Space colonies and monetary systems. Part 1

Introduction

A key aspect of any society is its monetary system, and Space settlements are no exception. Though money-less societies have existed in the past, and to some extent even to this day, all modern economic systems use money. However, there are different monetary systems possible, and the choice for a particular monetary system has fundamental consequences for how the economy operates. Therefore it is of great importance to choose a monetary system that fits into our commitment to create a secular, liberal and humanist society.

In this post and its sequels we will give a sketch of the monetary system we propose for a future space-based Republic. The basic features of this system are: 1. government issued debt-free money, 2. full reserve banking and 3. a federal credit bank for providing interest-free loans. We will deal with feature 1 in this post, feature 2 will be the subject of part 2, and part 3 will deal with the third feature. Though some people might argue that monetary and banking systems are separate issue, we believe that these two concepts are fundamentally connected with each other.

1 Debt-free money

First of all, we propose that space governments will have monetary sovereignty, e. g. they will issue their own currencies instead of using foreign currencies and also they won’t pledge the national currency to foreign currencies. If a space nation has no sovereign currency, it will not be able to implement its own monetary system.

Secondly, we propose a system of pure fiat money, which is money not backed by any commodity. Some readers might wonder how money with no intrinsic value would ever be accepted, this is an important question. The answer is given by what is known as modern monetary theory: taxation drives money. By mandating some payments in a specified currency, the government creates an effective demand for said currency. We will explain this by an appropriate example.

As the regular visitor of our site might know we support a land value tax as the primary method to fund government. It’s our opinion that all land in a space habitat should be the property of its respective government, but space governments will be able to lease their land to private parties. Since the government is the owner of the land, it is therefore capable of demanding that the lease has to be paid in the national currency. Subsequently the landholders will have a demand for some national currency, they have to earn this somehow. A landholder might, for instance, choose to become a farmer and to trade his crops for national currency. In their turn the buyers of these agricultural products will demand that their wages to be paid in national currency. And the end everyone will demand to be paid in national currency, and consequently the national currency will be generally accepted.

The requirement that the land value tax has to be paid in the national currency, also implies that so-called legal tender laws are superfluous. Legal tender laws are those laws which demand that a person must accept national currency as payment for debt. As we have seen, any sane person would accept the national currency because it is demanded by everyone else regardless of whether he is obliged to accept the national currency. Therefore legal tender laws could be abolished, or rather space colonies should not introduce such laws in the first place.

Now we know that taxation drives money, it follows that the government can create money, just by printing it. Once the government has imposed the obligation to pay land rents in national currency, it knows people will accept it in payments. And since the citizens has to get national currency somehow in the first place, they will be eager to sell goods and services to the government.

Since the government can print money at will, there is no need for the government to borrow any money, ever. This means that money issued by the government is debt-free, the government also pays no interest over it. The cautious reader should, however, be concerned about inflation. However, if the money supply grows proportionally with the economy, then inflation would be near zero. The problem of (hyper)inflation occurs when the government will print money at a faster rate than the growth of the economy.

It’s clear that even if the government can create money at will, it cannot afford to create an unlimited amount of money at a given time. According to modern monetary theory the growth of the money supply can be regulated by the government: by collecting tax, money is destroyed and by public spending, money is created. If more tax is collected than is spent, then the money supply will decrease. And if more money is spent than taxed, then the money supply will be increased.

Economists who support this theory, argues that in case of high inflation the government should raise taxes and to cut spending. Of course the problem will arise that if politicians control the money supply, they will use the tools of spending and taxing for political rather than economic reasons: decreasing taxes and increasing spending during the time just before an election. Therefore an independent agency should be created which decide whether taxes will be raised, and how much money the government is allowed to spend. Politician will be in charge of deciding how they spend the money, not how much.

Todd Altman has proposed an interesting idea: pegging the national currency to the consumer price index. If the general price level rises with, say, five percent, taxes will be raised also by five percent, whilst spending has to be cut down.

