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Interest-Free Credit (including MPE!) and the Management of Volume

by on May 28, 2013
Interest-Free Credit and the Management of Volume of Money

The management of the volume of money is a very hot potato for all involved in monetary reform. Many in the interest-free credit community seem to think that no management is necessary at all, as long as the credit is asset-backed. And that we can always have all the credit we want. However, we need a stable money supply. It’s immaterial whether the money is asset-backed or not.

‘The issue of money ought to correspond with the growth of population…. The revision of issue is a material question for the whole world.‘ (Protocol 20)

The notion that everybody can have as much credit as he has assets to offer in an interest-free credit environment is quite widespread. Those promoting LETS based schemes and Mathematically Perfected Economy also seem to believe this.

However, with an interest-free credit based money supply, more credit means more money. The money supply grows when new credit is issued and shrinks when debts are repaid.

Their reasoning is, that as long as the credit is backed by assets, it will maintain value as money.

But prices are a function of the volume of money. If volume grows (with constant velocity, supply and demand) prices will rise, if volume shrinks, prices will dwindle.

Once the credit becomes money, it follows the laws of money, no longer the laws of credit.

Easy proof is today’s situation. Our current money is asset backed credit. True, it’s a usurious money supply, but just look at the housing market. We all agree the bubble was created by the FED through low interest rates, leading to a high demand for mortgage credit. With a mortgage one’s credit is basically decided by the market value of the house one is buying and of course one’s income. You’ll get more credit for an expensive house than for a cheap one, as long as you can afford the monthly payments. And this creates a positive feedback loop. The higher prices get, the more demand for credit there will be, the more money comes into circulation, leading to even higher prices.

Until the Mortgage Backed Securities hoax popped and the Bank of International Settlements simultaneously raised the capital reserve requirements for the banks. Overnight there was no credit for anybody anymore. The banks wouldn’t even lend to each other. The money supply collapsed, velocity collapsed and housing crashed catastrophically and devastated the economy.

Simple as that. This would be exactly the same in an interest-free credit environment. Even the deflationary crash would happen with an interest-free credit scenario, as at some point a panic would be unavoidable because incomes would not be able to rise as quickly as the prices of the assets. Which would tell at some point.

The problem is, the value backing the asset is a market function. Price is a result of supply and demand (as classical economics teaches) AND volume of money (as commons sense and experience dictate). If left unchecked, asset bubbles would be unavoidable.

Interest-free credit based money supplies need stable volume to achieve stable prices for the assets backing the credit.

Incidentally, I do not fully agree with the above Protocol quote. It should be slightly fine tuned to adjust not to population, but to the value of transactions in the economy. More transactions (in terms of their monetary value) mean a larger need for money.

An interest-free credit based money supply should be stable compared to the volume of transactions and the available credit should be shared equitably amongst the people and businesses using the money.

So if Volume must be managed, who should do it?
Some kind of monetary authority is necessary. Throughout history it was either the Sovereign and his scribes and priests or the Money Power that managed the volume. Basically history is mainly the struggle between these two forces for control of the money supply. The Sovereign and the people needed each other and the people were better off with him in control. Money would be plenty and non-usurious.

But the Money Power slyly preyed on the all too common misunderstanding that money is wealth, instead of an agreement. In older days senior Government officials knew this, but nowadays don’t.

Saying the ‘market’ should do it is just New Speak for saying the Money Power has been doing just fine over the last few millennia. In the old days it was those owning the mines that circulated specie and beguiled the gullible masses with it. They combined control of specie with fractional reserve banking. It goes back all the way to the ancients. Please read David Astle’s incredibly important and brilliant book on ancient Sovereign money and how it was busted by Gold and Silver racketeering if you still believe Gold has anything to do with ‘freedom’.

Nowadays the Money Power is the banking cartel with the Central Banks and ultimately BIS at its apex. Calling Central Banks ‘statist’ operations is just one other silly joke invented by the Volker Fund and its successors. Many similar stupid jokes have been circulated by the Money Power’s henchmen over the last 5000 years.

On the other hand: Government these days is clearly unfit to do it. They can’t even wipe their own behinds, let alone ours. They don’t know money, are all sell out crooks, corrupt to the core. They’re almost done surrendering sovereignty to supra-national (bankster) entities. Only the mediocre turn to bureaucracy and never has this age old truth been more true than today.

One could argue that Government would look very different if it provided an interest-free, plentiful money supply, as this would free herself from the Money Power too. But the Nation State itself is a very artificial construct. In fact, it’s a product of the Money Power itself. Medieval Europe was highly decentralized. The strong kings that created these European empires in Spain, Italy, France and England in the late middle-ages were already strongly in collusion with the financier class. The Amsterdam Empire of the 17th century was the first undisguised Bankster proxy, later outshone by the British Empire they had taken over through Cromwell and William III, Stadtholder of Holland and Prince of Orange.

Before then regions with their own dialects and customs were highly autonomous, even when part of a larger kingdom.

In the United States too, there was a long struggle to consolidate power with the Federal Government at the cost of regional and State rights, culminating in the Civil War, when Lincoln finally got the bankers their coveted highly centralized government, including national currency.

So the case for regional currencies, in whatever form, remains.

Conclusion
Some kind of monetary authority is necessary. There will always be a greater demand for credit than for money. Therefore additional funding schemes should be available besides the interest-free credit used to create the money supply. JAK Banks come to mind. But also brokerages, where people can invest and share in both profit and loss. This is close to Islamic banking.

Nobody in his right mind wants the ‘market’ to do it, since the ‘market’ is now close to externalizing the hierarchy it has been building for millennia into a full-blown World Government. It’s not a matter of ‘public vs. private’. It’s a matter of non-usurious, stable and plentiful money decentralizing power vs. usurious,  unstable and scarce money centralizing power. If private Mutual Credit facilities can deliver stable interest-free credit, then let them do it. If the Government can create a decent Social Credit with Demurrage unit, fine.

