Sunday, January 17, 2010

Mobile Money Turns Kenya into Global Transfers Hub

By Kui Kinyanjui
Business Daily
Sunday, January 10, 2010

http://www.businessdailyafrica.com/Company%20Industry/-/539550/839374/-/t55ax8z/-/

As the mobile phone sector stands poised to pose its stiffest challenge yet to the financial sector in the coming months, the country’s profile as the world’s innovation hub in the mobile finances market is on the rise.

Kenya is to mobile money solutions what Silicon Valley was to software in the last decade and companies are taking advantage of that to use the country as a testing ground for solutions they hope will translate into global success.

Analysts attribute the fact that at least five international companies— ranging from financial institutions to mobile phone manufacturers and service providers — are putting the final touches to what they hope will be financial masterpieces to rival M-pesa —Safaricom’s mobile money transfer solution that shifted the balance of power in the financial world with its launch nearly three years ago.

Within that short span, the country has emerged as the seat of innovation as other players try to replicate the success of M-pesa in capturing and retaining subscribers for Safaricom, the country’s leading mobile services provider and most profitable company in East Africa.

Countries such as Kenya, the Philippines, Tanzania, Uganda and Sudan form the world’s mobile money hotspots, with states like Ethiopia and Somalia following closely behind, said Norman Frankel, the founder and CEO of Mi-Pay, a Sudanese mobile money transfer company while speaking to industry journal MMT Explained.

“If you look at the World Bank Remittance Factbook and identify countries with a low percentage of the population who emigrate but with strong urban migration trends, you’ll see these countries embracing mobile money faster,” he said.

Of these, Kenya plays host to the greatest number of mobile money products, and with over eight million users of the services, has the distinction of recruiting the highest number of subscribers to the mobile money phenomenon.

Innovation in the Kenyan mobile money scene has progressed so fast that it is a long while since March 2007 when Vodafone, the world’s leading mobile services provider which owns 40 per cent of Safaricom, picked its Kenyan subsidiary to pilot what has essentially become the preferred medium of person-to-person transfers; creating new means to settle utility bills and enlisting commercial enterprises (over 75 to date) keen to avoid the security pitfalls of handling cash and the risk of bouncing cheques.

“M-pesa has served as a testing ground for mobile money transfer systems and processes and the eyes of much of the world has been on it. The success of M-pesa has acted as a starter’s pistol for a race to gain the upper hand in mobile money transfers throughout Africa, with at least half a dozen contenders already in the wings,” said Arthur Glodstuck, an industry analyst in an interview.

The race is now on to convert the citizens of other African countries to adapt to the new mobile world order.

Standard Bank, Africa’s largest bank by assets and earnings, is said to have set up a desk to specifically draft a strategy for reaching the unbanked in the continent through mobile handsets. It is anticipated that it will utilize its Mzansi Money Transfer solution to allow customers in the 17 African countries it operates in to send and receive money without the need for a bank account. In South Africa, where the service is available, it is not just restricted to Standard Bank branches, but is available at any of the participating banks and the South African Post Office. The bank says on its website that Mzansi will be of special help to people in rural areas who can now receive money sent by relatives and friends at a bank without needing to have a bank account and it will also target migrant workers wishing to send money to their dependants back home. Its product would be a close fit to Mobile Wallet, a universal (independent of one’s bank and mobile services network) service that Kenya Commercial Bank (KCB), East Africa’s biggest retail bank hopes to roll out in the East African Community member states of Kenya, Uganda, Tanzania, Rwanda and Burundi.

According to information seen by Business Daily, although the service appears to be targeting the unbanked, its features and structure may appeal to an urban middle class target, possibly crafted with the small and medium enterprise business segment in mind.

Subscribers will be able to transfer up to Sh100,000 from virtual accounts held on their mobile phones, but notably, the money has to be cashed in one of KCB’s 200 outlets in the region

Meanwhile, mobile phone manufacturer Nokia has also announced its intention to launch a cross-network mobile money transfer product in conjunction with Obopay in the coming months.

Although the company is keeping its Kenyan launch date close to its chest, it is reportedly hunting for agents in the region, hoping to launch an assault that will place it at the forefront of regional developments that have seen the harmonisation of the East African region. Nokia will rely heavily on its affiliation to Obopay, an American mobile solutions provider to implement its service in the course of this year.

Obopay helps wireless carriers deliver a robust mobile payments platform easier, faster, and at less-cost than they could build and operate themselves, helping them streamline and manage complex financial services regulations. Obopay partners with wireless providers to deliver a mobile payment infrastructure to deliver additional services more cheaply and in a shorter period.

Carriers can then focus on increasing ARPU and customer loyalty and monetize, maintain and extend their customer base.

Obopay has also indicated that it will be partnering with Kenya’s fourth mobile service provider Essar, to release YuCash, which was announced for launch in the dying weeks of 2009. Although the company announced last December that it intended to launch the product in early January, it is yet to commercially begin services and Yu agents Business Daily spoke to said they were unaware of it.

“Obopay will provide the mobile money transfer platform from which yuCash will operate, while Equity Bank, being one of the leading banks in Kenya, is our banking partner hosting the trust account. We are rolling out a countrywide network of agents and anticipate to have more than 3,000 agents countrywide who are able to serve subscribers in the initial period, and this will keep growing with the market demand,” said Kunal Ramteke, Chief Commercial Officer of Essar Kenya. Srinivasha Iyengar, Essar CEO told Business Daily in a previous interview that the product was being positioned to capture a share of the youth market and the company was deliberately pricing it well below M-pesa’s transaction fees to capture a younger but less monied customer.

Mr Iyengar also indicated his firm was keen to roll out the service in new markets such as Uganda and Congo, where Essar recently announced stakes in Warid Telecom.

For Safaricom’s arch rival Zain, the changing mobile money landscape has forced the firm to rethink the strategy governing Zap, the only contender within the mobile market for subscriber attentions in the Kenyan money transfer market.

Zain last week extended its mobile money transfer product Zap to three more African countries —Malawi, Niger and Sierra Leone — bringing to seven the number of African countries the service is already in use after Kenya, Uganda, Tanzania and Ghana.

In all markets where it has launched Zap, the company is facing increasing challenges in maintaining profits as competition drives tariffs downwards and shrinks profit margins.

Like Safaricom, Zain is positioning Zap as a ‘stickiness’ product used to retain subscribers on its network by building stronger ties to the network.

Rounding out the list of M-Pesa competitors is mobile operator MTN, Africa’s biggest mobile operator by subscribers which is banking $9.7 million on mobile money solutions.

The mobile firm has signed a deal with Fundamo, a South Africa-based mobile banking and payment solutions group to provide mobile banking facilities.

Already commercially active in Uganda and Ghana, MTN’s Mobile Money begun trials in October 2008 in Uganda, Cameroon, Ghana, Cote d’Ivoire and Nigeria. Five additional pilots were recently launched in Benin, Congo Brazzaville, Guinea Bissau, Guinea Conakry and Liberia. In each market, MTN will partner with local banks to ensure that its MMT services are fully compliant with financial services regulations. Discussions are currently on-going with relevant authorities in various countries to ensure that all regulatory requirements are met.

