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MD: We see a lot of articles that try to parse money and prices. There isn’t just one money. There isn’t just one kind of price. Let’s see if that’s what is going on here.
By: Steffani Cameron
Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
RelatedDifference Between a Bank Draft and a Certified Check
While there are times when businesses barter and trade services for goods or vice versa, most business is conducted on the exchange of money. Everyday, people and companies issue orders to pay and promises to pay. They sound alike, and are both considered negotiable instruments, but they differ.
MD: What makes an instrument “negotiable”? Is it a legal thing? Is it a lore thing? Is it a private agreement thing? Is it an association thing?
What Is a Promise to Pay?
Also called a promissory note, the most common example of a promise to pay is a utilities agreement. But loaning money to a friend or family can also be considered a promise to pay, since the stipulation in your loaning the money is that the person has promised to repay it. While oral promises to pay can technically be enforced by courts, it’s always better to issue a promissory note in writing to protect yourself. After all, your car loan, mortgage and every other loan or payment plan you’ve agreed to is in writing for good reason.
MD: What is it about a “utilities agreement” that gives it the distinction of “a promise to pay”. Is it because I use the good or service “before” I actually pay for it? If that is the case, we at MD know that would be considered money creation…just as if a credit card was used. And we distinguish this from a pre-payment (which is a debit card) or a retainer (which pays lawyers before they deliver services.)
Promissory notes can also be referred to as just “notes,” and typically, only two parties are involved. There’s the maker, who is the person borrowing the money or promising to pay money in exchange for a product, service or ongoing service. Two, there’s the payee, who is the person, company or institution to whom money is promised to be paid. For example, if you sign a promise to pay agreement with a Verizon sales kiosk, you are the maker of the agreement or note, and the kiosk company is the payee that will receive payments you’ve promised to make at designated intervals.
MD: So a “promissory note” has the notion of a “borrower” and a “lender”? Why do they call the borrower a “maker”? Could it be because a “promise is being made”? And they call the “lender” a “payee”? Is a lawyer’s retainer a “promissory note”? Are we to confuse what’s going on here as “money creation”? Of course not. You can’t take any paper related to this agreement and trade it for a candy bar. That’s the sub-minimal test.
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Meeting the terms of agreement with most promissory notes should be clearly explained in the note. If you go to Verizon.com to pay online and you pay that month’s bill in full, you’ve met the terms of your promise to pay – for that month, anyhow.
MD: And the “terms of the money creating promise” clearly explains the promise and “who” is making it…and the agreed delivery terms. The “real” money process implicitly set’s the terms of the obligation…which are universal…no individual trader gets special terms…i.e. no individual trader gets special treatment regarding forgiveness or acceleration of the promise. But it’s important to remember, a “real” money process mitigates DEFAULTs immediately with INTEREST collections of like amount? Who pays the interest? Irresponsible traders (those new to the process or who have a record of DEFAULT). And those new to the process who deliver responsibility get their INTEREST payments returned to them, and they are applied to other new and/or irresponsible traders. The process, like any chemical process, requires a continuous flow and minute monitoring and adjustment. It’s a perpetual automatic negative feedback system…which is always stable.
What makes a promissory note different from an actual loan contract is that a loan contract is more regimented in details. For instance, your car loan payment is for $469 monthly. It doesn’t fluctuate. On the other hand, perhaps your Verizon contract includes a monthly installment of $229 for your new iPhone, but while the base plan is consistent, calling totals and add-ons for your bill can fluctuate monthly. So, your agreement is that you promise to pay the monthly charges as indicated by a bill issued on or after a specific date monthly.
MD: And what is it about a “promissory note” that requires a “more regimented set of details”? Here’s where the parsing begins. Note, the Verizon contract is really two separate trading elements…neither of which are money creating elements. You promise to buy the phone with regular monthly payments. You agree to pay for the service monthly for a specified term. But here again, neither of these are “money creation”. You can’t exchange the promise or any part of it for a candy bar…not ever. You may be able to trade it to someone else for money…but it is never money itself. Alternately, if the customer creates money in the “real” money process, he can use that to trade with the vendor. Once that’s done, the trade with the vendor is complete. But the trade with the “real money process” is just beginning.