Perhaps other forms of governance over these units can be suggested. Or new ways of combating abuse. Wider education about the simple mechanics of money are indispensable for improvement.

Either way, this is a crucial issue. It’s also a divisive one. People are attached to their ideas. In Interest-Free economics this issue is underestimated and that’s a very serious weakness. Many people don’t believe in Interest-Free economics exactly because they don’t see how volume is properly managed.

Answers are available and questions remain too. But the volume always has been and always will be managed one way or another.

Related:
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Mutual Credit and Inflation
The Jak Bank: Interest-Free Full Reserve Banking!
Social Credit with Demurrage

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62 Comments
  1. Using the current usury model to establish that the money supply (volume) needs to be “managed” does not apply to an interest free money creation system. Bubbles are created as ALL markets are manipulated by Wall Street investment banks, giant hedge funds, the Federal Reserve, complicit politicians, etc. If usury is ended, much of manipulation would leave with it.

    If there is a concern with volume, it should be with deflation (money supply diminishing) and not inflation (increases in the money supply). ALL money would be temporary in the system that you suggest and it would last only as long as the duration of the loans used to create it.

    Hopefully, as the loans are repaid, new loans would be issued at a rate that is at least equal. Money would need to be created at the rate of money destruction in order to maintain the money supply.

    If people began to prosper, and did not need to borrow as much, the money supply would contract which is the definition of a depression (the money supply contracted by arpound1/3 from 1929 to 1933).

    I think that an interest free money system would require some amount of “permanent money” to remain in circulation. “Permanent” money can be defined as money that is not self extinguishing. It could be “spent” into the economy without incurring any debt.

    • moneylender permalink

      All problems are solved by Interest Free Loans for productive capacity.

  2. Mr. Keynes noticed back then, what is also very noticeable today: these groupies are in need and search of an idol:—
    The last decade of his life was spent in Berlin and Switzerland and devoted to propaganda. Gesell, drawing to himself the semi-religious fervour which had formerly centred round Henry George, became the revered prophet of a cult with many thousand disciples throughout the world.

    But there is a great defect in Gesell’s theory. He shows how it is only the existence of a rate of money interest which allows a yield to be obtained from lending out stocks of commodities. His dialogue between Robinson Crusoe and a stranger is a most excellent economic parable –as good as anything of the kind that has been written– to demonstrate this point. But, having given the reason why the money-rate of interest unlike most commodity rates of interest cannot be negative, he altogether overlooks the need of an explanation why the money-rate of interest is positive, and he fails to explain why the money-rate of interest is not governed (as the classical school maintains) by the standard set by the yield on productive capital. This is because the notion of liquidity-preference had escaped him. He has constructed only half a theory of the rate of interest.

    http://userpage.fu-berlin.de/~roehrigw/keynes/engl.htm

    ======
    Jerome Blanc, Silvio’s theory and accelerated money experiments

    http://www.i-r-e.org/bdf/docs/blancaccelerated.pdf

    supplemental and based/built upon the stable schilling; to alliviate a currency shortage (the problem was lack of volume, not lack of velocity); ultimately redeemable for taxes

    ” Wörgl was an impoverished town of 2,000 inhabitants; within its borders there were 1,500 unemployed. Moreover, the town was in state of bankruptcy. In July 1932, its mayor, Michael Unterguggenberger, set up a system of stamped notes called «labour notes» of one to ten Austrian schillings that were issued by the municipal office. Every month, holders of labor notes had to buy stamps of 1 percent of their nominal value to maintain the notes. The notes issued were totally backed on a schilling reserve. The municipal office paid a part of the salaries of the municipal employees. This stamped money circulated in the town and the neighbourhood, people trusting in their final reception by the municipal office, which received them in payment of taxes at par with the Austrian schilling. Moreover, it secured the convertibility between the stamped notes and the Austrian schilling, taking a 2 percent duty.”

    —non-demur treasury notes have done the same

    “We can observe that the attempts to put stamped money systems into practice
    occurred in very specific contexts. The example of Wörgl’s stamped money shows that the survival of such a system requires a united, small, and compliant population, who are fully aware of the advantages of such a system. Hence, in Wörgl, before paying a part of the salaries of the municipal employees with the stamped notes, the employees agreed to be paid with this money. This means that an accelerated money system would probably be viable on a small scale only, and, on a larger scale, for a limited time only and under conditions attractive enough to incite the whole population to play the game.”

  3. Plato permalink

    I am not sure if the moneysupply have to be managed.

    Because with interest-free money and an annuity mortgage as a financial product (no only-interest mortgages or other suicideproducts from the current commercial banks) there will be just a little inflation and a little deflation in short periods of time. Perhaps 5 years of inflation followed by 5 years of deflation. (Small Gentle Waves)

    Because of our current instable interest-based moneysystem we have 40 years of extreme booming economies (inflation) and 40 years or shorter of extreme busting (deflation) economies. (Big Waves)

  4. >>>>Well – it never occured to me
    (that would put you into my camp)
    but it did occur to Gesell; his concept was that 100% of currency should be the expiring type; it also occured to drug-induced Migchels, that is why he is afraid to answer the point

    in the meantime
    not one you has the courage to address the point that the charlatan’s apprentice is parotting 200-old banker concepts (turn everything into credit, and every credit into currency); that the true source of his (and his mentors’) finagled wisdom is Daniel Webster, Nicholas Biddle, and wild cat bubble promoters

    b) that Silvio Gesell was part of the same Spartacist group that Rosa Luxemburg was part of (so where did get his inducement?)

    • 150 years of credit system:

    • Bourchakoun permalink

      I would take Anthony’s proposed system or Silvio Gesell’s any time of the week even at the most extreme form. Money would be plenty anyway and a little demurrage would not hurt if full employment, high wages and easy good credit were available.

      Besides all those positive systems are only a step away from a society without any need for money at all. That is what I would prefer anyway, since Zeitgeist is right in one point: technological unemployment will make most jobs obsolete within a couple of decades – what then? We need a different system or we kill off most of humanity. We know what THEY opted for.

