Thu Sep 28th, 2006 at 06:49:13 PM EST
The elephant in the living room of our economic discussions is monetary theory. Not the monetary theory that ChrisCook says is complete bollocks due to the faulty assumptions that underpin it but, in a broader sense, "[any and all] theories of money".
So, in the Socratic spirit of asking naive questions to expose hidden assumptions:
- What is money?
- How is money created?
- What determines the value of money?
- Why do we pay interest?
Below the fold, some quotations by ChrisCook to get the discussion going...
In short, our current [monetary] system is akin to the Emperor's Clothes, and sites like ET are well placed to point the finger of fun to point it out.Previous instalments of the Socratic Economics series:
* Colman: Socratic Economics I: Why GDP growth above all else? (June 29th, 2006)
Any energy policy which sits upon a deficit-based monetary infrastructure is doomed to failure.
The solution IMHO can only lie in "reversing the polarity" to create firstly "asset-based" investment mechanisms particularly in renewable energy, and secondly, generic clearing, along the lines advocated by Keynes at Bretton Woods, but with a global monetary "Value Unit" based upon energy.
To me the problem lies with the nature of the assumptions that underpin Economics, and with the treatment of both Money and Property as "Objects" when in fact both are "Relationships".
The Money that we use is a toxic interest-bearing Object issued by credit institutions for the most part not based upon "Value" or "Money's Worth".
This "Deficit Money" is a "claim over Value" and represents "anti-Value" rather than "Value"
In my opinion any rate of interest charged in excess of the cost of administration and the costs of defaults is de facto inflationary. If it is not, could someone explain to me why not?
Growing inequality is an inevitable consequence of two factors:
(a)a deficit-based monetary system; coupled with
(b)absolute property rights in respect of "Commons" such as Land and Knowledge.
A deficit-based economy is unsustainable mathematically, and the only solution is, in due course, that proposed by Keynes (and now Stiglitz) of an International Clearing Union and (the view of others like Lietaer) an asset-based Value Unit - eg a "Petrodollar" based upon energy.
The second factor was addressed over 100 years ago by Henry George's idea of a "Single Tax" ie Land Value taxation, a policy which is once again receiving much attention, and is looked upon with approval by Martin Wolf, among others.
And if you need more [money], why should not the Treasury issue credits interest-free?
Who actually needs a Central Bank as an intermediary anyway? We no longer need banks as credit intermediaries, although there is a requirement for the MANAGEMENT of credits created bilaterally.
Ah, you say: to allow a Treasury to create credit would be INFLATIONARY.
And yet when Banks create it - adding an interest burden on top - then that is OK.
We take for granted the current "Deficit-based" monetary system which is based upon credit issued by "Credit Institutions" as a multiple of their capital base.
Unfortunately conventional economics is based upon the assumption that the IOU's / "claims over Value" issued by Banks represent Value as opposed to its complete opposite. The fact is that the Economic Growth we are told is desirable is an imperative of such a deficit-based system, because when Money is created as an interest-bearing loan, it is necessary for the Economy to grow to create the Value against which further IOU's may be issued and so on.
We are now running up against the unavoidable fact that resources - particularly oil - simply do not exist at a level necessary to accommodate the level of economic activity required to service the global interest requirement on the Money supply.
We must "Reverse the Polarity" of the money supply so that it becomes "asset-based" rather than "deficit-based".