For further reading:
"Kenya: Taking money out of banks' hands – with cellphones", The Christian Science Monitor, January 6, 2010
"Mobile Phone Practices & The Design of Mobile Money Services for Emerging Markets", Jan Chipchase, December 2009
"M-PESA update", David Birch, Digital Money Forum, December 30, 2009
"Mobile Money: The Economics of M‐PESA", William Jack and Tavneet Suri, October 2009
"What you don’t know about M-PESA", Olga Morawczynski, July 14, 2009
"Why Central Bank position on mobile banking attracts wrath", The Standard, June 2, 2009
"Why has M-PESA become so popular in Kenya?", Jim Rosenberg, June 17, 2008
"M-PESA:Mobile Money for the 'Unbanked'", Nick Hughes and Susie Lonie, Innovations, Winter/Spring 2007

Saturday, January 16, 2010

Mobile Payments Only a Threat to Cash If Anonymous

By Nicole Sturgill
Counting Currency
Friday, January 15, 2010

http://countingoncurrency.com/wp/2010/01/15/mobile-transfers-%E2%80%93-will-they-live-up-to-the-hype/

On January 6, American Banker published an article entitled Mobile Transfers Taking Aim at Cash Payments. It was really an excellent article on some of the new mobile peer-to-peer (P2P) transfer offerings coming to the market in the near future. The article also outlined some of the pricing strategies currently being tested or implemented at a number of financial institutions.

Many of you have heard me speak on the future of cash and have heard me say that the only real threat to cash on the horizon is contactless payments. Cash is primarily used for small purchases and contactless payments are meant specifically for small purchases. You’ve also heard me say that it will be 3-5 years before the infrastructure and pricing is in place to make any real dent in cash usage and I still believe that.

I suppose that one could start a “cash threat” list by adding mobile P2P transfers to contactless payments. P2P transfers are an extremely useful tool and are already in place in much of the world – and not just via PayPal. When I moved back to the US from the UK in 2007, I was shocked that I was unable to move money from my account to another person’s account through my bank. After being able to do it for 2 years in London, I just assumed that it would be deployed in the US when I returned. But no – we’re still talking about it and trying to figure out the best deployment method while the average consumer is using PayPal to do exactly what we keep talking about.

There are two primary issues to be worked out. The first is determining which accounts to use to move money. Some services require you to set up separate accounts that are funded by a bank account to facilitate the transfer. The receiver also has a separate account from which the money can be moved to their bank account. The good news is that, according to the article, we’re on track to take care of this problem by eliminating those middle accounts and going directly between bank accounts.

The second issue is on pricing. There has been a lot of talk about the tolerance of consumers to pay for P2P transfers. I believe that this is wishful thinking. For consumer to business, sure, perhaps the merchant will be willing to absorb some charges. But consumer to consumer? We’re all consumers. Why would we do that?

If you lose the March Madness pool (yes, my mind is already going there) at the office, will you be willing to pay a surcharge to send money to the winner? If you are paying the babysitter or are paying your brother back for picking up takeout, will one of them be willing to pick up the small fee or are you willing to pay it? Or more likely, will you just give him/her a check? Or pay in cash?

As long as there are free payment mechanisms, fee-based P2P transfers don’t stand a chance for widespread uptake. And as long as that’s the case, the threat to cash is minimal. And don’t even get me started on the lack of anonymity….

For further reading:
"Businesses will benefit from mobile payments", Chris Harnick, Mobile Commerce Daily, January 15, 2010
"Barbarians at the Gate: The Coming Disruption of Retail Banking", Patrick Gauthier, January 12, 2010
"Mobile payments for virtual goods to grow exponentially in 2010", Dan Butcher, Mobile Commerce Daily, January 5, 2010
"Mobile Payments: A White Paper", Microsoft and M-Com, September 16, 2009
"Mobile Payment", Elham Ramezani, June 2008
"Mobile Payment Systems and Services: An Introduction", Mahil Carr, March 2007

Friday, January 15, 2010

Chavez to Use Virtual Currency for Some Trade

By Christopher Toothaker
The Associated Press
Thursday, January 14, 2010

http://www.huffingtonpost.com/huff-wires/20100114/lt-venezuela-leftist-bloc/

Venezuela plans to start using a new virtual currency this week to facilitate trade with a bloc of allies in Latin America and the Caribbean that President Hugo Chavez has assembled to counter U.S. influence in the region.

Chavez has hailed the electronic currency -- dubbed the Sucre and valued at $1.25 -- as a unique means of helping Venezuela, Cuba and other allied countries reduce their dependence on the U.S. dollar for commerce.

The Sucre was officially launched by Venezuela's government with a law's publication in the Official Gazette on Wednesday. Sucre is a Spanish acronym for the Unified Regional Compensation System.

It is to be used between members of the Bolivarian Alternative for the Nations of Our America, or ALBA, a leftist bloc that also includes Cuba, Bolivia, Nicaragua, Ecuador, Dominica, Antigua and Barbuda, and St. Vincent and the Grenadines. Venezuela and Cuba started the group as a socialist-oriented trade alliance in 2004.

Analysts say the electronic trading mechanism won't significantly diminish the reliance of ALBA members on the U.S. dollar because commerce within the bloc is minimal.

The Sucre won't be printed or coined; instead, it will be used solely as a virtual currency to manage debts between governments.

Venezuela's finance minister, Ali Rodriguez, said Wednesday that Chavez's government plans to make its first transaction using the Sucre this week, when it purchases rice from Cuba. The state news agency reported that he called it a way "to break the dependence on the dollar" in trade.

Jose Guerra, an economist and former manager at Venezuela's Central Bank, said the Sucre "isn't going to have a major impact for the members of the ALBA" because the bulk of their trade is centered on trade with the United States and the European Union.

"Chavez says his allies will have a true alternative to the dollar, but it's impossible to substitute the dollar," Guerra said.

Guerra estimates that about 2 percent of the oil-producing country's exports are shipped to ALBA-member nations, and about 2.1 percent of its imports come from members of the trade bloc.

The United States remains Venezuela's No. 1 trade partner, with annual trade reaching more than $20 billion last year despite the often-rocky diplomatic relations between Caracas and Washington.

In comparison, Venezuela's trade with communist-led Cuba -- the South American nation's most active trade partner within the ALBA -- is roughly $3.6 billion, according to estimates by Jorge Pinon, an energy fellow at the University of Miami's Center for Hemispheric Policy.

Pinon said putting the Sucre into use is mostly a symbolic act.

"It's essentially an electronic price-transfer mechanism that really doesn't have any important economic impact," Pinon said. "The amount of trade between these countries using the Sucre will be limited. It's more political than anything else."

For further reading:
"Chavez’s Anti-Dollar Currency to Debut at $1.25", Bloomberg, January 14, 2010

Thursday, January 14, 2010

Gaming for Profits: Real Money from Virtual Worlds

By Richard Heeks
Scientific American
Monday, January 4, 2010

http://www.scientificamerican.com/article.cfm?id=real-money-from-virtual-worlds

Online fantasy games enable developing world entrepreneurs to make a living by trading stashes of make-believe gold for hard cash

It sounds like a digital alchemist’s question. How do you turn virtual gold into the real item? Hundreds of thousands of “gold farmers” in developing countries have found a lucrative answer. They have become entrepreneurs who make their living by profiting from online games. By assuming fantasy roles in these games, they kill monsters, mine ore or engage in other activities that earn “virtual gold” that they then sell to other players, often in rich nations, for real-world currency. Although it flaunts the rules of the game, buyers and sellers of this make-believe currency use the gold to determine the fate of a character in these fantasy games.

A gold farmer in China who plays games and sells virtual currency can earn the same wage and, sometimes, more than might be paid for assembling toys in a factory for 12 hours a day. As a result, this activity has emerged in the past 10 years as an ingenious, though controversial, way for poorer nations to earn money from information and communications technologies and a way for impoverished workers to build digital skills that might be later transferred to other information technology jobs unrelated to game playing.