      You do have a tendency for all-out destructivism, do you?

      Silvio Gesell was far away from the likes of Rosa Luxemburg. Bertha Heimberg was his female known associate and she was no commie. Besides he was mostly a small entrepreneur making his money on his own and working his way up from humble – what we would rather call lower middle class now – beginnings. Standing up for good living wages is hardly a communist invention – and it came only in the 1940s-50s. Besides – they addressed the root-problem at its root instead on focusing on some leaf-trimming.

      Relax – we more or less “independent” thinkers will hardly ever agree on all points – important to have the heart in the right place, rather believe in positive virtues and strive for similar values – real freedom and prosperity for all – not only for the few and the inbred :).

      • “To talk about regularization of banks, means either to betray complete ignorance, or to fool the simple folk with high sounding words” —Vladimir Lenin, in Pravda May 29th-30th, 1917, The threatening catastrophe and boundless promises.

        as said, not one of ye (not ren, not pm, not anyone) has the courage to address the points made by Keynes or Fisher

        >>>>>Money would be plenty anyway and a little demurrage would not hurt if full employment, high wages and easy good credit were available.

        [quote]
        My object is to carry out the principle, and convert all the capital of the country into credit, and all the credit into currency.

        Will it be objected that the notes issued on my plan, would not rest on a good foundation ? I reply that they would rest on a much better foundation than many of the bank notes now in circulation. Not a few of the notes which now circulate most widely, represent nothing but stock notes and accommodation notes in the port folios of the banks, and these stock notes and accommodation notes never did represent any thing but the cunning of one portion of the community, and the credulity of another. Notes issued on my plan, would, in all cases, represent real wealth, not indeed gold and silver, but the equivalents of gold and silver. They would represent houses, lands, provisions, clothing, furniture –the very things, in fine, which men desire as ends; and to get possession of which they hanker after gold and silver as means.

        On this plan, we should have both a sound currency and a sufficient currency. We should have what the whole nation now so intensely desires, namely, “plenty of money.” At least, if this plan will not supply us with “plenty of money,” I know no other that will.
        [/quote]

        —talking about ‘THEY’ is building straw men,

        >>>> more or less “independent” thinkers
        ye seem to fantacise (independent of reality), not think

        • REN permalink

          With SCD, the sovereign currency want’s liquidity preference of commodities and Jewelery, or whatever. Go ahead, use other units to trade with. Knock yourself out Keynes! Keynes is stuck in a rut, where he is not thinking about the imperative of taxes, or the legal power to put people in jail if they don’t pay. The very nature of taxes induces liquidity. He didn’t allow his mind to extend to the sovereign. Keynes even states that on a small scale stamp script works:

          “The idea behind stamped money is sound. It is, indeed, possible that means might be found to apply it in practice on a modest scale. But there are many difficulties which Gesell did not face. In particular, he was unaware that money was not unique in having a liquidity-premium attached to it, but differed only in degree from many other articles, deriving its importance from having a greater liquidity-premium than any other article. Thus if currency notes were to be deprived of their liquidity-premium by the stamping system, a long series of substitutes would step into their shoes – bank-money, debts at call, foreign money, jewellery and the precious metals generally, and so forth. As I have mentioned above, there have been times when it was probably the craving for the ownership of land, independently of its yield, which served to keep up the rate of interest; – though under Gesell’s system this possibility would have been eliminated by land nationalisation.”

          YES! please use other substitutes. Only, you better pay your taxes in SCD demurrage money. This money becomes the anchor for all of the “wanted” substitutes. Also, negative rates of interest is also BS. It is a tax which is a form of force, compelling behavior. Again, Keynes did not think through the problem. Human behavior can be programmed, something that escapes Keynes limited imagination.

          If you use other substitutes and they grow, then bully for you. If the growth in money is unnatural it will collapse. Soon enough the substitute will be shunned. The means of exchange, that is money, cannot be allowed to grow unnaturally and out of bounds with labor’s production i.e. goods and services. At least one form of money needs to be controlled and kept in bounds. That one form, that has its volume monitored relative to all goods and services, and does not have leverage or other unwanted positive feedback, is the one that will be the anchor. If you don’t have it available to pay the taxes, it will have a liquidity premium as people seek it out.

          Illuminists use usury capital to fund their activities, that is they use stagnant money that can be stored, thus outwaiting labor. If you judge by what people do and not say, then Gesell would be Illuminists worst enemy.

          Sorry, I came here with SCD mantra. The historians from the past give us lessons…that’s all. Most of them were confused. It is best to take their lessons and try to solve the problems. It is clear, our forefathers were not up to the task. They lost, just like we are losing.

        • REN permalink

          Keynes and Fisher were on opposite sides. Keynes wanted Government to borrow from banks and then roll over the loans. Keynes notion of liquidity premium implies that the economy is “voluntary” and that it is all incentive and no force. Yet Keynes admits that government can roll over loans, and then force the public to pay the taxes on the debt. This sort of cognitive dissonance in economists reduces their message by their incoherence. Money has a law/force component, especially when it is the sovereign currency. How is it that Keynes didn’t notice, or maybe he was in the banker’s pocket? Keynes helped keep the debt usury system alive that allows usury to fund and aggregate upward to our illuminist friends.

          Fisher is in a direct line that goes like this:.Gesell -Soddy-Fisher. Each one borrowed from the other, and most of them didn’t man up and admit it. Is there character flaws in all economists?

          Bottom line, it was Gesell -Soddy-Fisher that wanted money in the economy, not bank double entry bank credit that circulated as money. They Knew that money volume couldn’t be controlled, when credit as money pumped – pumped up the volume and then disappeared.

          Here is a good link that analyzes this period: http://www.monetary.org/the-1930s-chicago-plan-vs-the-american-monetary-act/2009/08

          Mutual Credit is not double entry bank credit as money. Mutual Credit is not pretending to be money good for paying taxes. Mutual Credit splits its form of money off of a pledged asset, and then circulates within its system. Voluntary participants within the system use this MC money. MC floats within its system performing accounting functions.

