Day 169: Equal Living within Equal Money Capitalism

Note: The EMC is an entirely new project that was started a week ago or so. 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-posts. 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.

 

Debt Forgiveness

Q: If all debt is relieved, won’t there all of a sudden be a large group with no jobs all at once”

A: Those who may find themselves in a position of unemployment as the result of Complete Debt Forgiveness will either be integrated into other companies - or government will provide them with new jobs. Preferably, these types of outflows would have to be considered before implementation to ensure smooth transitioning from one system to the next – and would thus have to be calculated and planned prior to full implementation.

Countries

Q: Will people be able to choose in which countries they will live?

A: Yes – though in the end, every location will be supported and equipped equally in terms of infrastructure to ensure an equal standard of living in every location / country. This in itself will minimize the amount of migration as migration currently is mostly based on economic reasons.

 

What happens with Deficits / Surpluses?

Q: Since a person’s income is dependent on the profit from products being purchased, if the products are not purchased enough to give them sufficient income, do they get supported from compassion department, while it gets sorted out?

A: Yes, those companies that are very successful and sell more than they require paying out everyone with the same income will transfer their funds into a centralized bank. The bank will then utilise these surpluses to momentarily subsidize those companies who are running a deficit. The fact that they are running a deficit may indicate a point of ineffectiveness within those companies which may be corrected. When deficits are identified - someone will be sent to intervene and evaluate the situation. The company with deficit will receive training from similar companies who have proven to be effective and successful, so they may learn from their methods and techniques and become equally effective.
 

Bottom-Up Democracy

Q: So this will be a top-down system like today's?

A: No - because the top is the bottom - direct democracy means that the people rule. Equal Money Capitalism’s political process will be the same as the process outlined within the Equal Money System – which is a form of Direct Participation. You can read more about the Political Nature of both Equal Money Systems here.
 

Payments for Non-Products?

Q: How do people earn an income from jobs that don't produce a product that is purchased, or will everyone need to do a job that produces something to be bought? or does compensation also happen as paid from the government not just consumers purchasing products?

A: Yes - any value that is added - whether to a product or not - will be compensated. So - for government services - you simply do your hours and receive an equal income like everyone else. Whenever you purchase a product or a service – you are always paying for the labour involved, as such there is no difference when paying for a product versus paying for a service.

Related articles

• Day 167: Harmony and Equilibrium within Equal Money Capitalism
• Day 163: Equal Money Capitalism - Redefining Profit
• Day 166: Corporate Social Responsibility in Equal Money Capitalism
• The Future of Integrity with Equal Money Capitalism
• Day 165: Equal Profit Share and Equal Money Capitalism

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Day 78: Monetary Policy - Part 1

Now that we know what is involved with the supply for money and the demand for money - let's have a look at one of the policies used to influence the money supply in a certain economy.

Note that there are several policies, but we limit the discussion here to the accommodation policy.

Accommodation policy

In The Demand for Money - Part 1 it was mentioned how the interest rate will influence the demand for money. If the interest rate goes up - and thus, loans become more expensive - the demand for money will go down and, in turn, the supply of money will go down as well. Why do I say that the supply of money will go down if the demand for money goes down? Because money is mostly created through loans and loans are only created when there is a demand for it. We therefore speak of a 'demand-determined money supply'.

If the interest rate of individual banks has such an influence on the money supply - then what influences the interest rate? What influences the interest rate is the repo-rate.

The repo-rate

What is the repo-rate?

When banks are having liquidity problems - meaning: they don't have enough cash - they will usually borrow funds from other banks on 'the interbank market'. However, if all the banks are simultaneously experiencing liquidity problems, they turn to the central bank. We say that the central bank acts as 'lender of last resort'. Borrowing from the central bank is done by means of repurchase agreements. A repurchase agreement is the sale of securities together with an agreement that the seller will buy the securities back after a specified period of time - for instance, 7 days. So, in terms of banks requiring liquidity: they will sell securities to the central bank - with the money obtained from the sale, the individual banks relieve their liquidity shortage. However, the indivudal banks must agree to repurchase those same securities from the central bank after, for instance, 7 days. You can see that repurchase agreements are in essence the same thing as a loan - where money is given to the individual banks (in exchange for securities) and the individual banks have to pay this money back after a specific amount of time (after which they also get back their securities).

Now - in the same way as individual banks charge a 'fee' for their lending services by charging interest, so does the central bank make use of the repo-rate. The repo-rate is basically the interest rate that the central bank uses. It means that the amount at which the individual banks repurchase the securities from the central bank, will be higher than the initial amount. And this higher amount is determined by the repo-rate.

So - what does the repo-rate have to do with the money supply?

Well - we're dealing with a domino-effect. If the repo-rate is high, it means that it costs a lot for individual banks to get funds.
If banks are faced with higher costs, they will 'pass the cost down' to their clients, by making their interest rates higher as well. And if the interest rate is higher, the demand for money will go down, as it becomes less interesting for individuals to get a loan at a bank, knowing it will cost more to pay the loan back.

On the other hand - if the repo-rate goes down, individual banks can afford to lower their interest rate as well and will do so to become more competitive. With lower interest rates, the demand for money will go up, and thus also the supply for money, because it is more interesting to take out a loan at a low cost (low interest rate) than at a high cost (high interest rate).

So - the accommodation policy refers to the decision of the central bank to make the repo-rate higher or lower. Because - if the repo-rate changes, other interest rates will follow and if the interest rate changes, the amount of money in circulation changes.

For instance, if the central bank wishes to avoid inflation - it can raise its repo-rate, which in turn raises interest rates, which will refrain people from taking out loans and increasing the money supply to a point where all prices increase and keep on increasing.

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