See also

External links

Richard Werner: Debt free & interest free money A YouTube video featuring economist Richard Werner, who explains how debt free money will work.

Modern Monetary Theory Primer An introduction to modern monetary theory on the “New economic perspectives” blog.

On “Republic of Lagrangia”

On the problem of taxation. Part One

On the problem of taxation. Part Two

On the economy of a Space colony

Space colonies and monetary systems. Part 2

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20 thoughts on “Space colonies and monetary systems. Part 1”

  1. I agree completely with Part 1, and expect I will with the other 2 parts. I’m happy you are addressing this subject. It happens to be one of great interest to me. It relates to one of my own projects for transition from science fiction to reality, what I’m in part referring to as a merchant government, a concept I’m slowly developing. On the larger scale of interstellar trade, Gene Roddenberry and writers of Star Trek failed to properly address the subject, and put out conflicting information. Like no use of money anymore, but Spock is described as being the wealthiest officer in Star Fleet. What kind of wealth? How do they pay for food, lodging, other products and services, and entertainment when on shore leave on an alien planet? It is the most unrealistic aspect of the Star Trek stories universe. What you are creating here could be a reasonable beginning for what might be in the distant future, if humans are ever able to easily expand to colonies on distant planets of other solar systems, and then if we also encounter alien civilizations similar to our own. Meantime, on the smaller local scale, likely to happen in the near future of within 100 years, perhaps the mining of asteroids will be the main product, which would be a relating subject.

    1. As you probably know, I see space colonization as a mean to create a better society. My point of reference for a better society, are those which currently exist. The good parts of our existing societies I want to maintain, and to replace the bad parts with better parts.

      Starting from the working assumption that a future space society will be more or less the same as ours, I ask myself: What features of our society would I want to improve? And how do I want to improve those issues? The advantage of this approach is that I can rely on existing knowledge, to some degree.

      It are the details which make a story believable or not. Unfortunately many writers, TV screen writers in particular, do not value those details. Because they do not pay attention to the details, at least not enough, they come up with all kind of contradictions.

      1. Star Wars, especially Episode 1, had a more realistic approach to the subject than did Star Trek. Quotes of characters…
        “One thing ties them together—credits. The pursuit of lucre motivates every species that recognizes a monetary system.”
        “The Galactic Credit Standard, simply called credit or abbreviated to cred, colloquially referred to as Republic Dataries, and later known as the Imperial Credit, was the main currency in use in the galaxy since the time of the Galactic Republic.”
        “Information is a commodity. It can be traded, sold, and purchased. And in the end, credits are only as valuable as the secrets they can buy.”
        “Republic credits? Republic credits are no good out here. I need something more real.”
        “During the Clone Wars, and even before, many of the galaxy’s inhabitants were worried about the war’s outcome and the effect it would have on the galactic economy. Because of this, an overwhelming majority of planets outside the Core and Inner Rim would not accept credits. These planets and regions began minting their own special currencies.”

  2. Great post.
    In this case it appears to me that the first space colonialists must sell something to the government to have money or they can’t transact?
    I think to create a secular and humanist society, it would be better to create a moneyless society/ economy. The inequalities we have, the corruption are all fueled and funded by a money economy, that is, the need to dominate others, to control and to acquire more. How do you intend to deal with such inequalities as we have observed here?

    1. “I think to create a secular and humanist society, it would be better to create a moneyless society/ economy. ”

      A moneyless economy would be possible, at least in theory, but I think it would be impracticable: how will goods and services be allocated? Some goods can be distributed by the government, but what about unique goods such as art?

      “The inequalities we have, the corruption are all fueled and funded by a money economy, that is, the need to dominate others, to control and to acquire more.”

      Certainly, money does play a role here. However, it’s hard to say money is the cause of these excesses. The need to dominate others, is part of human nature. Frans de Waal’s describes in his excellent book “Chimpanzee politics”, how our close cousins chimpanzees are always busy to dominate each other. And chimpanzees live in a moneyless society.