          It would take some sort of coordination between MC providers to control volume, but that is not unreasonable. The force of law is kicking deadbeats out of the system.

  5. Before I tear your article apart, I’d just like to say that I really, really, like you Anthony and I believe you are working to improve the overall state of mankind through “economic equality” of some sort or another. Kudos. You are really a voice in the wilderness and your site is an oasis from the insanity of the mundane world.

    Given all that, I’d like you to know exactly how full of it you really are.

    No! No! We must all work together. We really, really must. We all find ourselves in a very desperate situation. The banksters have it all and are now making all the rules. The rules are unfair.

    I was going to come on here and explain, carefully, how MPE(TM) (you forgot the TM!) automatically accounts for inflation due to the fact that it is, in fact, mathematically perfect. BUT, instead, let me just say that ANYTHING (interest-free) would be 10X better than what exists now.

    Look, I think MPE (ooh, I forgot the TM!) is the next step in the evolution toward KUMBAYA(TM.) We’re going to get there eventually if we just stop paying interest. MPE is well-articulated already and Mike is adding more stuff because he’s just on a roll, I guess.

    If you believe in 2nd grade math, you can “believe” in MPE(TM.)

    Currency (the value of money) is whatever the people believe. Integrity, not volume is the answer.

    Having an open, mathematical system that anyone may investigate beats “Helicopter Ben” anyday.

    Excuse me, my friend, but do you offer an alternative? MPE(TM) is getting pretty fleshed-out.

    • Dark Dirk permalink

      Your web site of “Mathematically Perfected Economy (TM)” is just a big mabo-jambo and empty happy takings. It say that “MPE is basically a set of proven mathematical principles”, but where are they ?
      I have encountered people like you before. You have the ability to write thousands and thousands of words, write big books, make fancy talks and say nothing. Just empty words. Constantly repeating the mantra “Mathematically Perfected Economy (TM)” without offering sound logical step how to implement it wont help anybody.

    • Thanks for the good vibes usurykills!

      Listen, we’re on the same side: Usury must go. As you know most here at Real Currencies are pretty maniacal about it.

      The question is how. What I try to do is discuss all approaches out there and discuss both their good and weaker sides.

      I’ve always seen that interest-free economics is incomplete and that the different schools of thought out there need to learn from each other for a complete synthesis.

      I’ve also consistently maintained that Interest-Free Mututal Credit (of which MPE is an advanced example) is an easy and immediately applicable way forward.

      And I’ve also for a long time considered the approach on volume the key weakness of many interest-free crediters.

      So what I propose is Interest Free Mutual Credit with properly managed volume.

      The idea that the assets backing the credit and the new economic activity it will finance will guarantee stable prices is clearly wrong. In the article I point out the simple example of the housing bubble, which happened with a credit based money supply.

      Credit becomes money the minute it is spent. It then no longer follows the laws of credit, but those of money. And in money higher volume means higher prices (if the economy is running at (near) max capacity).

  6. Dark Dirk permalink

    “So if Volume must be managed, who should do it?”
    Government money authority of course. Money is service provided by government. Only the government can write laws and can support courts and enforce their decisions trough police. That’s needed in order money system to function. Otherwise money would be like bitcoins. It will have value as long as somebody thinks that it have value.
    Money should NOT be asset backed. The only backing that money need is laws. Laws such as that form of money is the ONLY legal tender in that country and ONLY with that form of money debts and taxes can be payed. Big debts between people should be asset backed, not money them-self.
    Gold functions like money, because it is rare and people believes that it is precious. But If one of the parties decides that it does not need gold, the other party have to find something else to offer. But if gold is the only legal tender in that country, then the first party have no choice. They have to accept payment in gold. So laws and the ability to enforce them are more important then metals or papers or bits.

    • Wow! An idiot savant!

      “Otherwise money … will have value as long as somebody thinks that it have value.”

      That is the value of money in a nutshell. (or possibly sea shell.)

      • Dark Dirk permalink

        Yes, but when are the people starting to believe that money have no value ? That is when other people refuse to accept them. But if laws states that that form of money are the only legal tender in the country and the government is able to enforce that, then the money are starting to have tangible value.

  7. http://www.bibocurrency.com/index.php/es/store/14-english-root/101-book-page

    The above link it to my new book “The Money PSYOP” that you can obtain a free pdf copy by email to info (@) bibocurrency.com.

    Essentially it proves that logically money can only act as a measure and that all any other attributes are allegoric synonyms of that sole function.

    Money therefore cannot be a supply as it has no necessary physical properties, notes and account entries are interchangeable and notes depend on accounts. And as a measure money can only be the result of transactions never an input to transactions. That is, every good and service being transacted has its own independent measure and therefore must use its own independent units.

    If we have 20 meters of wood it makes no sense to supply (annotate) only 5 meters to then “circulate” those five units to measure the remaining 15 meters.

    The Money PSYOP is about creating the illusion that a unit of measure is a scarce commodity, but if the measure is of “value” becomes scarce, then its “value” changes as a function of its relative accessibility or utility value so that we arrive at the absurdity of:

    10 units = (10+x) units where x the value of access or utility in not zero.

    it is the notion of money being a scarce object that gives rise to need of supply which leads to it being something we can lend and that leads to hoarding or interest. But when viewed as a measure, then all these problems disappear because as money never is an input but rather an automatic output to transactions between parties.

  8. Thanks Anthony for presenting yet another view of how a 0% credit system might work. You suggest that the creation of new money requires the “Management of Volume” in the form of some newly created monetary authority. I think you would have them decide how much credit is available in an attempt to prevent “bubbles” and rising prices resulting from people that have unlimited access to credit in the form of money.

    I don’t see the need for such a newly anointed governing body as I think the decision and authority should be placed in the hands of the people as much as possible. Yes, some guard rails and highway lines need painted but that should be more a matter of developing good lending practices– risk management.

    A.M. Wrote: “The notion that everybody can have as much credit as he has assets to offer in an interest-free credit environment is quite widespread.”

