And, no, if it is not a monetary production economy ... if money is not required in order to gain command of the means of the production ... then money is not required to expand production and income.
For example, in a pure freeholder subsistence economy, in which the means of production are inherited or otherwise allocated as inalienable property, producers can work longer hours to produce more, provided they can perform the production with the resources they already command.
If they have to buy something in order to produce more ... a tool, seeds for a new crop, fertilizer ... then they either have to have physical savings ... something stockpiled that they can sell to raise funds ... or access to credit. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Well, that's an important alternative isn't it? I know savings had a bad name in the States lately, but if I reckon that a direct investment will yield more (risk balance taken into account) than my savings account and to that respect divert some money from them to the investment, I'should be doing exactly that.
I know everyone wants huge returns from extreme leveraging, but that may be part of the problem. We now see absurd situations where investors massively buy US bonds that yield negative real returns when there are essentially risk free investments (like Jérôme's projects in areas with feed-in tariffs) that struggle to happen even though they would yield enough to easily repay a bank loan should the bank have money to lend.
If there truly is a savings glut as many argue, then there should be no need for monetary creation. All capital projects should happen and happen frequently. Except that people want double digits returns on capital and to be bailed out when one investment fails, but if one demands the unachievable, it should come as no surprise that it cannot be achieved. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
I know everyone wants huge returns from extreme leveraging, but that may be part of the problem.
Most leverage comes from the use of credit and it is the worthless nature of bank-created credit that is directly responsible for inflation of asset prices, and an indirect contributor to retail price inflation.
The principal cause of retail price inflation is fiscal deficit. ie when government credit which is not backed by taxes is spent into circulation (as opposed to being invested in windfarms etc).
Cyrille:
If there truly is a savings glut as many argue, then there should be no need for monetary creation. All capital projects should happen and happen frequently. Except that people want double digits returns on capital and to be bailed out when one investment fails, but if one demands the unachievable, it should come as no surprise that it cannot be achieved.
At the heart of our problems is people's unrealistic inflationary expectations combined with the hybrid nature of the money as debt that we use.
Money has no cost - unless it happens to be debt.
Credit (as distinct from money) does have a cost - and that is the cost of defaults, combined with system operating costs.
The use of Capital - by which I mean productive capital, such as land, energy equipment, and, increasingly, knowledge - does not so much have a cost, as a market price.
Capital in existence (your savings glut - largely consisting of land rentals monetised through mortgage intermediaries) has expanded massively over time, and the market price of "low risk" Capital has shrunk from 25% pa in Babylonian times, through 10% pa in medieval times, and 5% before the dawn of the industrial revolution, to what is probably 1 to 2% now - maybe even less.
I am proposing what is a Debt/Equity swap on a massive scale, the effect of which will be to reduce massively the financial claims on property users by removing the debt obligation. The result will be that debt owners will not be wiped out,but will have a tradable form of quasi equity carrying a reasonable real return.
So the vast pool of "savings" out there - which is rapidly disappearing down a black hole as market prices of land in particular collapse - may be redeployed in low risk "affordable" housing and in refinancing low risk existing public infrastructure.
This will give investors a low risk real return. Those looking for greater returns must take a greater risk, which will typically be "development risk" in new projects. Good returns are possible here without leverage, but not without risk.
Not everyone with savings is prepared to take such risk, and the problem has been that people have been looking for rates of return in excess of the populations' capability to pay them, one of the reasons for that being that capital ownership is not widely spread.
Mathematically, this debt money spree had to end, and from Babylonian times onwards we have always known that debt is unsustainable - which is where the concept of the Jubilee comes from.
What I am proposing is not so much to "forgive" debt but to reinvent it into a new type of equity. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
An individual decision to spend out of "saving" is handing financial assets to someone else, and they hand money over, and that money is spent. It changes the identity of the person spending the money on goods and services, not the quantity of money spent.
You are trying to get a handle on it from the bottom up, without looking at the system within which it is located. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