In just a few years gold farming has become a vast enterprise. A best estimate suggests that Asia, and particularly China, where most of the gold farmers reside, employs more than 400,000 players who spend their days stocking up on gold. Total annual trade in virtual gold probably amounts to at least $1 billion. Perhaps as many as 10 million players worldwide buy gold or services from farmers that help them advance in the game.

Once almost invisible to nongamers, gold farming now draws considerable attention from economists and sociologists as a nexus where rich and poor, real and virtual intersect. In recent years academics and popular media have developed a fascination for the dynamics of games that represent tiny worlds in fast forward—the fates of players and groups rise and fall in a matter of days and weeks rather than the decades or centuries that represent a human lifespan or an entire society. I became interested in gold farming after encountering virtual gold merchants while playing online fantasy games. The relation of this endeavor to international development, my field of expertise, led me to a new line of research exploring the sociology and economics of gold farming.

How It Works
The grassroots gold farming industry exists on the periphery of the world of online games known as MMORPGs (massively multiplayer online role-playing games) such as World of Warcraft and EverQuest II. Not only do these games create a virtual world on-screen for their players—one with houses, landscapes and fantasy characters (including dwarfs and trolls)—they also have a virtual economy.

The make-believe gold of gamers buys new armor and weapons, food and medicine, a faster horse or a better-equipped spaceship, depending on the game’s particular imaginary milieu. By killing monsters and other adversaries, mining ore, cutting timber, and so forth, players can build up their own store of gold. As in the real world, getting rich can be a tedious process that may take weeks or months. Thus, many players possessing real-world wealth have turned to an alternative. They do what people often do when faced with cleaning their houses or washing their cars: they get someone—gold farmers instead of domestic servants—to do their dirty work.

After farmers stockpile currency, they typically sell the virtual riches for real money on one of thousands of Web sites that market virtual merchandise for use in game play. The transaction is consummated through PayPal or other services that transfer payments online to gold farming firms, and it amounts to buying foreign exchange in a virtual world. In World of Warcraft, currently the game most subscribed to, 1,000 gold units retail for around $10, which is about the same as the yen-to-dollar exchange rate.

Once the real-money payment has taken place, buyer and seller meet at a designated rendezvous point in the fantasy world, where a farmer gives the virtual currency to the buyer. Although farmers make most of their money by selling gold, they can also engage in “power leveling.” They take over a client’s low-level (weak, poorly skilled) game character and build it up to high levels of health, strength and skill. Getting a boost from level one to level 50 in Lord of the Rings Online costs around $150. Sometimes, instead of assuming a client’s character, farmers serve as escorts that accompany players through dangerous or difficult tasks—the equivalent of hiring Sherpas to ascend Himalayan peaks.

Prehistory of Virtual Agriculture
Trade in virtual gold equals perhaps half of the revenues that game companies themselves earn in player subscriptions, which constitute a gamer’s initial outlay. How did we arrive at this point? Through my studies, I discovered that the gold farming industry has developed in much the same way as real-world economies, beginning with barter and evolving eventually into a complex web of global trade.

MUD (Multi-User Dungeon), introduced in 1978 at the University of Essex in England, was the first MMORPG. Generally seen as the key forerunner for modern online games, the original MUD and its early descendants allowed multiple players to assemble in an online world, albeit one that conveyed information about characters, players and objects solely in text. In the scheme of economic development, MUD players represented the equivalent of subsistence farmers in preindustrial society. Players produced and consumed items only for themselves.

Just as in a typical subsistence community, barter began to appear for valued game items. If I picked up an extra amber necklace and you had an extra longsword, we might arrange to swap. (Male players also reportedly donated rare items to female players in the probably unfulfilled hope of an emotional or physical payback.) Barter began to include exchange of game gold pieces, and at some point in the 1980s it made the leap from game currency to real currency. Players started offering hard cash for intangible items. In economic terms, virtual commodities had become “monetized,” and the term “real-money trading” (RMT) today describes the exchange of cash for virtual currency, ob­jects or services.

Real-money trading of virtual items trundled along during the 1980s and 1990s. One might call players of that era “gold-market gardeners.” Moving up from bartering, they sold virtual gold on the side, just as a factory laborer might cultivate a vegetable garden in the backyard and sell the produce to earn some extra cash. These players still focused primarily on the game’s recreational aspects. And part-timers who make an odd buck by selling surplus items or characters can still be found today in the cybercafes of India and Indonesia.

Two things happened in 1997 to move this economic backwater to the next stage of virtual industrial development. The first was the launch of Ultima Online, which became the original truly mass-subscription online game. The second was the start of eBay, offering a low-cost way for items to be traded. The gold-market gardeners gradually realized they could make more than occasional pocket money. They began to specialize in obtaining game items and currency that they could sell, focusing only on their specialty game, and, in some cases, abandoning other occupations to seek virtual gold full-time. These players, mainly based in Western countries, became the first true gold farmers. They were the equivalent of an individual artisan or cottage industry model of production. Whenever a new online game was launched, currency and weapons or other items would be available for sale on eBay within a few weeks.

The year 1997 also witnessed the Asian currency crisis, an event that laid the foundation for the current gold farming industry. Asian governments sought to spend their way out of the crisis by investing heavily in information and communications technologies, including broadband. Some of the unemployed set up new businesses such as public kiosks that rented time on personal computers for game playing, which helped to foster a strong games culture in East Asia.

The Golden Age of Gold Farming
By 2001 some of the more entrepreneurial U.S. gold farmers had started recruiting friends or even hiring staff to make money from this new trade. A few farmers—often with overseas family connections—looked further afield at low-cost locations such as Latin America and Asia. At the same time, South Koreans began to convert their cybercafes to gold-farming establishments for the medieval fantasy game Lineage, the first MMORPG from a non-Western country. Soon traders began to sell the game currency, called adena, to other players.

As gold-trading firms grew in the U.S. and Asia, they followed the example of Walmart and other companies, as they looked to cut costs by outsourcing their basic supply operations. Their natural focus was East Asia, with its ready pool of low-cost labor that was skilled or readily trainable and its growing broadband infrastructure. Because of the size and skill of its labor force, China was the most attractive location, making it the global focal point for gold farming. In 2004 huge growth and profits for gold farmers arrived with the release of World of Warcraft, which became the most successful MMORPG ever. By 2010 an estimated 11 million subscribers had assumed the role of a character and embarked on adventures in the fantasy world of Azeroth.

The largest gold farms have become increasingly specialized, just as agriculture or manufacturing does in any advanced industrial society. Different players at a farming firm often assume different roles within a particular game: hunters may be responsible for tracking down and killing monsters. Bankers might store assets and “mule” them from one place to another. “Barkers” advertise gold farming services to other players. Moreover, independent traders have begun to use the services of gold farmers to make money without ever actually playing a game. They have started to buy and sell characters or game implements as if they were Wall Street financial instruments. A trader will, say, buy an account linked to a particular character, employ the services of a gold farmer to raise it to a higher level, and then sell it to an interested player for a profit.