    Yes, as it should be… people should be free to collateralize their assets in securing money as needed for emergencies, opportunities, unforeseen expenses, natural disasters, delinquent taxes, bad existing loans (high interest), etc.

    If for example, someone has a 25 year, $200,000 home mortgage at 7%; they should be able to roll over that loan to a 0% mortgage (if they are credit worthy and have adequate collateral) to reduce their payments. In doing so, they would reduce a usury payment of around $1,400 to 0% payment of $667.

    Or, they may have enough equity in their home to collateralize a student loan roll-over at 0%. If they have adequate collateral and are credit worthy; why not let them exercise their private property rights?

    The quickest way out of usury is by rolling-over all existing interest debt ASAP. The people should not be restricted by an arbitrary monetary authority.

    Would this increase the money supply?

    I contend that most of the time, it would not. If 0% money were made available on a wide scale, the big market would be in getting rid of interest bearing loans. This can be done in an orderly manner as existing contracts are honored by rolling over the debt. In the U.S., the existing private debt market is some $57 trillion – it is and will continue to be for some time; mostly a “roll-over” market.

    When existing debt is rolled over, the money is destroyed from the old debt as the principal is repaid. It is replaced with new money – it is a zero sum game. The money supply remains constant during bank/mortgage roll-overs.

    Would the cost of homes increase – would this create a “bubble”?

    As homes become more affordable (0% mortgages) it seems to make sense that the cost would initially go up and the bigger question is would they then stabilize? A constant financing rate would remove much speculation and eventually, the housing stock would match the need.

    A.M. Wrote: “However, we need a stable money supply. It’s immaterial whether the money is asset-backed or not.”

    I disagree; it is very much the root of the matter. Should people be free to create new money by monetizing their accumulated wealth as needed?

    If you don’t limit this by credit ability and collateral (net worth); then by what?

    • Hi Larry,

      I agree fully that simply stopping interest payments on the current credit based money supply is a pretty straightforward, gentle and inflation free way of migrating to an interest-free credit based money supply. It could be done now. It SHOULD be done now.

      The question is what will happen after the migration. Will people be allowed to take on all credit they can afford? If so, the money supply would quickly start growing, with rising prices inevitably as a result.

      I admit that the statement that it is immaterial whether the credit is asset backed or not is a bit strong. Of course asset backed credit based money is stronger than without asset backing.

      But once the credit is created and spent into circulation it starts to behave as money and more money will mean rising prices. That’s the whole crux and in this regard it indeed matters not whether the money is backed or not.

      For instance: Gold backed money will also see rising prices when the money supply grows, even if every unit in circulation is backed by a nugget in the vault.

      • Anthony,

        If money is a measure and equally accessible to all for all and any transaction then the Stable Unit Currency Theorem at http://www.bibocurrency.com holds. The math dictates this not any authority:

        ” If every Transaction is a Passive BIBO Stable process and all money created is necessarily a product of such Stable Transactions, then, all such units will necessarily maintain a Bounded ratio with all system inputs to those Transactions and therefore the units also will be stable by definition!”

        Simply put, the stability of the unit is a function of the stability of the process that brings it about.

        To claim a need to control the supply of money is to claim that the above theorem is false, which it is not.

        Marc

        • Good to see you here again Marc! It’s been a while!

          And congrats on the book!

          To my mind your reasoning is purely abstract and deductionist.

          What is your take on my observation that the credit based money supplies of the last 70 years saw many asset bubbles, most notably the housing bubble of the 2000’s?

          Why should that be any different from the interest-free mutual credit type of credit based money supplies?

          • Hi Anthony,

            Have been so busy that I just couldn’t keep up. But saw this thread and couldn’t resist.

            Anthony: “What is your take on my observation that the credit based money supplies of the last 70 years saw many asset bubbles, most notably the housing bubble of the 2000′s?

            Why should that be any different from the interest-free mutual credit type of credit based money supplies?”

            My take is that credit with interest, essentially distorts the price to wealth ratio so that to compensate you either increase production or suffer inflation. But since the debt growth on the aggregate is exponential then you need to increase production correspondingly. Bubbles occur when the capacity to create new real wealth doesn’t keep up with debt growth, at which point surrogate wealth is used as collateral (Bubbles).

            However, with a Passive BIBO Stable system that can never happen as there is no debt growth and existing wealth to units remains constant.

      • Anthony asks, “The question is what will happen after the migration. Will people be allowed to take on all credit they can afford? If so, the money supply would quickly start growing, with rising prices inevitably as a result.”

        He then answers his own question,”But once the credit is created and spent into circulation it starts to behave as money and more money will mean rising prices.”

        I’m going to guess the reason why credit acts as money once it is converted into money is that it is then money. I’m pretty sure about this. Pretty sure.

        So, then I’m going to further guess that credit and money are two separate things. Credit is unsubstantiated money, but it can really impress the girls. They know how to convert that stuff.

        The bankers took on more credit than the whole world could afford (several times over) and we are still here to talk about it. What are you afraid of? MPE(TM) works. I’ll write a game to prove it.

        • I’m not really sure I’m getting you here usurykills, but I’m certainly looking forward to that game!

  9. Far from being steps ahead, Migchels is (once again) centuries behind; he is simply parotting what has been passed down from Nicholas Biddle and wild cat bankers (the source of his, and all the others’, finagled wisdom is the money power itself which he claims to oppose)

    {
    please please read the satire, detailing the ideas of monetary reformists (past and future):—-

    http://www.yamaguchy.com/library/gouge/diary.html

    I have been endeavoring for some time to contrive something for the benefit of my country; and at length I have hit upon a plan which must, I think, be eminently successful. We have, as has justly been observed, all the elements of wealth in the United States. We have plenty of land, millions of acres indeed more than we can cultivate: —plenty of pork; in Illinois it is selling at one cent a pound: —plenty of great men; some of them, I believe, would be very glad to throw the others overboard. All we want is plenty of money, and this is what my plan is intended to supply.

