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How about the Lectro?

by on January 27, 2012
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People doing some independent thinking on currency often at some point come up with the idea of using energy as backing.  It is easy to see why: energy is probably our most important resource and intuitively it seems attractive to use it as currency. But does it serve the goals of Monetary Reform?

As a monetary architect I’ve spent many hours discussing monetary innovations with hundreds of people. The notion of energy backed currency pops up often and it is easy to see why: energy is probably our most important resource and intuitively it seems attractive to use it as currency.

Mike Rivero’s Lectro is a case in point, so let’s have a look at it and analyze its pro’s and con’s.

It’s a simple idea. One Lectro is redeemable for 1kWh of energy. Everybody supplying the grid with 1kWh will get a note worth 1 Lectro.

Rivero states the following:
1. There is no central issuing authority. Every home can have solar panels generating power to the grid, which is redeemable in Lectro notes.
2. Because power is now the actual monetary system, this approach encourages efficient (and with the proper tax penalties for pollution) clean power generation as well as conservation at the consumer and factory levels.
3. Nobody can short the money supply because everyone can create their own power and monetize it through the treasury. Runaway inflation is impossible because all the coins and certificates in circulation are tied to the available power grid. As power is created, coins and certificates flow into circulation. As power is used, the coins and certificates are taken out of circulation.
4. In the long term, creation of an energy-based money system will smooth the transition from a human-labor to machine-labor society. At present, human labor precedes all capital, payable in a monetary system that pays primarily for human labor. In switching to a monetary system that pays for machine based power production, we evolve towards a society where machines become the primary creators of capital, and all humans shift towards the demand side of the economy. Instead of creating poverty, the push towards automation creates more wealth.

To evaluate the Lectro, let’s first recap the Goals of Monetary Reform:

1. To end the control of the Money Supply by the Money Power and bring it back to where it belongs: the individuals forming the Commonwealth.
2. To decimate cost for capital. We are Interest Slaves. Interest is per definition a wealth transfer from poor to rich, so our Money Supply must be interest-free.
3. To allow equitable access to all. As opposed to the current situation, where the Money Power only finances those it owns or wants to own and starves the rest from credit.
4. To have a stable money supply. It should never deflate faster than the economy and if it inflates, it at least should be clear that the means of exchange is not hoarded (‘saved’).

So does the Lectro help us achieve these goals? It transpires it does not. At this point energy is produced by strongly centralized Transnationals. Big Oil and the Nuclear Industry. These industries are tightly controlled by the Money Power, so the Lectro would not end control of the Money Supply by the Money Power. Big Oil and its sisters would become the new banks.

As a result, with the Lectro we can forget about interest free credit: the Money Power will continue to use its control of the Money Supply to rape us with extortionist interest rates.

However, it most probably would allow an attack on the Money Power’s control, because it would be very lucrative for individuals and corporations to start generating energy. It would create a massive innovation boom, although this innovation would also be fiercely combated by the Money Power and of course Government, which is controlled by the Money Power.

This is where a serious weakness in the Lectro comes to the fore. Mike states: “Because power is now the actual monetary system, this approach encourages efficient (and with the proper tax penalties for pollution) clean power generation as well as conservation at the consumer and factory levels. “

The catch is: ‘with the proper tax penalties for pollution’. This will be used by the Money Power to have its scientists ‘prove’ that her energy is very clean, while decentralized energy is very bad for the environment. The Money Power will make the Government distort the market with these taxes.

Also it does not provide a stable volume of the money supply. It would be very easy to manipulate. The main threat is runaway inflation as a massive boom in energy production takes off. When production goes up, prices go down. So the currency would be depreciating and asset prices would start to rise.

Also, if the Money Power would maintain control of the volume by managing to keep Big Oil and Nuclear Energy in charge and preventing large scale decentralized production, it could easily create a boom/bust cycle.
After all, they have no problems creating a ‘Peak Oil’ phenomenon. This would mean deflation when the Lectro is our money.

Conclusion
We need to keep the eye on the ball: who is in control of the money supply? The Lectro does not provide a satisfactory answer to that question. In its early stages the Money Power would firmly control it and although the Lectro would allow a reaction through decentralized production of energy, it is far from certain that this would lead to free energy. After all: there is every incentive today to create ample energy, but it is not forthcoming.

However, the main issue is that there are better solutions already available: Mutual Credit can provide interest free money, completely free from control from the Money Power or even Government. Social Credit and Public Banking are two other systems serving the goals of monetary reform.