A crisis took shape in gold farming in the mid-2000s, along with the global housing and financial bubble. The leading firm IGE (Internet Gaming Entertainment), acting as a broker between gold farmers in China and Western players, earned between $10 million and $20 million a month and paid salaries in the millions of dollars to its senior staff. A single Chinese gold farmer reportedly made $1.3 million over a two-year period. Individual items sold for as much as $20,000. But from 2005 to 2009 virtual currencies devalued by 85 percent against the U.S. dollar. Research at the University of Manchester’s Center for Development Informatics, which I direct, showed that the gold bubble popped when too many entrepreneurs entered the market. Gold farming still flourishes. In recent years, though, gold-farming operations have begun to seek out even lower-cost locations for their businesses, spurring the growth of start-ups in Vietnam.

An Emerging Backlash
Gold farming has become a contentious practice because amassing game currency and selling it for real dollars explicitly violates the rules of play. The companies that market online games have tried to put a stop to the marketing of gold by taking measures such as banning individual players or initiating lawsuits.

Apart from legal questions, some players view gold farming as patently unfair because it shortcuts the time-consuming task of aggregating wealth and gradually ascending to higher levels of game play. Also, gold farming can create a distraction for players, in the same way that e-mail spam does. It may be hard to imagine yourself as a medieval knight defending your kingdom if you are being bombarded by exhortations that pop up on the computer screen to view various Web addresses to buy gold.

During the early years game companies and mainstream players treated gold farming as a minor irritant. But as it grew into a thriving enterprise, that attitude changed. The companies responded by introducing low-level disruptions: random events that attack and kill “bots” (characters that perform automated, repetitive tasks, such as mining ore, without direct player control); “nerfing”—downgrading or removing items or game activities that gold farmers utilize; banning of farmers’ game accounts; and, finally, “patching,” which introduces new game software code, that, for example, delays the exchange of currency between characters, giving the company time to investigate a transaction.

Although such actions are a nuisance, gold farmers readily find ways to circumvent them. In response, companies have taken more substantive measures, such as banning certain Chinese Internet (IP) addresses from accessing North American or European servers. And in 2007 eBay finally acceded to pressure to ban all sales of virtual items, currency and accounts, an action that merely spawned the creation of hundreds of brokerages that provide gold-trading and power-leveling services directly to customers.

Companies also try to limit gold farming by legal maneuvering. Before subscribing to an MMORPG, a player must agree not to engage in real-money trading. But the issue of who owns a character’s virtual items and currency remains unresolved. Does a game company have rights to everything in a virtual world, in which case real-money trading is illegal? Or is gold or a sword the property of players who create and pay for a character and its possessions? The game companies have yet to win a clear victory on this point when taking gold farming firms to court. In fact, in China players have won rulings requiring local game companies to return virtual merchandise that had been lost because of inadequacies of the game system, cases that proved that players have ownership rights over intangible online goods.

Finally, companies have resorted to game redesigns that exclude gold farmers, changes that have sometimes had a deep effect on the game. In 2007, in response to complaints about gold farmers from players, Jagex redesigned its game Rune­Scape to make selling virtual gold much more difficult. The cure, however, brought its own problems. It led to many complaints that game play deteriorated because of the restrictive measures, causing some wags to rechristen the game RuinedScape. Even now trading in gold earned in RuneScape continues, albeit in reduced and modified form. Some companies have gone so far as to adopt gold farmers’ own methods. Eschewing the standard practice of making game players pay for subscriptions, these companies now receive payments for game items purchased as their main source of revenue.

A View from the Developing World
Game players as well as companies have at times adopted aggressive tactics to fight gold farmers. About a quarter of players are vociferously antagonistic. This group has launched rather disorganized campaigns against game characters they (sometimes mistakenly) think are controlled by gold farmers. As one example, girl dwarfs, a type of character in one game, are often attacked or harassed because they are thought to be tools of gold farmers.

Some of the antagonism seems fueled by racial stereotyping. Analyst Nick Yee of the Palo Alto Research Center has described parallels between the reaction to gold farming and the way Chinese immigrant laborers were treated during the California gold rush of the mid- to late 19th century. In both cases, the derogatory epithets associating East Asians with disease and pestilence have justified the need for the Asians’ “extermination”: either actual ethnic cleansing from American soil or else expulsion from the U.S.-based game servers. Author James John Bell quotes one gold farmer's experience with U.S. players: “They treat me bad ... they keep calling me farmer, China dog and such. I do not have any problems with other players except American players, they nonstop racist me.”

Gold farming also remains stigmatized because the working conditions in gold farms often bear the label “virtual sweatshop.” But the validity of this portrayal is open to debate. Gold farmers typically earn about 50 cents per hour for working 10 to 12 hour shifts every day of the week. From a Western perspective, these conditions might appear exploitative. Yet gold farmers themselves generally consider their pay to be good, and it is often higher than they would earn doing other local jobs. Food and accommodation are rudimentary, but workers pay nothing, and for many—such as recent rural migrants—the only alternative is unemployment. Some of the work can be monotonous, but most farmers report enjoying their time at the keyboard. This mixture of work and play has even given them the moniker “playborers.”

"PLAYBORERS," the nickname for those who make money from collecting the "gold" used to buy weapons and other implements in online games, usually hail from Asia and number in the hundreds of thousands.

For developing countries, gold farming offers a way to gain benefits from information technology. It creates hundreds of thousands of jobs, while slightly easing the growing problem of urban poverty, and anecdotal evidence suggests it reduces crime, by putting young, urban, unemployed males to work. For that reason, although farmers operate nominally as part of the underground economy, a number of Chinese local governments have even provided investment capital to help create gold farms in their localities.

The allure of gold farming continues to build for many low-wage workers attracted by the possibility of enriching themselves through game playing. The ranks of online gamers worldwide expand by more than 50 percent annually, creating a swelling pool of demand. Even during the recent global financial crisis, Chinese gold farms reported increases in sales and employ­ment.
Gold farming points a way to opportunities for developing countries. As people spend more of their work and leisure time online, the need for related online services—under the rubric of “cyberwork”—will only grow. Future investigations on gold farming will illuminate how international trade and the Internet can spur such entrepreneurial activity.

But they must also raise difficult questions. Should China and other developing countries support gold farming as a way to expand exports and employment? Can gold farmers migrate to higher-skilled information technology jobs? Does gold farming provide a template for new forms of economic development? What other types of cyberwork may emerge from the shadows? Research questions for social scientists abound, but all are a reminder that broadband communications will give poorer countries a pivotal role in the burgeoning digital economy.

Richard Heeks is Professor of Development Informatics in the Institute for Development Policy and Management, University of Manchester, UK. He is Director of the University's Centre for Development Informatics. Reprinted with permission of author.

© 2010 Scientific American, a division of Nature America, Inc. All Rights Reserved.

For further reading:
"Current Analysis and Future Research Agenda on 'Gold Farming': Real-World Production in Developing Countries for the Virtual Economies of Online Games", Richard Heeks, Development Informatics Working Paper Series, Number 32, 2008
"The Decline and Fall of an Ultra Rich Online Gaming Empire", Julian Dibbell, Wired, November 24, 2008
"The Economics of 'World of Warcraft'", Alexander Villacampa, LewRockwell.com, July 17, 2006

Wednesday, January 13, 2010

Dr. Ron Paul's Gold Standard

By Steve Forbes
Forbes
Wednesday, January 13, 2010

http://www.forbes.com/2010/01/13/gold-standard-fed-intelligent-investing-ron-paul.html

The Texas congressman says gold as currency would render the Federal Reserve obsolete.

Dr. Ron Paul and Steve Forbes discuss why a gold standard would put an end to the Federal Reserve.

Steve Forbes: What are the qualities of gold that you think make it a better regulator than fallible human beings at the Fed?