    I have taken my hint from the New York “Free Banking” system. The capital of banks founded on that system, consists of mortgages on land, and State stocks —such, for example, as stocks of Indiana and Illinois. This is very well as far as it goes; but it does not go far enough. My object is to carry out the principle, and convert all the capital of the country into credit, and all the credit into currency.

    If real estate can be converted into bank stock, why not also personal estate. The latter, in many cases, would be more convenient than the former, as it might be more readily used in meeting a run on a bank.

    My plan, if carried out, will just treble the riches of the country. First, by enabling every man to create bank stock, exactly equal to the value of his whole estate, real, personal, and mixed. Secondly, by enabling him to issue currency equal in amount to his bank stock, or to the estate, real, personal, and mixed, on which his bank stock should be founded.

    My plan is a truly Democratic one; for it proposes to convert every man in the country into a banker, and let him have a share in the profits of the paper money business. If a man’s whole capital consists of only one old coat and one old pair of breeches, I would have him found bank stock thereon, and issue currency to an equal amount with his stock. The New York plan was very Aristocratic, inasmuch as it confined “Free Banking” to holders of real estate and mortgages, and owners of State stocks.
    }

    as usual, Migchels contradicts himself (consistency is far be it from him); once again, he lumps in the JAK bank with the demur Gesell notes, which are mutally exclusive (JAK exists on top of a stable currency, provided by the government)

    http://www.yamaguchy.com/library/gouge/gouge_index.html

    • hahaha, you’re quite right Name789! I appreciate Bourchakoun’s compliments, of course, but nobody can blame me for claiming anything on this site as my own! I’m just recapping the wisdom of the ages.

    • Bourchakoun permalink

      We always build our knowledge upon the shoulders of others who have gone before us. It is utter and complete folly to believe that we are the VERY FIRST who has invented or proposed something.

      Sure – there can be many improvements and Anthony does an excellent job at bringing across those “ancient” points and putting them into current context for everyone to understand or at least to be convinced about the truth of these.

      Otherwise you may be a brilliant economics academic who has never even heard of Silvio Gsell despite numerous publications and IQ at stratospheric levels. You may have the intuition that something is wrong with the current system, but looking into real-life issues like Woergl quickly spells out the truth if you are open enough to it.

      We are always standing upon the shoulders of others.

      • >>>>>>cudos to You Anthony for ever thinking several steps ahead concerning future money systems. :-) is he ahead or is he building on shoulders?

        >>>>>We always build our knowledge upon the shoulders of others
        Yes, sometimes we do
        In this instance Migchels &co is building on the shoulders of the wildest of wild cat bankers and credit-money bubble promoters, on the shoulders of Nicholas Biddle; what a sand-castle they are constructing……

        xoxo

        —btw. who is the subversive elements on this blog who are giving my posts 2-4 thumbs up, while giving E.B. and Migchels 4-6 thumbs down ?
        =======
        on a different-same note:

        But (of course) the only thing ye are able to do is to give each other a hand job; not one of ye would dare to apply logic or critical examination to the concept of perishable currency; not one of you would dare to take this class-room computer model to its full extent.

        (during the centuries there were good examples of relieving currency shortage and economic depression, but this innovator for the sake innovation Gesell did not know about them or would not consider them because those were good solutions which solved the problem, and not some cock-eyed invention with built in flaws proposed for the purpose of not considering a real solution and achieving a nefarious outcome
        Ezra Pound admired Mussolini with good reason; but Mussolini did not reach for Gesell’s expiring money, he used real money; he also addressed capitalism’s inherent fatal flaw: the unequal distribution of purchasing power, and tried to enact solution to it)

        Contemporary observer, Irving Fisher —economics professor at the same Yale University where George Bush received a pretty huge diploma, whose economic predictions (in the ’20s and ’30s) were about as accurate as the sunny day predictions of the 6 o’clock weatherman—, noted that notes with expiry date can only be useful as an emergency measure to kick-start the economy and the circulation of real money –and not as a full-scale currency system as Gesell proposed.

        Other contemporary observer, Maynard Keynes, noted what everyone with clear thinking would note, that if currency is subject to loss by Friday, people will look for substitute money (swiss frank, silver coin, jewellery, bills of exchange, &c); that this currency would turn everyone into commodity market speculator, and the least able to speculate would lose the most.
        (the reason people switched from barter to the use of medium of exchange was because the medium of exchange was liquid asset, maintaining its purchasing power, immediatelly exchangable for food, goods and services; the illuminist Gesell, and his progeny Kennedy and his parrot Migchels, wants completely to negate this little invention of organized society)

        Paul Enzig notes that currencies with expiry date do perish, and somebody ends up with a worthless note and without a musical chair.

        —like causes produce like results: an economy hyper stimulated by bank-issued credit currency achieves escape velocity in 7 to 9 years; economy hyper stimulated by government-issued perishable credit currency can only produce the same;
        continentals were good examples of perishable currency, (even without the british counterfeiting their purchasing power gradually decreased) and somebody ended up holding a 40-dollar note that demured down to 4 pennies

         

        if any of ye were brave enough to read:
        Jerome Blanc, ‘Free Money for Social Progress: Theory and Practice of Gesell’s Accelerated Money‘. American Journal of Economics and Sociology
        William Breit and Kenneth Elzinga, ‘Ezra Pound and the GNP‘, Southern Economic Journal –the flaw in Douglas’ a+b computer model

        Willem Buiter and Nikolaos Panigirtzoglou, ‘Overcoming the Zero Bound on Nominal Interest Rates with Negative Interest on Currency: Gesell’s Solution’
        Brian Burkitt and Frances Hutchinson, ‘Major Douglas’ Proposal for a National Dividend: A Logical Successor to the Wage’
        V.F. Coe, ‘Dated Stamp Scrip in Alberta‘, The Canadian Journal of Economics and Political Science –how odd it is that the Social Credit government adopted Gesell’s non-social credit dated money

