Day 244: Transforming Currency into Money with Living Income Guaranteed

In the video "Hidden Secrets Of Money - Ep1 'Currency Vs Money'" Mike Maloney and others present one of the problems we are facing in our current economic system and that is - how the value of our currency is able to change over time - where it can both appreciate and depreciate - but throughout history it has mainly depreciated until it becomes worthless and then a new currency is introduced. The video explains the problem, but it doesn't offer a real solution - which I will be discussing in this blog.

Now - when I said 'the value of our currency is able to change over time' - with 'our currency' I am not referring to a specific currency such as Dollar or Euro or Rand - I am referring to fiat currency. For those who are not aware of the history of our currencies: paper bills were introduced as IOUs - a piece of paper stating that: I owe you 5 gold coins, for instance. Say that you deposited 5 gold coins at the bank. The bank would then write you a claim check that specifies that with that piece of paper, you can at a later time come and claim those 5 gold coins back. Now - over time what started happening, is that when people would go to the market place and wanted to buy something for 7 gold coins, but they only had 2 on them - they would go: "You know, I only have 2 gold coins on me, but I've got 5 at the bank, how about I give you the 2 gold coins plus the claim check for the 5 gold coins at the bank, and then you can just go and claim them." And from there, the ball started rolling and less and less people went to actually collect gold at the bank and started simply trading with the paper claims - which is what we currently know as paper bills. From there, it didn't take long before banks would just start printing money that was no longer 'backed up' by any gold at the bank. From this point onwards - we started trading with fiat currency - a currency that is not limited by the resources that is 'backing up' the value of the currency.

Why does that matter? It matters from the perspective that the amount of gold in the world is limited and therefore, the value of gold stays round about the same over time. What determines the value of gold? It's determined by how much of it is in circulation, and thus - by consequence, how much we are able to buy with it. So - let's take an example of a little village where 10 people live and there are in total 10 gold bars in circulation in this mini-economy. These 10 people have certain goods they want to buy and each a certain amount of gold that they are willing to spend on it. This determines the demand for the goods in the village. The suppliers balance their costs with profits - where they know that if they charge a high price, there will be less villagers able to buy the product, and if they charge a lower price it will become harder to make a profit and eventually even difficult to cover their costs. So - balancing demand and supply - a price for the goods is determined. Now - let's say that suddenly - instead of 10 bars of gold, there are 20 bars of gold - what will happen to the prices? They will go up because the demand goes up. Herein - understand that demand means: people want it and they can pay for it. So - when there is more money - it doesn't mean that people suddenly want more of something - it means they always wanted that amount, but they couldn't demand it because they didn't have the money to demand it. So - with demand increasing - the suppliers will realize that they can now charge a higher price - and so the prices of the goods in the village go up. What has happened to the value of gold? The value of gold decreased, because with the same amount of gold, people are now able to buy less of the goods - because the price went up.

So - with currency initially being backed up by gold - it limited how much money was in circulation - and so, it kept the value of money stable - because it was tied to the amount of gold that was available in the world. Gold is not something we can create - we can melt gold down and change the form but we cannot make new gold. So - the amount of gold we have in the world today is the same amount of gold that we had centuries ago. With fiat currency, however, reserve banks are able to simply print more paper money, increase the money supply - and in turn prices increase and the value of the money depreciates.

So far the reasoning of the economists seems sound - however, it is not - because they are misusing the term 'inflation'.

When they discuss inflation they assume that it means: the prices of all goods and services in an economy go up as a result of an increase in the money supply - and therefore, money becomes worth less and people can buy less and less stuff.

But what is not considered is the following: with inflation - the price of literally EVERYTHING in the economy goes up - and that includes the price of labor. So - from that perspective - if the prices of 'stuff' doubles, it's not a problem, because your wage would have doubled as well. And so - technically - yes - the nominal value of money depreciates - but the real value remains the same: you can buy less with one dollar, but you can still buy the same amount with your wage.

So - this reveals a problem in our current economic system - and how it is deviating from how things should be done. Let's take again the example of a village where there are 10 people and there are 100 dollars in circulation. If the money supply suddenly increases to 200 dollars, suppliers will up their price because the demand increased. Now - this higher price has to also increase the wages of those who work for the suppliers - and when their wage increase, they will have no problem paying the higher price. The wage of the workers would go up simply because they will demand a higher wage through their labor unions because otherwise they cannot pay the higher prices. But instead - what's been happening: the suppliers keep the wages of the laborers the same or only give them a slight increase - and instead: just make a lot more profit. And have a look - that's exactly what's been happening in the world. Why? Because when laborers demand higher wages - what do the bosses say? Well - if you don't want to work for that wage - I let you go and I will find someone worse off than you and have them do the work. That is why we have so many companies that closed down in Europe and America that moved to China and the third world in general - because they could profit from people being worse off there than in their country, that were willing to work for much lower wages.

And this is why within Living Income Guaranteed - we suggest that prices be determined according to the value that was put into it - which includes your labor. And valuing labor means: your workers must have a wage that allows them a certain lifestyle. This should be enshrined in the Constitution as a Human Right - otherwise one creates cycles of abuse where some win and most lose. And so - if all prices in the economy go up because of an increase in the money supply - your wages will have to increase simultaneously - otherwise you're committing a crime against life.