      If we would abolish money all together, people who most likely accumulate other goods, such as food, to control others and to acquire more.

      ” How do you intend to deal with such inequalities as we have observed here?”

      Good question. Though I will deal with the subject of equality in another post, I can make a few remarks here: First, equality of what? Of chances or equality of results? Personally, I believe that every person should have equal opportunities in life, but not necessarily of results. This leads to my second remark: I want to distinguish between “deserved” and “undeserved” equality. People who chooses to do good things, deserve more than those who do bad things. I know you might not convinced by this argument.

      “In this case it appears to me that the first space colonialists must sell something to the government to have money or they can’t transact?”

      Brilliant remark! But I have thought about it, of course. Basically there two solutions for this problem: First, most of the first space colonist are likely to have foreign currency. Which the government might need to buy stuff from abroad, i.e. from Earth. The space colonists might trade their foreign currency for national currency.

      A second idea is similar to the Monopoly game: The first colonists gets each a certain amount of money from the government, for instance 50,000 units of the national currency.

      1. I believe our civilization should eventually be able to reach a point that the best of both worlds would be possible, such as between Communism or Socialism, and Capitalism, as far as money and work is concerned. All people would be provided a certain minimum needed to stay alive and in good health to be able to work or otherwise to stay alive if unable to work. Those who want more than the minimum must work to earn their money needed for their wants. It’s separating needs and wants. Wants may be described as luxuries not needed to stay alive. Items on the needs list are different than items on the wants list. A citizen would have access to two accounts from one Money Card as a debit card rather than a credit card. One account for the minimum that the government provides, and a separate account for what you earn from working as an employee or self employed or business owner with employees for products and services in the market where than can still be competition.

        1. You mention a few points I will address in another topic, about the basic income guarantee or BIG. Such system would work in a similar way as your proposal. The BIG is a part of my “Mordan Ideology”, of which this series about monetary reform is also a part. The Mordan Ideology is meant as a “Third” way between extreme laisez-faire capitalism and communism.

      2. Equality, I talk about equality to access, not equality with regard to results.
        A moneyless economy would be practical even in practice not just in theory. I think your view of economic prosperity is so tied to money. First you and me agree that prices of commodities or services are set arbitrarily to benefit mostly those who offer the service or sell the commodity. In pre-money times, barter trade worked well, maybe the only argument about this is that it wouldn’t promote technological development or research since some of these yield results that are not easily quantifiable or transformed to monetary value.

        Whereas we are in agreement that the need to dominate is inherent in all animals, human beings included, the need to corrupt your way is uniquely human. And money makes it possible to purchase favours and only very few people are able to say no to the temptation to take bribes given that money alone is able to satisfy many of our desires or rather the possession of it.

        1. “Equality, I talk about equality to access, not equality with regard to results.”

          We are on the same line.

          “First you and me agree that prices of commodities or services are set arbitrarily to benefit mostly those who offer the service or sell the commodity.”

          We definitely agree. The value of any commodity is subjective.

          “In pre-money times, barter trade worked well, maybe the only argument about this is that it wouldn’t promote technological development or research since some of these yield results that are not easily quantifiable or transformed to monetary value. ”

          Barter worked well in a mostly agricultural society, in which most people lived from what they grow and exchanged their surplus of food against other goods. In a post-industrial society in which most people work in the services industry, it would be more difficult to abolished, albeit it far from impossible. Initiatives such as “LETS” proves that a moneyless society can work, at least locally at a small scale.

          “I think your view of economic prosperity is so tied to money.”

          I am quite willing to accept a moneyless economy. However, people are used to money so much that I think it would be better to keep, at least for some time, when we create a new society in space. Then we can experiment with some moneyless economic systems and if those can work in reality, we could implement such system on grander scale.

          “And money makes it possible to purchase favours and only very few people are able to say no to the temptation to take bribes given that money alone is able to satisfy many of our desires or rather the possession of it.”