Dr. Ron Paul: Well, it isn't so much the qualities that I think about as much as what history has said about gold. And the Austrian School of economics, and von Mises in particular, teaches that money, it comes out of the marketplace. Governments can't create money.

If we were stranded on an island and one of us decided, "Well, we need some money. So we're going to take these pieces of paper and I'll write numbers on them and it'll be money," it would be preposterous. Money comes out with real value. So over the many, many centuries, literally thousands of years, gold and silver has been used. And the founders understood this. They had runaway inflation. They explicitly said, "You can't emit bills of credit." And you want to restrain the authorities. So if you want to restrain government, you restrain the power to create money. And that's what gold does. A lot of people think, "Well, that means you're going to have to carry all that gold around in your pocket." No. There's nothing wrong with gold certificates. And it can be electronic gold. It's just that it restrains the power of individuals, especially secret individuals that have no oversight from Congress to create this money.

You would certainly not need a Federal Reserve if you have a gold standard.

But people don't like it because it will restrain their ability to spend money and do things that they otherwise couldn't do. So it's the natural fact that money has developed over the many century. And even if you had to, you can have something of real value. For it to work, you should always check on who's promising you something beyond the money, that you can take that coin or your paper in and see if they really have the gold in the bank. And this literally came up after the Civil War. See, we were off the gold standard during the Civil War. And the Resumption Act of 1875, they had a three-year period and they said, "We're going to quit printing money." They withdrew some greenbacks and they said, "The gold's going to be available after three years."

And actually it was a non-event. They didn't want to carry the gold around. But they wanted to know, once they knew the gold was in the bank, they went back to using their paper. The government didn't have deficit financing and they weren't running the world.

Watch The Full Interview With Dr. Ron Paul And Steve Forbes.

Tuesday, January 12, 2010

Korea Supreme Court Rules Virtual Currency Convertible to Real Cash

By Park Si-soo
The Korea Times
Sunday, January 10, 2010

http://www.koreatimes.co.kr/www/news/nation/2010/01/116_58775.html

The Supreme Court made a landmark ruling Sunday, allowing "cyber money," or fictional money used in online games, to be exchanged for hard cash.

This is the first such ruling in Korea, court officials and game experts say, raising expectations that it will provide new territory for the booming online game industry by attracting people seeking not only entertainment but also money.

The court acquitted two gamers, who were indicted on charges of illegally making nearly 20 million won by selling 234 million won worth of cyber money earned in the online game Lineage to other gamers.

According to game experts, the cyber money, called "Aden" by Lineage, was surreptitiously traded at a ratio of one million Aden for 8,000 won.

The accused were indicted in 2008 and a provincial court slapped them with fines of two and four million won, respectively, citing a law banning the exchange of cyber money for hard currency.

But an appellate court overturned the decision, drawing a clear guideline on such exchanges.

Justice Min Il-young said that trading game money for cash should be punished only in cases in which it is obtained by online gambling games such as poker or other card games.

The highest court's decision came after the prosecution appealed the case.

"Despite differences in the methods of obtaining cash between the game and gambling, it (Lineage) still contains elements that should be punishable," the prosecution said.

But the top court dismissed the claim, saying "The appellate court's decision was legally based and correct in its interpretation of pertinent laws."

The ruling drew mixed reactions.

Parents' associations and anti-gambling activists criticized the decision, arguing it may set a bad precedent for the younger generation. Others said it will provide fresh impetus to the online game business.

"The ruling has brightened the future of the Korean game market," said Prof. Chung Hae-sang at Dankuk University. "So far, the industry's growth has been interrupted by tough regulations."

Lee Young-yeol, a city official of Seoul, said, "We should abide by the court's ruling. But the decision will surely impact current game trading practices."

The Korea Game Development & Promotion Institute said the amount of game money exchanged online in Korea topped 830 billion won in 2006 and might have exceeded 1 trillion won in 2008.

Meanwhile, a court ruled in September of last year that profits from the trading of "cyber money" should be subject to 10 percent value added tax (VAT).

For further reading:
"Supreme Court acquits two in cyber money game case", JoongAng Daily, January 11, 2010
"Korea Supreme Court rules virtual currency convertible", PlayNoEvil, January 11, 2010
"The world of gold-farming: professional gaming and virtual trading", Whitney Mallett, January 11, 2010
"Money for nothing? Virtual goods market takes off", Computerworld, January 8, 2010

Monday, January 11, 2010

The Failure of the Public Sector and the Coming Military Crackdown

Dr. Edwin Vieira, Jr. interviewed by Scott Smith
The Daily Bell
Sunday, January 10, 2010

http://www.thedailybell.com/724/Edwin-Vieira-the-Coming-Military-Crackdown.html

The Daily Bell is pleased to publish an interview with the distinguished libertarian attorney and activist, Edwin Vieira, Jr.

Introduction: Dr. Vieira holds four degrees from Harvard: A.B. (Harvard College), A.M. and Ph.D. (Harvard Graduate School of Arts and Sciences), and J.D. (Harvard Law School). For over thirty-six years he has been a practicing attorney, specializing in cases that raise issues of constitutional law. He has presented numerous cases of import before the Supreme Court and written numerous monographs and articles in scholarly journals. His latest scholarly works are Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution (2d rev. ed. 2002), a comprehensive study of American monetary law and history viewed from a constitutional perspective, and How to Dethrone the Imperial Judiciary (2004), a study of the problems of irresponsible "judicial supremacy", and how to deal with them. With well known libertarian trader Victor Sperandeo, he is also the co-author (under a nom de plume) of the political novel CRA$HMAKER: A Federal Affaire (2000), a not-so-fictional story of an engineered "crash" of the Federal Reserve System, and the political revolution it causes. He is now working on an extensive project concerned with the constitutional "Militia of the Several States" and "the right of the people to keep and bear Arms."

Daily Bell: Thanks for sitting down with us. Let's get right to it. In your view, what are the most critical domestic problems facing America?

Edwin Vieira Jr.: Two stand out. The foremost problem-because it is the source of, or contributes significantly to, almost every economic difficulty now plaguing this country-is the inherent and ineradicable instability of the present monetary and banking systems centered around the Federal Reserve System.

The second problem derives from the first. It is the ever-accelerating development of a first-class para-militarized police-state apparatus centered around the United States Department of Homeland Security, with its tentacles reaching down into every police force throughout the States and localities. Fundamentally, this apparatus is not, and never was, designed to deal with international "terrorism". If that were its goal, its first task would be absolutely to secure the southern border of the United States, which it has never seriously attempted to do. Rather, it is being set up to deal with what the political-cum-financial Establishment anticipates (and I believe rightly so) will be massive social and political unrest bordering on chaos throughout America when the monetary and banking systems finally implode in the not-so-distant future-surely in hyperinflation, and probably in hyperinflation coupled with a gut-wrenching depression.

Of these two problems, the second is actually the more dangerous. For if (on whatever pretext) this police-state apparatus does succeed in clamping down on America, the likelihood of effecting basic reforms in money, banking, or anything else favorable to the American people will be reduced to something approaching nil, absent a veritable political uprising in this country.

Daily Bell: How can these two problems be solved?

Edwin Vieira Jr.: The problem of money and banking breaks down into two interrelated parts: one economic, the other political.