Herein, then - it doesn't matter whether you have fiat currency or not - becaue the real value of the currency remains the same. In the video they explain how the difference between currency and money is that money is a store of value - its value remains the same over time - and with currency this is not part of the definition. So - with making this one adjustment to the economic system, so that it would function how it is intended to function - we would be able to say that our fiat currency is in fact money - because the real value of the currency remains the same over time.

Is it a solution to step away from fiat currency and go back to silver and gold? No! Why not? Exactly because the amount of gold and silver in the world is limited - it doesn't change. But what does change? The amount of people in your economy. So - if you take  again the village of 10 people with 10 gold bars and let's say each owns one gold bar, but now they all make babies and suddenly there are 20 villagers and still the same 10 gold bars - you obviously have a problem - because now each villagers (assuming an egalitarian society) only owns half a gold bar. And yes - the value of gold remains the same: you can still buy the same amount of stuff with one gold bar before there were babies as you can after there were babies - but not everyone has a gold bar anymore - so the standards of living goes down anyway as you can suddenly buy less stuff.

So - to have your money supply absolutely the same over time, regardless of a change in population, is also counterproductive. When it comes to money creation - it should be calculated according to two points:
- available resources
- population

Furthermore - which is quite fascinating - in the video the economists point to history and how throughout history every fiat currency reverted back to zero - and therefore we should use gold/silver instead. But they ignore the fact that throughout history people have always also gone back to fiat currency - simply because it is much more convenient to carry around paper or a plastic card with a chip than a bunch of gold bars. I mean - making gold/silver the currency would eventually lead to history repeating itself, just because it's not practical to transport gold for transactions.

Therefore - instead of telling people to invest in gold and silver because currency will become worthless - and then at least you have something to trade with - rather correct the problem with fiat currency so that it works for everyone.

We continue in the next blog with our discussion on money and currencies where we'll have a look at the nonsense of having currencies with different values.

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• Day 251: Living Income Guaranteed and Market Mechanics
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• Day 226: Living Income Guaranteed will Prevent Destruction of Homes
• Day 339: Why the CommonWealth was Never the Common Good

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Day 240: A Bank for the People

We have an interesting point being taught in economy books - which is that an increase in investment spending has an expansionary effect on the economy - because money is invested in certain products and therefore, people are being paid or jobs being created, which means an increase in income, which means more consumption spending and so a multiplier effect sets in - because, in turn, consumption spending increases income, which increases consumption spending, where of course the increase each time becomes smaller and smaller and eventually 'dies out'. However, on the flip side - what is not spoken about in the text books, is how, at the same time as a multiplier effect is in progress - there is also a growing debt - because interest rates cause a debt to increase over time as well. And this debt, which is eventually a multiple of the initial loan, must be repaid, and so money again disappears from the economy, causing the economy to shrink.

So, within Living Income Guaranteed, we suggest banking will still be relevant from the perspective of big capital investments such as housing or cars. In some countries, we see a rising trend of loans being taken out, not for such big capital expenditure, but for day-to-day living costs, such as food and clothing. Such points will stop within Living Income Guaranteed, because one will be guaranteed to have an income that is sufficient to provide oneself with these basic necessities.

So - when it comes to loans, banks will herein make money through asking for a once-off fee rather than an interest rate - where this fee must cover labor costs and a profit markup - where the fee is reasonable from the perspective of what is required for banking to be profitable without creating a monopoly on money. And of course loans must only be undertaken if the capacity exists for the debt to be repaid.

The creation of money through fractional reserve banking would have to be revised and a way of money-creation be devised so that it stands in relation to supporting the rate at which the economy is growing - which must take into account population growth as well as available resources.

So - herein, banking becomes an actual life-support system where big investments can be paid over time and where it will increase and support the value of the citizen in terms of their life. And thus, the banking system becomes a means to truly supports economic growth as well as the growth in value of a citizen's life.

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Day 196: Market Mechanisms and Equal Money

This blog is in response to a comment made on the ‘Logistcs’ Goal on the EM Homepage:
http://equalmoney.org/goals/15-logistics   http://equalmoney.org/goals/15-logistics

Goal: Logistics

In the Equal Money System, the Banking System Infrastructure will become the Logistical System that manages and Allocates resources and goods to Each Individual in the World on an Equal Basis. And your bank card will become your Life Card, which you will swipe every time you Draw Goods and Services from the Global Life Support System. The Logistical System will make sure that each person receives their just dues and at the same time will prevent abuse and exploitation. Each person will have access to the Global System to review the current Status of Available Resources and to vote on effective distribution and allocation – and to place preference selections and make suggestions.

Comment:

"I do believe this market-absent socialism has already been proven impractical and inefficient. Especially when coupled with a form of direct-democracy type resource management such a system would surely be impossible, if not impossible then at least impractical and doomed to fail. A market mechanism, even a socialist one, is necessary, and will allow for efficiency. Command and Control, especially decentralized command and control, is a doom driven system. You need to include some form of market mechanism in order to make this successful.