What is an Order to Pay?
Also called a “draft,” this negotiable instrument is an order to pay money as opposed to a promise to pay. These can also be referred to as an “order paper” or “order instrument.” Examples of orders can be a check or a bill of exchange. Have you ever noticed that a personal check states “Pay to the order of” before the payee line? If you’re written in as the payee, once that check is presented to the bank, the bank has been ordered to pay you.
MD: First, the “pay to the order of” is not distinctive from “pay by order to”. In fact, the latter would be more appropriate as the example is of the “bank” being ordered “by the bank’s depositor” to make the payment. They’re called “demand deposits”. Curiously that common nomenclature is not referenced here.
Does an “order to pay” mean force may be applied…and that’s distinctive from a “promise to pay” because delivery on a promise can’t be forced? Here’s where a “real” money process has to reflect some experience. It can’t demand sale of a house if you fail to make a payment on time. It can demand sale of a house if you obviously have no intention of making up payments.
We can probably learn much from those gaining experience with Full Self Driving (FSD). They’ve been calling this Artificial Intelligence (AI). But no “intelligence” is ever built. Rather, “experience” is perpetually collected. If a “real” money process is using these techniques in monitoring delivery on promises, in time it will distinguish between a deadbeat, and a trader who has just stumbled. One attribute to be noted might be the trader’s previous stumbling incidents and history of ultimately delivering. Since money has no “time value”, time is “not” of the essence. And since “everyone is able to watch”, that brings another measurable attribute into the process.
Like FSD, a RMP (Real Money Process) will learn from experience…successes and failures. One thing is certain. The FSD will minimize collisions. The RMP will minimize (and immediately mitigate) DEFAULTs.
There are typically three parties involved in an order to pay. There’s the payee, the person to whom the funds are to be paid. Then there’s the drawer, that is, the person who fills out or at least signs the check. Finally, there’s the financial institution that will issue the funds to the drawee of the check, the person who endorses and deposits or cashes it.
MD: And none of these are money. While I can write a check, you don’t have to go to my bank to get money for it. You can “deposit” it in your bank and write a check against it there. Or you can get cash from your bank. This is because all banks form a collective. They have a “clearing house” that does all this record keeping. In the USA since 1913 the banks have been chartered by the FED. That system has been “gamed” from its inception. First, it gives the banks their 10x leverage privilege. Further, beyond just reconciling and clearing transactions, it has taken upon itself to control the economy…i.e. to have full employment and a 2% inflation target…while being totally unable to affect employment and delivering 4% inflation on average. It “is” the scam. A “Real money process” will compete the FED out of existence.
An order to pay, such as a check, must be endorsed, or signed, to receive funds. But once a check has been endorsed by the payee, it becomes a “bearer instrument” rather than an order instrument. This means, anyone who bears or holds the check is now legally able to receive the funds. Today, most checks no longer need endorsing if they are deposited through an ATM. Otherwise, they can be signed at the last moment when depositing or cashing through a bank employee. To stay safe, never endorse order instruments until it’s time to get paid.
MD: And this implies “controlled authentication”. And it is weak beyond belief. Very little scrutiny is made of the signature…and when it is, it is not by a professional. You can easily forge a signature. In the case of a dispute, the bank finds ways to say they weren’t at fault. But such forgeries are common in the current systems. Governments don’t even sign their checks. Rather, they use the signature as “advertisement” of someone holding government office. And governments are openly “counterfeiting”. They never pay that check. They just collect them and periodically “borrow” from the FED (who has nothing to loan) to cover the payments. And they use that borrowing to pay back previous borrowing. They just “roll over the debt”. And that’s DEFAULT. And none of the taxes that government collects goes to payment of those checks. Rather it “all” goes to paying the FED (i.e. the money-changers) INTEREST on so-called “loans” of money they never had in the first place. It’s a brilliant con…and it gets competed out of existence by a “real money process”
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