Economically, the problem lies in the commonly accepted fallacy that debt-whether the private debt of banks or the public debt of governmental treasuries-can function as sound currency over the long term. "Money" is supposed to be the most liquid of all assets-which is why the best moneys have always proven to be the precious metals, silver and gold. "Debt", conversely, is not an asset at all, but is someone's liability, the value of which is contingent upon the debtor's ability and willingness to pay, and often the creditor's ability to force the debtor to pay. The attempt to put into practice the self-contradictory notion that a liability payable in money can be an asset that functions as money-and that the ultimate debtor or surety in this scheme can be a governmental treasury, which usually cannot be compelled to pay in any event-has been tried again and again, in country after country, and failed again and again. For Heaven's sake, it was tried in this country with the Federal Reserve Act of 1913, and only about twenty years later utterly failed with the banking collapse of 1932, Franklin Roosevelt's seizure of the American people's gold, and the ensuing Great Depression that lasted throughout the 1930s! Right now, we are witnessing what will soon prove to be a more catastrophic failure of that same false idea embodied in that same pernicious institution. Apparently, as the old saw has it, "No one ever learns anything from history except that no one ever learns anything from history." Obviously, massive efforts in public education will be necessary to overcome this deplorable level of ignorance.

In our particular case, the problem also appears in a political form, actually dating from well before 1913: namely, the coupling of bank and state, whereby the government empowers private special-interests groups by statute to "manage" the monetary and banking systems-primarily for the economic benefit of those groups, but as well to the political advantage of the public officials, politicians, and political parties that support the system and receive support from it. The Federal Reserve System is such a coupling: the hermaphroditic creature of private enterprise and statute, at once both quasi-private and quasi-public in source, form, and functions.

Daily Bell: We call it mercantilism.

Edwin Vieira Jr.: Strictly speaking, it is a classic example of a corporative-state arrangement in the particular field of banking, exactly parallel to what Benito Mussolini set up throughout the economy of Fascist Italy, and to what Franklin Roosevelt established for all other American industries in the National Industrial Recovery Act of 1933 (until the Supreme Court declared that act unconstitutional in 1935).

The reason for this unholy alliance between bank and state lies in the operation of "debt as currency": namely, that using "debt as currency"-and particularly "debt as currency" that can be paid through the emission of new "debt as currency"-allows for the essentially unlimited redistribution of real wealth from society to the issuers of the currency and their immediate clients.

When the redistribution favors bankers and their clients among private businessmen, it is called "forced savings"-the average America being compelled by the system to lose real wealth so that the bankers and businessmen can employ that wealth in their own speculative ventures. When the redistribution favors bankers and their clients among public officials, it is called "hidden taxation"-the average America being compelled by the system to lose real wealth so that public officials can buy more votes with more governmental spending (with the bankers taking a cut of the proceeds). In both cases, by the system's very design, the financial and political classes always benefit, the masses are always looted.

The truly vicious nature of this scheme, though, is now appearing in all its ugly nakedness in the multi-trillion-dollar bailouts that the financial Establishment is extorting, and will continue to extort, ultimately from the taxpayers and the victims of inflation, on the threat that, without such payoffs, the entire economy will melt down into irremediable chaos.

So, here we see the ultimate practical truth of the matter: Private financial special-interest groups buy politicians; in public office these politicians empower the special-interest groups by statute to manipulate the monetary and banking systems; to the extent that these manipulations succeed, the profits are largely privatized; and to the extent that the manipulations fail, the losses are almost entirely socialized. In either case, the general public is held hostage to the racket, and foots the gargantuan bill for its operation. And the guilty parties escape scot free to steal again, and again, and again.

Daily Bell: So what is to be done?

Edwin Vieira Jr.: In principle, this problem can be solved, if America enforces her Constitution. In practice, implementing such a solution will take no little time and effort, though, because: (i) the Federal Reserve System cannot simply be "abolished" at one fell swoop without generating massive dislocations throughout the markets; and (ii) the necessary reforms cannot arise out of the snake pit of Congress in the foreseeable future. Instead, Americans need to create an alternative constitutional and sound currency-actually consisting of, not simply "backed by", silver and gold-to compete with Federal Reserve Notes in the marketplace.

This step must be taken at the State level, for several reasons. First, it cannot be done through Congress, because Congress is thoroughly in the vampiric embrace of the financial Establishment. Second, the States enjoy the legal authority to adopt an alternative currency-indeed, as the Constitution declares, "No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts". Third, the States' exercise of their legal authority to adopt an alternative currency is constitutionally immune from interference by Congress, as even the Supreme Court has held on more than one occasion. Fourth, the States have a political and legal responsibility to their own citizens to protect the public health, safety, and welfare-which necessitates adopting a sound currency to replace the collapsing Federal Reserve Note before it is too late. And fifth, among the fifty States there must be at least a few in which the political and economic climate is such that State legislators can be convinced to take appropriate action.

Once the experiment has been tried and proven workable in one State, it will quickly spread to others, because no alternative exists, other than supine and stupid acquiescence in the collapse of the Federal Reserve System, with all the dire consequences that will entail.

Daily Bell: We at the Daily Bell are of a free-banking caste, and we often have discussions with what we call Brownians - those who, like Ellen Brown herself, believe that money is the province of the state and that gold and silver are merely commodities until the state stamps them with its authorized mark. We disagree. What do you say?

Edwin Vieira Jr.: The people who believe in "the state theory of money" need to study what the Austrian School of Economics teaches about money, and in particular "the regression theorem" that explains the origin of money. Gold and silver did not become money because some "state" first authorized them as such. Various states throughout history adopted gold and silver as money because markets (particularly in interregional or international trade) were using the precious metals for that purpose. Indeed, that is the explanation for the adoption of the "dollar" (actually, the silver Spanish milled dollar) as the unit of American currency, both under the Articles of Confederation and then explicitly in the Constitution.

More recently, of course, various states, including rogue public officials in the United States, have tried to "demonetize" and then demonize gold and silver in vain attempts to compel free markets to comply with officialdom's generally uneconomic and often blatantly tyrannical political policies. Roosevelt's gold seizure of the 1930s is the pre-eminent example in recent American history.

If gold and silver could function as money only because some state authorized such use, though, there would be no need for states to expend such efforts to "demonetize" the precious metals. Simply withdrawing a state's formal authorization would suffice. So, the veritable war that many states have felt it necessary to wage against specie money, and particularly gold, during most of the Twentieth Century renders rather implausible "the state theory of money".

Daily Bell: Do you believe the current push to audit the Fed will result in success? What would be the result of such an audit in your opinion?

Edwin Vieira Jr.: The Establishment doubtlessly will put up tremendous resistance to a comprehensive audit of the Federal Reserve System, if that audit includes a thoroughgoing investigation and public exposition of the ulterior motives for and untoward consequences of the System's twists and turns in "monetary policy" over the years. I wonder, however, what such an audit would accomplish, and whether it is really necessary. If ten economists examined the System's decisions, they would probably give a dozen different opinions as to what motivated those decisions, and whether the results were good, bad, or indifferent. So the upshot of an audit could be nothing more than confusion twice confounded.

For all the journalistic shortcomings of its aggressively "liberal" perspective, the old expose by William Greider, The Secrets of the Temple: How the Federal Reserve Runs the Country (1987), tells us enough about the motivations and performance of the banking cartel, even without a formal audit, to justify the conclusion that it must be disestablished post haste. Actually, anyone who studies the Federal Reserve Act of 1913-particularly in the context of earlier banking and monetary legislation-should conclude that it always was and remains unworkable and doomed to failure, besides being utterly unconstitutional. So an audit is superfluous. On the other hand, if the results of, or the even demands for, an audit would galvanize public opinion into doing something positive in the area of monetary reform-such as supporting adoption of an alternative currency in the States-it probably would be worth the effort. But that is a very large "if".