          I agree with you with the first part. However, I am not sure whether “money alone” can do this.

      3. I realize this is a bit off topic for part 1 – government issued debt-free money, but perhaps it can be figured in at some point or addressed in a different article.

        Perhaps the issues of charity and welfare should be figured in, but the goal should be for neither to be needed.

        New Year’s Day 1991 I arrived in Shreveport Louisiana from Kansas City Missouri on a Greyhound bus. The route it took into Shreveport took the bus past a square mile off to my right on which were small shacks being lived in by black people – African Americans. Not houses. Small flat roof shacks. Clearly, no electricity. No indoor plumbing. Each one had an outhouse shack for toilet. An outside water tap pump for access to an underground well supply instead of city water. Clothing wash tubs on the ground and clothes drying on outside lines. No phone lines. No TV antennas or cable TV. Wood burning stoves for cooking and fireplaces for heat. I’d seen pictures of life in “third world” countries that looked better. So it was more like a “fourth world” community. Until that moment, I did not know anyone here in the US to be living like that, except some homeless people, but even some homeless people were better off by staying in shelters. It angered me. It shocked me. Big charities ask for money to help people like that in other countries, while turning a blind eye to our own problem with that here in the US. Shame on them. However, local charities and churches helped the people there with food and clothing. I became a “soldier” in The Salvation Army for that year there, mainly working in disaster relief. We condemn other countries for what they do to their people, while we are just as mean to some of our own people. It’s wrong. The haves and have nots. The greed. It angered me when I heard Newt Gingrich say in 1994 that “Welfare people should be FORCED to live in tent cities until they EARN THE RIGHT to live in normal housing.” I didn’t like that, but even a modern-day tent city would be a better quality of living than shacks. This is why I believe there should be a reasonable minimum level of living for all people, worldwide, not just here in the US. Those who want more than the minimum must work to earn it. I don’t believe everyone should be financially equal. Just that there should be a minimum for needs, with the opportunity to earn more for wants.

        How would a space colony support people too young to work, too old to work, unable to work because of disability or illness, or otherwise not having income while unemployed between jobs, as well as victims of disasters? Government aid? Private charity? Is there another option? Some Republicans here in the US would probably put them out the airlock. If you don’t work, you don’t eat. No exceptions. No mercy. I’ve heard some of them say that. But then they sing a different tune when it happens to them, and are first in line to get needed aid!

  3. From an ideological perspective i agree with Noels concerns. To establish a humanist society we must overcome the pitfalls intimately tied to a physical monetary system prone to bias, accumulation, and self-perpetuating concentration. This, of course, raises all sorts of problems as reward is such an intimate dance partner in our work and motivations.

    If you can successfully establish a reward system unmolested by the pitfalls of physical concentration then you should start polishing your best shoes because there are some people in Norway who have a prize waiting for you to pick up.

    1. You are in good company in agreeing with Noel’s concerns, they are important for anyone interested in a humanist society.

      In regard with dealing with the problems of accumulations and self-concentration of money, there are at least two methods to fight them. First, by imposing an inheritance tax we can reduce inherited inequalities. It’s from a humanist perspective strange to claim that I deserve to own my grandfather’s land, just because he has worked hard for it. After all I did not do anything for, even if my grandfather indeed deserved his wealth. My preference would be therefore to implement a progressive tax on inheritances.

      A second measure which can be taken against accumulation of money and self-perpetuating concentration thereof, we can do what has been advised by Silvio Gesell: imposing a “tax” on money. Once money is issued it will lose its value after some predetermined time, this would encourage investment and consumption but discourage hoarding money.

          1. Ah, the Austrian Central Bank terminated it…. How unlikely. That post i did on Gary North, he is of the Austrian economic school. These are not the nicest of people.

              1. Which is interestingly, since the leading figures of the Austrian school movement, Ludwig von Mises, Murray Rothbard and nowadays, for example Walter Block; were/are either agnostic or atheist.

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