Response:

There will still be a Market Mechanism in place within both Equal Money Capitalism and Equal Money. The Market Mechanism in place within Equal Money will merely replace the variables that the drive Supply and Demand in a way that actually benefits Human Life and the Planet as a whole. The Market Mechanism will thus be an holistic / ecological one – where the conditions which require to be in place to ensure a life of Dignity will signal/drive the Demand and in the Economy and whereby Supply will respond accordingly within taking into consideration Earth’s capacity to provide resources. This implies that in terms of resource distribution the priority will be placed on Needs over wants – and once needs are taken care of we look at what else is available to provide for people’s wants within the principle of sustainability and prevention of consequence (eg. where the providing for wants does not come at the expense of another).

It is then not so much a ‘Market-Force’ driving the Economy but a ‘Life-Force’ within placing Life as the principal point to be honoured.

For more information, please read:

Day 171: Life-Force and Expression in Equal Money Capitalism
Day 173: Supply, Demand, Business and Scarcity in Equal Money Capitalism
Day 175: The Economic Problem and Equal Money Capitalism
Day 180: The Word 'Capitalism' in 'Equal Money Capitalism'
Day 184: The Relationship between Ecology and Economics in Equal Money Capitalism

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• Day 181: Applied Equality in Equal Money Capitalism

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Day 164: Equal Money Capitalism - Preparing the Road for Change

Note: The EMC is an entirely new project that was started 3 days ago. We’re at the moment in the phase where we are brainstorming by answering questions. It’s a messy process – but an effective one to get all the relevant points addressed. So – also note that points will evolve and change as we go as we are not setting things in stone, but on a journey towards designing the EMC. The principles upon which EMC is based are laid out in the previous blog-post. From those principles, we work our way towards what life in EMC would practically be like and how the system will function from an economic perspective.

CHILDREN

When a child is born, the parents' company/companies will allocate an equal profit share for the child - which will be added to the parent's profit share. Every parent will have a company - because everyone will be employed.

UNEMPLOYMENT / FULL EMPLOYMENT

If unemployment exists - the government must step in to create jobs where possible - because employment is a basic human right.

ROLE OF GOVERNMENT

The government will still play a role to provide everyone with their basic human rights such as healthcare, education, housing, sanitation, roads, employment etc. So - the government will fund these points through taxes. The only tax that will exist are the value-added tax on products - this will be part of the labelling of products - where it'll show the percentage of the price that goes to tax and for what the tax will be used. There will be no need for an income tax to redistribute income in a fair way - because income will be distributed fairly from the get-go.

WILL VAT GENERATE ENOUGH INCOME TO PAY FOR ALL THE INFRASTRUCTURE: SANITATION, CLEAN WATER ETC?

VAT will be added to each product in a way to make sure there is enough within the common pool of money - which is the tax - to ensure all the basic rights can be provided. Also consider that with all military expenditure falling away - there will actually be quite a substantial amount of money available to governments with which to fund these projects.

DEBT

In terms of debt - whether it will be erased at the moment of implementation of EMC: all debt will be forgiven - it was not real to start with in any case.

MENIAL TASKS

All the jobs that no-one will want to do will disappear - the same point to the EMS applies- technology will have to be developed to replace those points - like self-cleaning toilets and stuff like that - it already exists.  All jobs of slavery that one wouldn't do if it weren't for the need to survive will go *poof*.

Initially, some jobs which are not nice will still have to be done, as the specific production processes to create particular technology/machinery has not yet been adjusted during this transition period. So for a moment, those jobs will still have to be done until the transition is complete - this will become part of the compassion department because you are doing it for the betterment of everyone. These type of jobs can be rotational in nature.

ROLE   OF EQUAL MONEY CAPITALISM WITHIN EQUAL MONEY SYSTEM

EMC is a transition to EMS - though it can still be seen - once an EMC is in place, whether it is desired/necessary to transition to EMS. In the end - the result is what matters, and this is always Equality and a Life Worth Living.

ABUSE

Abuse is psychological disorders as it harms innocents and we will prevent harm in every way possible, corruption will be very difficult in EMC. Remember the profit share motive is not one that allows boundless profits--it allows equal profits based on a life value.

OVERSIGHT IN EMC

Within EMC the principle will be that everything is to work in harmony with each other. Therefore - dependent on which level a point of disharmony occurs, it will be addressed accordingly. If there is a worker within a company that is not acting in a way that is best for the company as a whole - this point will be addressed by a tribunal within the company. If it is an entire company that is behaving in a disharmonious way - it will be addressed by government departments.

PRICING

Pricing on products will no longer be based on expensive or cheap-- or making profit --but rather sustainable pricing that ensures enough money in circulation to make the system function effectively.

Profit is not to be understood in the same way as it is now. At the moment - profit is what is left after wages have been paid and production costs are covered. Within EMC - there will be no wages - your profit will be your wage. So - every time a product is scanned when it is bought - the computer sees what percentage of the price is allocated to whom - and immediately the money-allocation happens accordingly. So - there's no need to wait a year to calculate profits - it will be immediate.

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