Daily Bell: Ugh, that was a terrible book. He catalogues what's wrong for hundreds of pages and then decides having the Fed around is better than the alternative. We think it's central banking in large part that has given the elite the funds to take America down the wrong path, and that the velocity is accelerating - given the creation of Homeland Security, etc.

Edwin Vieira Jr.: In my estimation, dealing with the domestic-police-state-in-the-making is an even more critical concern than dealing with the problems engendered by the Federal Reserve System. This, because the present monetary and banking regime, being nothing more than a confidence game, could implode at any moment, and certainly could collapse before an alternative currency were in operation, thereby plunging the country into the sort of economic, political, and social chaos which would serve as the pretext for the imposition of all-round police-state repression. Therefore, if Americans do not have a plan in place, and very soon, for preventing that repression, everything could be lost.

That is not all. Even the Establishment could be hoist with its own petard. The police state now being elaborated from Washington, D.C., does not consist solely of civilian law-enforcement agencies. Rather, the deep thinkers in the "homeland-security" business are working feverishly to insinuate the Armed Forces into their schemes for nationwide domestic oppression. As a practical matter, this is probably necessary (from their point of view), inasmuch as a general economic, political, and social breakdown would set off eruptions of violent unrest beyond the capabilities of most if not all State and local police departments to put down.

Daily Bell: So you believe that the Establishment realizes how large a divide is growing between "average Joes" and America's elitists?

Edwin Vieira Jr.: Of course. Anyone even randomly surfing the Internet will stumble upon massive evidence of the irreconcilable antagonism and rancor rising at a fever pitch among common Americans against the economic and political "leaders" who have sold them and their country down the river. (Which is one of the main reasons the Establishment is desperate to come up with some rationalization and means to censor the Internet.) The Establishment knows that it stands on shaky ground-and that if it can no longer depend on the good will of the people, it must hope to be able to suppress collective manifestations of their ill will. This will require vast numbers of "boots on the ground". Thus, the ever-mounting emphasis by officials in "homeland-security" agencies on involvement of the Armed Forces in domestic "peacekeeping".

As Richard Weaver observed, though, "ideas have consequences"-and, one might add, particularly stupid ideas very often have extremely bad, albeit unintended consequences. The lesson that history teaches, but that the big brains in Washington apparently have not absorbed, is that once politicians (in any country) have turned to the Armed Forces to control domestic dissent arising out of failed economic and social policies, the Armed Forces quickly conclude that they are able and even entitled to become political powers in their own right. After all, why should the Armed Forces not exercise control over the policies and other decisions civilian officials make concerning the deployment of the Armed Forces, particularly when those officials' incompetence or corruption has brought about the domestic disturbances the Armed Forces are expected to risk their lives to quell? And then why should the Armed Forces themselves not promulgate, or at least oversee, policies on all economic and social matters in the first place? Could they fail any more miserably than have the civilian officials?

Furthermore, here in America, if the Armed Forces are deployed to suppress widespread civil unrest emanating from a major breakdown of the economy that threatens the continued viability of the military-industrial complex, the Brass Hats will have a particularly compelling institutional incentive to maintain themselves in positions of political leadership: namely, securing their reason for being and the source of their importance, power, and benefits. In addition, thoroughly politicized Armed Forces will likely feel the need to justify the expensive existence of the military-industrial complex by inserting themselves into, if not instigating outright, ever-expanding overseas military adventures. Thus, "the war on terror"-in addition to whatever other forms of aggressive imperialism can be fomented, ostensibly to "defend our freedoms" in a "homeland" no longer free-will drag on forever, at untold costs in lives and treasure.

Of course, as has proven true everywhere else, politicized Armed Forces in this country will be unable to solve the underlying economic and social problems that rationalized their politicization in the first place. So America will be wracked with chronic political chaos: token civilian regimes staffed with incompetent puppets and "yes men", followed by new bouts of military string-pulling or outright intervention aimed at cleaning up the last crisis, and so on, along the sorry lines South American republics such as Argentina have followed for generations.

For that reason, people worried simply about the likelihood of hyperinflation, depression, or hyperinflation coupled with depression-and about how they might be able to protect their incomes and accumulated wealth under such circumstances-are viewing their world through rather ill-fitting rose-colored glasses. When hyperinflation or other economic calamities strike, and the Armed Forces are politicized as instruments of domestic repression, merely maintaining his income and securing his accumulated wealth will become matters of very low priority for anyone with high economic, social, or political visibility who has or might run afoul of the regime. So those myopic people who are trying to figure out how they can personally profit from the coming collapse of America's economy had better start thinking instead of how they can contribute to the effort to prevent that collapse, to fend off a police state that collapse will engender, and to return this country to the rule of constitutional law-right now, before time runs out.

Daily Bell: How can a police state be fended off?

Edwin Vieira Jr.: Actually, the constitutional solution for dealing with the emerging police state is even simpler than the solution for dealing with the collapsing Federal Reserve System. Now, I do not believe that, at the present time, the upper echelons of the Officer Corps in America's Armed Forces contain significant numbers of potential Bonapartists. The patriotic sense of "duty, honor, country" doubtlessly still prevails. But this circumstance could change. It has changed in other countries. As the Second Amendment to the Constitution declares, "[a] well regulated Militia" is "necessary to the security of a free State". Not the regular Armed Forces, but "[a] well regulated Militia".

"A well regulated Militia" is the only thing the Constitution identifies as "necessary" for any purpose, and the only thing it identifies as serving the specific purpose of "security". So, if Americans want a stable and prosperous economy, they want a free economy (that is, one based on the free market). If Americans want a free economy, they want "a free State", that being the only kind of political system that will support and defend the free market. And if Americans want "a free State", they want "[a] well regulated Militia" in every State. And what is "[a] well regulated Militia"? As Article 13 of Virginia's Declaration of Rights (1776) so aptly put it, "[a] well regulated militia, composed of the body of the people, trained to arms, is the proper, natural, and safe defence of a free state". That is, "[a] well regulated Militia" consists of We the People ourselves-in the final analysis, the only possible guarantors of freedom in a self-governing society.

Moreover, for all of these reasons, the members of the Armed Forces-all of whom take an oath to support the Constitution-should want "[a] well regulated Militia" in every State, too. Unfortunately, "[a] well regulated Militia", fully formed and operated according to proper constitutional principles, does not exist in even a single State today. (No, Virginia, the National Guard is not, never was, and cannot be the Militia.) So a great deal of work remains to be done in this area, as well.

Daily Bell: If these problems could be solved by application of the Constitution, then why did the Constitution not prevent them from arising in the first place? Has not the Constitution proven itself ineffective?

Edwin Vieira Jr.: We have had the benefit of the Ten Commandments since the days of Moses; but has their mere existence prevented all, or even most, sinful behavior? No. Whose fault has that been? God's or the sinners'? And shall we now blame the Ten Commandments-or worse, jettison them entirely-because some, even many, individuals continue to murder, to steal, and so on, whether in public office or private occupation?

The same reasoning applies to the Constitution. The Constitution is a set of instructions for running a complex political machine. This machine has as workmanlike a design as political science has ever recorded throughout the ages; and the instructions for its operation are concise and clear. So if, from time to time, the operators of the machine, through incompetence or malevolence, fail or refuse to follow those instructions, with deleterious results, does the fault lie with the instructions or the operators? Now, at one level, the operators of the constitutional machine are public officials. But they are subject to control by a higher level of operators: We the People, the selfsame We the People who (as its Preamble attests) "ordained and established th[e] Constitution" in the first place. So, if compliance with the Constitution's instructions has not been had, then ultimately We the People, not the Constitution, are to blame. Which is very fortunate, because We the People are in an unique position to do something about this situation.

