About twenty years ago Danish artist Lars Kræmer started the Artmoney project. His idea is for artists to make small, bank note-sized pieces of art with a fixed value of two hundred Danish Kroner. These pieces of arts can be then be used to pay for goods and services. According to Wikipedia about 1,300 artists in 40 countries participates in this project and there have been exhibitions of artmoney. Continue reading Art and monetary policy
Earlier we wrote about that one of this disadvantages of a cashless society is that it would further increase the already great power of commercial banks. We proposed that the national monetary authority to issue stored-value cards to enable the public to make payments without having to rely upon the services of commercial banks. Continue reading Emoney
After having explained how commercial banks can create “money” our of thin air and why current monetary policies are ineffective in restraining credit creation, the authors now turn to the issue of fiscal policy in chapter 6. Continue reading A review of “Where the money comes from” 3
Read part 1 here
After having discussed the history of money and banking, the authors now turn to modern banking practices in chapter 4. And in chapter 5 the regulation of money creation and allocation is discussed. Continue reading A review of “Where the money comes from” 2
Banking and the financial sector in general are surrounded by a cloud of mysticism, as very few – if anyone – knows how banks actually work. However, proper understanding of the financial sector is essential to sensible banking and monetary reform. Continue reading A Review of “Where does Money com from?”
For our and your convenience, we have decided to propose the Talent (proposed currency code: RMT) as the national currency of the Humanist Republic of Mordan. On this we have discussed monetary issues, but we never went so far as to give the currency a name. We have noticed that this has led to uneasy situations when we wrote about topics involving monetary examples.
One Mordan Talent will be subdivided into thousand Sestertii (singular: Sestertius). Though most transactions in Mordan [or in other space settlements] will involve electronic payments (such as debit cards, internet banking and stored value cards), coins and notes will still be used. Our proposal is to have coins of 1, 2, 5, 10, 20, 50, 100, 200 and 500 Sestertii and of 1, 2 and 5 Talents; further they will be notes of 10, 20 and 50 Talents.
See here of the proposed currency sign.
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.
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”
A few years ago economist Willem Buiter proposed to abolish cash money. He argues that with modern technology, such as debit cards, we do not need cash any longer and that only criminals have an interest in maintaining cash. Although he might be right, Buiter overlooks one key aspect.
The problem with electronic systems is that they vulnerable for Solar flares, a sudden outburst of charged particles from the Sun. The nasty thing with Solar flares is their capacity to destroy electronic equipment. So if your computer is hit by such flare, all your data will be lost for ever.
There is also the matter of built-in deflation. As more and more bitcoins get mined, it requires more and more processing power to mine new ones. Also, if your wallet file is deleted, your bitcoins are gone for good.
So if a Solar flare hits the earth or a Space habitat, and all computers are robbed of their data, a cashless economy will lose all its money. However, electromagnetic storms cannot destroy cash, therefore it would be wise to keep at least a part of our money in the form of cash.