Paper wealth, or, we’re going to Disneyland
November 12, 2015 § 23 Comments
People find paper or electronically recorded securities counterintuitive. Why the heck does anyone value pieces of paper with ink on them, or numbers in computer memory? Why the heck is anyone willing to trade a real working car in exchange for numeric balances stored by software in a data center somewhere?
In the Zombie Apocalypse legal title isn’t worth the paper upon which it is written, or the bits in which it is recorded. But short of the Zombie Apocalypse, securities have value because under the laws of the sovereign they entitle you – the owner or bearer of the security – to something other than the security itself.
The title to your car entitles you to your car.
The title to your house entitles you to your house.
Bank deposits entitle you to cash on demand up to the deposit amount through liquidation of some of the property on the bank’s balance sheet.
Exxon stock entitles you to proportional profits and residual liquidation value in Exxon.
A non-usurious note or interest-bearing bond entitles you to census payments against property and liquidation value of that property up to the principal amount of the note.
A usurious note entitles[1] you to the enslavement of the person making the personal guarantee until the principal and interest demands of the note are satisfied.
Self-referential securities entitle you to run around in circles looking for the thing of value to which you think you are entitled. It must be somewhere!
And a sovereign dollar entitles you to make a transaction, in the sovereign’s marketplaces, for which the tax is one sovereign dollar.
It is manifest (whether folks like it or not, because nature doesn’t reconfigure itself based on what people don’t like) that the sovereign ‘owns’ various marketplaces, because he makes and enforces the rules for transacting – for bartering property and labor – in those marketplaces which fall under his sovereignty. Just as Exxon owns its capital infrastructure, the sovereign owns the outer capital infrastructure in which Exxon operates and transacts. Economic reality is not reducible to nothing but private property.
If you go to Disneyland, you have to follow the rules of Disneyland. If the rules say you have to pay ten Mouse Groats for every transaction in Disneyland, you’ll need Mouse Groats if you want to transact in Disneyland. If the tax rules are more complicated than that you’ll still need Mouse Groats based on the transacting you want to do, the tax rules, and the supply of Mouse Groats. Mouse Groats are a securitization of Disney’s ownership of the marketplace in which you are transacting.
And it is all fun and games until the zombies come.
[1] Of course, as an intrinsically immoral case of usury this entitlement may be enforced by the positive law, but it is not a genuine moral entitlement.
Zippy Catholic 
I think you’re right, but allow me to quibble just a bit. A “title” is a legal status (usually, but not always, ownership) with respect to to something: house, car, whatever. The ink on paper is a certificate of title, a document intended to prove that someone has title to something. The legal right does not flow from the document.
I could lose the certificate of title to my house and it wouldn’t change my rights to it.
Frank Brown:
That is a perfectly valid quibble, and is even substantively pertinent because there is a difference between a mere recording of an entitlement and a bearer security, where the legal entitlement with the latter actually does flow from possession of the security itself.
But in terms of simplifying editorial choices for a general audience, many of whom have very little or no financial experience at all, I guess I’m willing to live with conflating certificates of title and bearer securities, just as I kind of gloss over ‘owner or bearer’.
Sometimes when I get too precise in what I say that makes some folks zone out, in short. So you are quite right, but I’m willing to live with the imprecision for editorial reasons and I don’t think it substantively alters the concepts I’m trying to get across.
Have you written a book yet? I’m really enjoying your stuff. But, as I’m relatively new to your blog, and you tend to link to your own prior posts so often, it takes me an awfully long time to follow one thought all the way through, and come back to where I started. One big document that I could go through beginning to end would be nifty.
Also, have you created a reading list? I’ve got a few titles under my belt (“Small is Beautiful”, a couple of Leo XIII encyclicals). I minored in economics at Generic State U years ago and work in insurance, but don’t have much education in the Catholic understanding of economics, finance, business, etc. I know just enough to irritate my very Republican friends, but I’m not very eloquent.
If the Federal Reserve Note of the United States is the reserve currency of the world, meaning the currency of last resort to settle transactions in any marketplace, does that mean that the United States Federal Government is the sovereign of all marketplaces worldwide – implying, therefore, that the United States owns the world?
Some guy:
It is not that by sovereign law; so if the characterization is accurate, it must be the case because of the choices of market actors.
No. It just means that the world views US marketplaces under US sovereignty as the most stable and trustworthy custodians of property.
and you tend to link to your own prior posts so often, it takes me an awfully long time to follow one thought all the way through, and come back to where I started.
Stick around. I’ve been here so long I know which post he’s linking to before I hover over the link.
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