"In any monetary production economy, in order to expand production, and hence real income, there needs to be an expansion in money first, preceding the expansion of production." Why?
Why?
Credit is needed for the creation of productive assets. The money we use is credit. Therefore money is conventionally needed.
The examples you give relate to you, the individual, producing objects and services by investing your time in their production.
You thereby create new "Money's worth" with a value in exchange and you may liquidate this value in exchange in two ways:
(a) straight barter - eg cakes for fish, with no "money" involved, and no reference to money;
(b) delayed barter - ie with credit, or "time to pay", and this requires "Money".
There are two mechanisms for delayed barter.
The conventional route is that a bank creates credit as an interest-bearing IOU, or in the case of a Central Bank/ Mint, a non-interest-bearing IOU such as a Ten Pound Note. You then accept the IOU in exchange (the first leg of the barter) and in due course exchange it for something of value (the second leg of the delayed barter transaction). This system uses a "credit intermediary", which is the function of a Bank.
The second possibility is of disintermediated or "Peer to Peer" credit, and this takes place where settlement is made in due course - after a period of time - through the acceptance by the seller of "money's worth" either from the original buyer or from someone else within a monetary system, by reference to a "Value Unit".
The WIR Bank is the closest there is to such a system.
This is a Swiss Business to Business (B2B) barter system with in-built credit. The discipline which has supported this system and made it so sustainable is that members have to give a charge over their property. So any debit balance would be settled by disposal of property.
In other words the WIR is a property-backed monetary system where money's worth of goods and services changes hands not for Swiss Francs, but by reference to Swiss Francs as an abstract Value Unit.
My ambition is facilitate the networked and viral spread of such systems to retail "B2C" transactions through the use of "Guarantee Society" framework agreements. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
But my question is why should the expansion of money need to take place before the expansion of production. In my example, it either took place afterwards, or not at all (with a deflation that increased the value of existing money). Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
As far as I can see, this would be - conventionally - deflationary, since there is, all else being equal, now relatively less (albeit infinitesimally so) money than money's worth available to buy.
Provided you can "afford" to provide these goods and services (ie it's in your "spare time", and your cost of living is met from other sources), then money is not needed.
But normally you will need money (or rather, money's worth purchased with money..!) to survive in the period before people pay you. ie the period in which you are giving your employer credit. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
If its part of an expansion of production, that requires either an increase in the velocity of circulation of money or an increase in the money supply ... and while the velocity of circulation can increase, it cannot increase without limit, therefore the ability to sustainably increase production requires the ability to expand the money supply in advance of production.
It is misleading to refer to money as "debt" or "credit" and especially to refer to money under one set of institutions as "debt" and under a different set of institutions as "credit", because a financial debt is also a credit and a financial credit is also a debt ... a financial asset is a commitment, with someone obligated to perform some activity on one side of the relationship and someone who is the beneficiary of that activity on the other side. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
If I buy equipment, that equipment had to be produced. If it wasn't produced before, it is an increase in production, even though it may come a year or more before the finished good that I have in mind is on the market. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
The workers that produce the equipment need to be paid, after all, and even for lengthy production projects requiring payment for work in progress ... the payment is for meeting benchmarks, so its payment for the work that has been finished. The materials and other costs of production and the wage bill must still be financed. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Perhaps the money we use today, but not in the times of the gold standard. Then all money was backed up by gold. Gold is a natural resource (which has mostly just exchange value) and not debt.
Oh no it does not! The price of gold increased tenfold in real terms over the past 40 years (something like that -my wife is in Laos with the book that has the source, namely "The Accidental Theorist by Krugman, so I can't check for the exact numbers). Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
Not in real terms i believe. The purchasing power of 1oz of gold, i believe, is about the same today as it was 40 yrs ago. My point, however was against the idea that money is debt. Money is exchangeable property. You can change your not-so-well-exchangeable property to money, it is not debt. If you find piece of gold somewhere, it is not debt. It is debt if you borrow money.
ie credit has been "monetised".
Gold backing for monetised credit ended in 1971 ie the practice of requiring the "Capital base" to be stocks of gold bullion so that credit was nominally redeemable in gold.
There is not remotely enough gold in existence sufficient to meet the needs of the global economy. What gold does exist is demonstrably subject to routine manipulation by intermediaries (and Central Banks appear to be the worst offenders), so it would be inappropriate to use it as the basis of a currency.
IMHO we should use as a basis for a currency Units redeemable for other, more abundant, forms of value, in particular land rental values and energy. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
That is absolutely correct.
"The money we use is interest-bearing debt created by credit institutions upon the base of an amount of capital set by the Bank of international Settlements in Basel."
This is very interesting and complicated. I will have to read what is written about this..
Really?
I can't find the figures for 40 years ago, but let's try 1971 then -37.
As you can see here Deflators, 40$ in 1971 would get you in 2007 (figures not available for 2008, but it would be around 3% extra):
$204.73 using the Consumer Price Index $165.75 using the GDP deflator $222.12 using the value of consumer bundle (probably the most relevant) $200.31 using the unskilled wage $336.89 using the nominal GDP per capita (that makes little sense in terms of purchasing power) $490.02 using the relative share of GDP (makes no sense at all in terms of purchasing power -you'd have to have newcomers receiving zero to bring it to the previous, already inflated, figure)
As you can see here Gold price history, an ounce of gold was worth around $35 (I didn't want to be told that my figures were due to rounding the graph too low, hence my 40$ above). That reached around 680 in 2007.
So OK, my tenfold was way off, it's actually threefold (or maybe it's not over 40 years at all, but much longer, or rather over the seventies, where it was indeed tenfold in real terms), but as I said I didn't have the figures with me. The point is that it's a legend to hold gold as fully representative of purchasing power. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