        Richard Cook, ‘C.H. Douglas: Pioneer of Monetary Reform’, Global Research
        Xavier Cuadras-Moratò, ‘Can Ice Cream Be Money? Perishable Medium of Exchange’, Journal of Economics
        William Darity, ‘Keynes’ Political Philosophy: The Gesell Connection’, Eastern Economic Journal
        Earle Davis, Vision Fugitive. Ezra Pound and Economics
        Meghnad Desai, The Route of All Evil. The Political Economy of Ezra Pound
        Dudley Dillard, ‘Silvio Gesell’s Monetary Theory of Social Reform‘, American Economic Review
        Victor Ferkiss, ‘Ezra Pound and American Fascism’, Journal of Politics
        Irving Fisher, Stamp Scrip
        Marvin Goodfriend, ‘Overcoming the Zero Bound on Interest Rate Policy’, Journal of Money, Credit and Banking
        Andrè Gorz, Critique of Economic Reason
        Frances Hutchinson and Brian Burkitt, ‘The Contemporary Relevance of Cifford Hugh Douglas’, The Political Quarterly
        Werner Onken, ‘The Political Economy of Silvio Gesell: A Century of Activism‘, American Journal of Economics and Sociology
        Leland Peterson, ‘Ezra Pound: The Use and Abuse of History’, American Quarterly
        Guido Giacomo Preparata and John Elliott, ‘Free Economics: The Vision of Reformer Silvio Gesell’, International Journal of Social Economics
        John Pullen and Greg Smith, ‘Major Douglas and Social Credit: A Reappraisal’, History of Political Economy
        Conrad Rushing, ‘Mere Words: The Trial of Ezra Pound’, Critical Inquiry
        Richard Sieburth, ‘In Pound We Trust: The Economy of Poetry/The Poetry of Economics’, Critical Inqury
        Hugh Whalen, ‘Social Credit Measures in Alberta’, The Canadian Journal of Economics and Political Science

    • Bourchakoun permalink

      >>>> is he ahead or is he building on shoulders? >>>> Aj – aren’t we word-pinchers? Let me put it this way then – it matters not whether she is on top, on the side or below – what matters to have the girl in bed.

      So Gesell’s demurrage system was bad-mouthed by some notable saints like Keynes? Well – no surprise, but the topic is usually avoided completely at economics studies. (You should read the conventional medical literature on orthomolecular medicine – even if you have proven the vast superiority of vitamin-megadose-therapies they continue to deny and attack it. It is just the same in any other field.)

      Woerlg’s system worked well because of several factors – highy local economy, the Woergl Schilling was an additional demurred currency that people simply used not to store wealth, but to pay and use fast. Those who had savings were of course transfering it to the conventional Austrian Schilling or something else, but those were few – most were simply happy to have money and used it to live :)

      As far as transfer of all currency instantly to some substitute money as mentioned by Keynes – this is one of those bogus arguments that should discourage any even local experiment.
      And comparing the Continental with an exact currency with built-in demurrage-levels is simply madness. Frankly – calculating the optimum Continental level in the early American economies might have been pure nightmare, even if tried honestly and without counterfeiting.

      One of the ways I could imagine for example demurrage in our current system would be in the form of social credit issued directly to every person to a special bank account or “Grundeinkommen” as they call it in Germany and Austria. You would not be able to transfer it to savings, but could only spend it or get a monthly tax deducted from the account. As soon as it is spent, it works as a conventional currency. Calculation done by the Wissensmanufaktur in Germany go that 1000 Euro per person per month could be for example issued directly in Germany without diluting the value of the currency. Remember also that in that system availability of credit relative to income would be ridiculously easy. Even the alcoholic bum could buy his very modest house or appartment just by the social credit issued.

      Frankly it matters little to me what kind of system is implemented at first – Anthony’s propopsitions, Bill Still’s proposals or something else interest free with readily available credit and transparent money volume control (essential or THEY CRASH THE ECONOMY AT WILL). You could even experiment in different regions with different systems and see what works best. Even puritan gold-bugs may get their chance and have their silver and gold currencies additionally and see how that works out for them :)

      But all those things would mean that THEY have somehow lost power! And if they have lost their grip on money, then media is beginning to break free and technology and science would lose their shackles. Life would change so fast that you could basically instantly make plans to move to a money-less society within 25-40 years.

      If they are gone, then not only is money plenty and sensible credit easy, but energy would cost practically nothing (plenty of generators out there – it is just currently suicidal to mass-produce them), electric cars can drive you thousands of miles on one charge and who knows what transportation means would be shortly available since some technologies – sound-vibration drives and anti-gravity devices seem to be connected. When technology is advanced enough all tedial repetitive work could be done by machines easily and if energy costs next to nothing and resources are not profit-squeezed – why should not everyone have a nice decent house and garden? And if everyone has access to all of life’s needs, why should he or she need to be paid to do the work he likes to do? Getting rid of the money system altogether is by far superior in all respects.

      But of course – that will not happen anytime soon, since in such a system THEY will not be able to rule over their fellow man and play their mad power games. But who knows – give mankind a couple centuries and it may happen (until it is again toppled by some power-crazy asshole who absolutely needs to rule over others).

      • >>>>demurrage system was bad-mouthed by some notable saints like Keynes
        actually, both Keynes and Fisher wrote in ~support of Gesell and his notes; they were just willing to analize the model

        >>>>>Woerlg’s system worked well because of several factors
        now you are supporting my point: that it can only be useful as supplemental currency, on a small scale;
        but if that is the case, a non-demure city scrip may work just as well….

        >>>>this is one of those bogus arguments
        not really; this was exactly Migchels’ response when i first asked him a few months ago, that people would use the notes not needed for their weekly espenses to buy something that holds value, and both of them (Migchels and Larry leech) said that the first thing they would go for is silver coin. other than drug-induced drunken sailors like Migchels, people try to set aside a few notes for other days, or for a larger purchase; so if expiring money was applied to the whole system people would have to become commodity market speculators as Migchels suggested in his response.

        re: continentals
        the point was: that it was an historical example of perishable money
        who ended up holding the Alberta Prosperity Certificates ?
        who ended up holding the Gesell certificates ?
        who purchased those stamps that had to be affixed to the back of the notes ?

