meeker-Lowry, Susan. “The Potential of Local Currency,”  Z Magazine, July 1995. http://www.zmag.org/ZMag/articles/july95lowry.htm Retrieved 10/30/07.

5. Wikipedia. “Local Exchange Trading System,”  http://en.wikipedia.org/wiki/Local_Exchange_Trading_System Retrieved 10/30/07.

6. Ballvé, Marcello. “Silent Revolution,”  Orion Magazine, July 2006. http://thetake.org/media/The%20Silent%20Revolution.pdf Retrieved 10/30/07.

7. Katel, Peter. “Argentina: the Post Money Economy,”  Time, February 2002. http://www.time.com/time/world/article/0,8599,199474,00.html Retrieved 10/30/07.

8. DeMeulenaere, Stephen. “Reinventing the Market: Alternative Currencies and Community Development in Argentina,”  International Journal of Community Currency Research, 2000. http://www.uea.ac.uk/env/ijccr/pdfs/IJCCR%20Vol%204%20(2000)%203%20DeMeulenaere.pdf Retrieved 10/30/07.

9. Greaves, Bettina Bien. “Market Money and Free Banking,”  The Freeman, October 1999. http://www.fee.org/publications/the-freeman/article.asp?aid=4946 Retrieved 10/30/07.

10. Bodow, Steve. “The Money Shot,”  Wired, September 2001. http://www.wired.com/wired/archive/9.09/paypal_pr.html Retrieved 10/30/07.

11. Ludwig von Mises Institute. “The Case for Gold.”  http://www.mises.org/store/Case-for-Gold-The-P386C0.aspx?AFID=1 Retrieved 10/30/07.

12. Greenspan, Alan. “Gold and Economic Freedom.”  The Objectivist, 1966. http://www.321gold.com/fed/greenspan/1966.html Retrieved 10/30/07.

13. Dibbell, Julien. Wired, January 2002. http://www.wired.com/wired/archive/10.01/egold.html Retrieved 10/30/07.

14. Orzano, Michele. Coin World Magazine, October 1998. http://www.libertydollar.org/news-stories/pdfs/1164902714.pdf Retrieved 10/30/07.

15. Liberty Dollar web site. “Regional Currency Office.”  http://www.libertydollar.org/ld/rco/index.htm Retrieved 10/30/07.

16. e-dinar web site. “History.”  http://www.e-dinar.com/html/3_4.html Retrieved 10/30/07.

17. Krebs, Brian. washingtonpost.com, “U.S.: Online Payment Network Abetted Fraud, Child Pornography,”  May 2007. http://www.washingtonpost.com/wp-dyn/content/article/2007/05/01/AR2007050101291.html Retrieved 10/30/07.

18. Zetter, Kim. Wired News, “E-Gold Gets Tough on Crime,”  December 2006. http://www.wired.com/science/discoveries/news/2006/12/72278 Retrieved 10/30/07.

19. “US Government Forces E-gold Redemptions – Seizes Gold,”  Money Net News, May 2007. http://www.moneynetnews.com/articles/54/1/US-Government-Forces-E-gold-Redemp Retrieved 10/30/07.

20.US Mint web site. “Liberty Dollars Not Legal Tender, United States Mint Warns Consumers.”  http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&id=710 Retrieved 10/30/07.

21. Liberty Dollar web site. “Legal Updates.”  http://www.libertydollar.org/ld/legal/updates.htm Retrieved 10/30/07.

22. Taylor, Jeff. Reason Magazine web site,”Your Liberty Dollar Raid Update.”  November 2007. http://www.reason.com/blog/show/123553.html Retrieved 7/24/07.

23. Liberty Dollar web site. “FBI Raid on the Liberty Dollar.”  November 2007. http://www.libertydollar.org/ld/legal/raid.htm Retrieved 7/24/07.

24.Balko, Radley. Reason Magazine,”Who Killed Pay Pal?”  August 2005. http://www.reason.com/news/show/33114.html Retrieved 10/30/07.

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