A while back a German economist by the name of Silvio Gesell wrote a book called the Natural Economic Order. This book has received little attention amongst main stream economist but attracts a loyal following amongst intellectuals and otherwise far-out armchair philosophers.
His work gives us a simple answer to many of the economic woes this country has faced in the last 100 years since the creation of the Federal Reserve. The answer is quite simple... create money that systematically loses value over time.
To start with, we must rethink what money is. Money is a common faith medium of exchange. We all agree that the note of 10$ buys 10$ of good. Nobody is in charge of assigning value, and thus everybody is in charge of assigning value. This is free market capitalism at it's best.
Prior to 1971 America's currency was backed to a Gold standard. Gold is a finite resource and so the value of 1 dollar can only change by a major issuance of money and a reconfiguring proportionally of the dollar to Gold value. This type of money system has as its ideal a fixed value for money which is (theoretically) eternally unalterable.
Since 1971 America's currency has been decoupled to any substance and is issued and taken away by the Federal Reserve. It literally creates money out of thin air, loans it to private banks, and then those banks loan it to individuals. The banks take the risk of the loan and make the arbitrage gain on the interest differentials.
There are thus two main forces being balanced in America's economy, interest rates (the penalty for borrowing and the benefit of having) and inflation rates (the rate at which 1 dollar loses it's purchasing power). For the last few decades, interest rates have been higher than inflation rates.
In short, if you have more than enough money for your daily needs, your surplus will grow into even more money. However, without a surplus of cash, you will simply be stuck where you are or losing ground relative to those that have enough.
This system is suboptimal in that those who work the hardest, develop the most innovation are not rewarded unless they also have the capital means to compete with larger businesses who can offer less optimal products at a lower cost.
On the contrary, those who simply have money can be rewarded without even having to accomplish or contribute anything useful.
Which Leads us to the Recent Market Collapse
Hence the current market situation. Big banks took big risks with their money hoping to profit solely from the transaction. No innovation, no work, no investment. Essentially highly leveraged speculation that they could achieve a great return with almost no real effort.
The main problem with our money system is that the money we have grows and reproduces without additional input, while the goods that it can buy do not. If $1 buys a loaf of bread now, then in 10 years at 7-8% interest it can by 2 loaves of bread. However, one loaf of bread when left to it's own devices does not multiply into 2 by itself, it requires input. Thus rather than be productive with my surplus, it is more lucrative to simply loan it at interest and to make even more without additional work on my part.
But we simply cannot have something for nothing... it's not how nature works.
Our system penalizes the spreading of wealth (when everyone wins I win too) while benefiting hoarding (trickle down economics - you will win a little if I win alot). We know that hoarding is bad for an economy at a large scale. We all profit off of specialization and division of labor which can only succeed with widespread trading. Consequently hoarding is one of the most destructive economic forces. We now know that the Great Depression of the 1930's was mainly caused not by a lack of technology, natural disaster or anything beyond our control. It was caused in a large part by social disorder in which the average citizen didn't trust the banks, and the banks didn't trust the citizens or each other.
As blood is to the body, money is to a society... it's only useful if it flows around.
So what if the advantage of hoarding this "magic" growing money was taken away? What if inflation (or devaluation) was increased in such a way that it was to no one's advantage to hoard? If hoarding my money actually cost money then what alternative do I have but to spend it in order to maximize it's usefulness to me?
In a monetary system where money actually loses value, then it is literally true, if we don't use it we lose it.
The main benefit of such a monetary system is that the most productive people would be the wealthiest and the divide between rich and poor would necessarily be diminished, though not eliminated. And it wouldn't be diminished by force. Furthermore the rich/poor divide will be decreased with the added benefit of increased innovation and efficiency, which would be a net gain for the overall economy.
Money which devalues over time actually penalizes the rich for doing nothing productive with the money and rewards the diligent and efficient producers for trying harder and developing his talents and skills. Counter to most economic theory then, controlled inflation can actually be a good thing as it keeps hoarding down and trading up.
Now that's the American dream right?
note: Some of the largest consequences of this theory would be that the banking (savings) and credit card industries would no longer be needed. Everyone would actually buy ahead of time to get the most bang for their buck. Saving would also be pointless.
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- Greentheo's plan for economic recovery
- Federal Reserve and govt hard at work concentrating power into the Hands of the wealthy...part 2