We the People are the voters who select legislative, executive, and some judicial officers for government at every level of the federal system. We the People are in actual physical possession of most of the valuable property in this country. We the People constitute the Militia, which imposes upon us the direct responsibility to maintain "the security of a free State". And, with a little organization pursuant to statutes enacted in the States, We the People can effectively enforce Nancy Reagan's dictum: to "just say NO!" to further economic and political incompetence, corruption, and downright oppression in this country, emanating from Washington, D.C., New York City, or anywhere else.

Daily Bell: But is not the Supreme Court the final legal authority on what the Constitution means, and therefore legally superior to the people?

Edwin Vieira Jr.: Balderdash. A judicial opinion about the Constitution is precisely that, and no more: just an opinion of some fallible human beings who happened to occupy the Bench at that time. It may be correct-or it may be incorrect. The Supreme Court does not determine what the Constitution means; rather, the Constitution determines whether a decision of the Supreme Court is right or wrong. Even the Supreme Court has recognized that "[t]he power to enact carries with it final authority to declare the meaning of the legislation". Propper v. Clark, 337 U.S. 472, 484 (1949). And We the People-not "we the judges"-enacted the Constitution. It is our supreme law, not theirs.

We are the principals, they merely our agents. So we are the ultimate interpreters of the Constitution, and the ultimate judges of whether public officials are complying with it. As Sir William Blackstone, the Founding Fathers' primary legal mentor, observed: "whenever a question arises between the society at large and any magistrate vested with powers originally delegated by that society, it must be decided by the voice of the society itself: there is not upon earth any other tribunal to resort to". Commentaries on the Laws of England (1771-1773), Volume 1, at 212. Any self-governing people should know as much without being reminded. One can only hope that the present economic crisis will focus people's minds on this basic truth to a degree sufficient to make a difference.

Daily Bell: Thank you for this interview.

Edwin Vieira Jr.: It was my pleasure.

After Thoughts with Scott Smith

It is interesting to interview someone so honest and informed as Dr. Vieira because one is exposed to a verity of human intelligence - the smarter the individual the clearer the vision. Speak to someone who is less well versed in the history of human legislative interaction and you will get all sorts of ideas spouting forth like firecrackers - and often none of it means much. The noise is random and the thoughts sparkle and trail off like sparklers, then die. But Dr. Vieira understands the basic thrust of what is going on and has a clear idea of where it's headed and what to do about it.

The interview speaks for itself. But to summarize - reading slightly between the lines - Dr. Vieira seems fairly certain that there will be some sort of social upheaval in America as a result of the economic and military forces now in play. He seems to believe that this could, to begin with, result in some sort of Latin-American style junta (they are familiar to Europe, too) and obviously believes the only way to avoid such a catastrophe is for "the people" to take back Constitutional rights.

In fact, this perspective is shared by many American libertarians with greater or lesser degrees of urgency. Certainly, there has never in our experience been the level of vituperation that one now witnesses on chat boards and in feedbacks whenever government programs and policies are mentioned. George Bush with his incessant meretricious spending, endless warring and ongoing endorsement of the regulatory state ended his time in office literally unable to speak anywhere except at military graduations. President Obama is rapidly approaching a point where he will not be warmly welcomed either in most American enclaves - and will likely have to restrict his speechifying to television.

And what then? Are the Republicans going to elect another compassionate conservative like George Bush? No, after three Internet presidencies we expect a tidal wave of support for a libertarian conservative. We know Sarah Palin is being groomed to take advantage of this wave, but as a proponent of the military police state and Homeland Security, we wonder if the contradiction in terms will not prove too much for her. And even if she is elected, or some like her who pays lip service to libertarian ideals, it will not paper over the growing divide in America between those who wish for freedom and those who espouse its cause (ludicrously) within the context of an activist IRS, a central bank, a domestic surveillance apparatus and a global, warlike military.

The point is, as Vieira notes, the sociopolitical consensus holding America together is falling to pieces. The political process is gradually grinding to a halt. It offers no answers. Obama's "change" is uniting his nation, but not in a way that the power elite might hope. People are increasingly aware of sociopolitical alternatives. Of course, we attribute this directly to the Internet and also to the difficulty that the power elite has had in creating war mobilization - the usual method of dealing with social disaffection and economic crises. The situation from our perspective is analogous to the inexplicable 30-year pan-European peasant war that somehow broke out - mysteriously - when the Gutenberg press began to erode the credibility of that era's power elite.

The Internet itself and the difficulty in creating a world war without an implacable enemy and within a nuclear environment has made the power elite's task far more difficult. There is a war going on, but it is not a very satisfactory one and the enemy keeps changing, as do the battle fronts. This is giving rise to skepticism, so much so that we wonder for how long such a war can continue as a viable promotion. From a power-elite perspective, it may eventually tend to cause more problems than it solves.

Vieira proposes that there may be increased civil unrest in America and Europe, leading up to a potential military takeover. In fact, in Europe we believe it has already started. And yet ... we are in favor of Vieira's alternative scenario - that civil unrest need not lead to endless martial law and South American-style banana republics.

The hallmark of a promotion is that it ignores factual reality, so we anticipate all these promotions and more will continue to progress legislatively. But as we have pointed out before, authoritarian implementation of such promotions does the power elite little good. Without a "buy in" a promotion is merely an enforcement. The populace may be cowed, but the resentment burns. It is certainly possible to keep billions cowed by fear (that's what the promotions are all about), but if the fear is merely administrative, then the danger to the power elite increases dramatically. You end up with a dictatorship. Dictators are targets.

The power elite for the most part stepped away from direct leadership hundreds of years ago. It was too dangerous. But now the Internet has exposed the leadership all over again. This is not a tolerable position for a handful of extraordinarily powerful people to be in. They will have to do something other than business as usual. Right now they are moving forward with an almost incomprehensible haste. But one might speculate they are still in denial. With acceptance will come an understanding that the timeline will have to be recalibrated.

Vieira is correct that Americans can take their Constitution back. One of the obstacles is fear, but fear erodes as the Internet educates and certain fear-mongering websites lose their grip. In fact, there are no more George Orwells for the power elite to promote. A British socialist spymaster who told us just what the power elite had in store (in order to make us cringe in fear), his narrative is beginning to seem outdated as reality overtakes prognostication.

Repetition, Internet-style, breeds familiarity - and familiarity breeds contempt. The dominant social themes and accompanying memes will not stick in such an environment. Mass martial law descending on hundreds of millions, or billions, is simply not feasible long term. Even "soft" martial law is a difficult environment to maintain long-term. The USSR's leaders found it out. The Chinese know it, and are troubled by it.

It took the Gutenberg press a full century to do its damage, but the Internet may only take 25 or 30 years. And the result may well be something entirely unexpected - not the gulags and martial suppression of the USSR (as predicted by Orwell and certain suspicious, perfervid ‘Net outlets) - but something more exciting and life-affirming.

For further reading/viewing:
"A Primer on 'Martial Law'", Dr. Edwin Vieira, August 31, 2009
"Why the Federal Reserve Must Be Abolished" (video), Dr. Edwin Vieira on The Conservative Caucus, February 6, 2009