Related:
The Goal of Monetary Reform
On Interest
Budget of an Interest Slave
Mutual Credit, the Astonishingly Simple Truth About Money Creation
Mutual Credit for the 21st Century: Convertibility

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13 Comments
  1. The lectro would be somewhat of an improvement but it doesn’t address the more important issue of how do you keep banksters from rigging the money supply via fractional reserve lending?

  2. In mutual credit there is no such thing as a “gap”. Social credit allows this notion to explain how usury driven central banking can’t work in the longer run. Thanks Rduanewilling.

  3. Mike is in the paradigm of “how can you pay P+I if I is never created?” It’s really P = 1T(borrower) + T1(“seller”). (“I” + P) = [1+1T(borrower)] +[ T1("seller") + T1(banker)]. “T” is a balance. Does that make sense? I can clarify if it doesn’t. It really changes your perspective once you get it. If you don’t get it, you’re going to come up with some crazy approach, grasping for vines that aren’t there in an effort to pull yourself out of the mire.

  4. Liam B Allone permalink

    In your conclusions, you posit three potential alternative solutions but only one of these will work. I posted a reply to the Mutual Credit thread which I will append to this one shortly. As for Public Banking, it won’t work either. The problem with both these systems is that they don’t deal with the ROOT CAUSE of economic failure – the GAP. It is NOT interest that is the root cause. Interest is fundamentally just another form of profit. I’m not saying it’s not a problem in our society. It is a HUGE problem and is the fundamental reason economies can’t recover – but it is not the ROOT PROBLEM. Take all usury away and you’re still left with failing economies becaus ethe GAP still hasn’t been addressed. Only Social Credit from Douglas or National Economy from Soddy have successfully addressed it and modeled a correct solution.

    I have challenged Ellen Brown repeatedly about how Public Banking will address the GAP. She once wrote me personally and told me she doesn’t get the gap. That is intellectual laziness. She participates in the Social Credit Google egroup and posts links to her articles but she has never once stated how public banking will address the gap. Unless she can adewuately explain this in some magical way, I remain convinced that Public Banking will not lead to a prosperous economy. At best, Public Banking and Mutual Credit will make the patient feel a bit better for a short period of time. Here’s what I posted about Mutual Credit:

    What about the gap? How will LETS solve the problem of being able to repay that which is unrepayable? Producers will continuously need to rely on “someone” making up new credit to cover the outerwise-unrepayable B costs! I liked this idea when Tommy Kennedy came up with it a decade ago but he has never given me an answer to this question.

    Unless you can show me how LETS can effectively deal with the Producer’s GAP, I am certain that it cannot succeed. Producers will not be able to liquidate their inventories because they will not be able to come up with money to meet their B costs. (i.e. they don’t pay it out in LETS wages so it is not there to cover the whole price) Only Douglas and Soddy thought this aspect through in their solutions.

    Keynes acknowledged the gap but never addressed it or solved the problem. That’s why his model doesn’t work. Kennedy doesn’t even acknowledge the problem. Putting his head in the sand won’t make it go away.

    Here’s what I said about Mutual Credit

    • The end of interest would double the purchasing power of the average consumer Liam.

      Are you sure that is not sufficient to solve the GAP problem?

      • Nik permalink

        People should have the right for whatever their different ideas are of what is best.

        Just as Anthony for example, maybe needs to get interest out of his system, other people maybe need to get Gold out of their system and on it goes.

        What is looked down at as the ‘Sheep’ effect for mass majority behavior, when provided with CHOICE in this area, will actually move UN-failingly to what will work best over time.

        It is in the jettisoning of the Zero-sum mindset of either this or that etc, that the true nature of monetary systems will be realized & bounty yielded.

        • I’m quite positive that the future will see all sorts of experimentation.

          This piece is far from an attempt to rule that out, on the contrary, it’s an attempt to get some discussion/thinking going about possible systems and their pro’s and con’s.

          The lack of that is one the key reasons Austrianism has taken over the blogosphere so easily.

      • To answer your question, I am POSITIVE that eliminating interest will not be sufficient to fill the gap. Reason it through for yourself. If there is no interest, when a producer makes something, will he still have B costs (i.e. money not paid out in wages, profits and earnings into someone’s jeans with which he can buy something)? Obviously the answer is YES. That’s the GAP! Ignore it at the cost of more failed economic policy. It’s that simple.

  5. The answer is to use manpower as the numéraire as in the Passive BIBO Spec:http://www.bibocurrency.org/English/standard.htm

Trackbacks & Pingbacks

  1. How about the Lectro? | The Money Chronicle | S...
  2. Interest-Free Economics « regionalcurrencies
  3. Regional Currencies in Germany: the Chiemgauer « Real Currencies
  4. Ellen Brown’s Public Banking « Real Currencies

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