        Submitted by DrKrbyLuv on Tue, 12/13/2011 – 11:50.

        Gold and silver coins would continue to be used to store wealth as they are now. And people would continue to buy gold and silver bars and bullion to store larger amounts of money

        Submitted by DrKrbyLuv on Tue, 12/13/2011 – 17:26.

        I mentioned earlier that I personally own precious metals to protect the value of my money.

        • Bourchakoun permalink

          Well – it never occured to me that the entire currency should be encompassed by demurrage. That would bring numerous problems up and enormous avoidance issues by the population. Also cash would then have to go completely in order to make it feasible. This is not 1932 you know.

          My idea would be to combine it with social credit and instead of the state issuing money for their expense interest-free it could issue the money by transferring a given amount to the population to be de-facto issued by them when they spend it. And that amont – let’s say 1000 Euro, 1000 $ monthly could easily be within demurrage “enticements” on a special electronic-only accound. People would need to spend it or it would get taxed. You could not transfer it from that account except via direct expenditure. For most people it would be only a welcome additional income except for those fallen on hard times. Likely the only required taxes for government could be VAT-taxes and international-trade-tariffs apart from the high demurrage from the funds not spent. All other forms of money – from all kinds of income could be taxed at 0% – oh and corporations should also pay a form of VAT. Combine it with interest free JAK-banks, interest-free mortgages, transparent money volume control and sound credit availability and you may have a good system with demurrage-issuance of government money directly into the hands of the people tied to issuance through expenditure.

          As far as silver and gold are concerned – as personal investments anything can be good given time. However any currency-ties to any resources that are easily controlled by the 0,1% is utter foolishness.

          And again – most interest-free systems would be one hell of a lot better than ours now and they also have another thing in common: They are all mind-bogglingly unlikely. We might as well discuss interstellar travel wish list here as if we expect to receive a warp-drive spaceship instead of our cars within a couple of years.

          Which does not mean that I do not value the ideas the intellectual input here. Someday maybe….

  10. Some comments on the management of volume in interest-free poker chips schemes:
    a)…. Gee, casino cashiers don’t have any say at all in the management of volume! It all depends on the collateral pledged.

    • Hi John!

      Love your comment! I think it makes clear the concept that more volume means more business!

      • A casino issues chips on a discriminatory basis, that is only against what is practically of value to it. John’s model is great to show that wealth must determine chips. But the centralised issuance of chips is not the correct model.

        Money is nothing but an abstract measure and just like no one needs to run around asking for chips to measure their living rooms, similarly no one should need to be issued units of money to measure their transactions.

        The contract part of what has to be done when balances grow too negative has nothing to do with issuance of chips it has to do with social governance a completely separate issue. And with a standard measure that everyone agrees to measure transactions, people can defend themselves from freeloaders by creating their own policies of what criteria need be met for transacting with them.

        For example, I may require that certain negative people provide me services before selling them my goods and services because I am aware that selling to healthy black holes is devaluing my community. On the other hand and for the genuinely needy, I can chose to give my product for free. Freedom is about responsibility you can never have one without the other.

        So as much as I am grateful to John for all his great contributions I have to insist on money not being a thing that is supplied when in reality it is just a referenced measure. Just like I have to insist that there is no compensating interest by adding units to be able to pay interest because being able to pay or not, does not define instability what does define it, is any unbounded growth i.e. growth that persists when the system is at rest.

        Any growth whether a function of time or not, will render transactions non passive and as such will destroy the function of measure.

        Examples are:

        1) Interest
        2) One time commissions on percentage basis of volume of transactions
        3) Interest free hoarding of scarce units i.e. if money is required to transact and it is scarce then hoarding it, has its unit value grows unboundedly, this is the natural precursor of the practice of interest.

        All this is a direct conclusion from control theory there are no two ways about it.

      • It can only lead to more business in a depressed economy Usurykills. Once the economy is running at full speed, more money means higher prices.

        • No Anthony you are wrong, you seem to subscribe to the idea that money gets issued separately from transactions, but if you think about it, that makes no sense at all. Who issues? On what criteria? And why can’t money be issued directly as a result of transactions?

          There is no need for estimating or gauging the money supply if money is a result of transactions of wealth rather than a requirement for.

          Do you believe that money can be a prerequisite for transactions? If so, explain on what basis. If money is simply a record of wealth and that is all it can ever be, then you will see that money grows as a function of increased wealth, never the other way round.

          • “you seem to subscribe to the idea that money gets issued separately from transactions, but if you think about it, that makes no sense at all. Who issues? On what criteria? And why can’t money be issued directly as a result of transactions?”

            This is only valid the first time the money is spent Marc, if someone is going (deeper) into debt.

            But if I have a positive balance, I will use that MONEY (which to me at that point is not credit, but simply money, cash in hand) to pay. More of this money in circulation chasing the same amount of goods….well, you know the rest.

            • “But if I have a positive balance, I will use that MONEY (which to me at that point is not credit, but simply money, cash in hand) to pay. More of this money in circulation chasing the same amount of goods….well, you know the rest.”

              It is impossible to have more positive than negative in an interest free system. An each unit is born into circulation by the transaction of wealth. So I don’t see how it is possible or required to manage supply.

              • REN permalink

                Somebody isn’t able to pay their loan. Said asset backing up loan is then confiscated. Upon confiscation, the credit debt contract is satisfied. What about the former “credit” as money already spent into the public money supply? That former credit has now become floating money. This money does not have a force vector compelling it to return to a ledger. This is extra money causing a positive balance.

                This mechanism is one of the secrets of recessions/depressions enabling double entry mechanics. It allows “credit” as money to be set free, so other debtors can grab it and pay off their debts. The same scenario applies with any asset backed issuance. If the debtor gets into trouble then he cannot pay, and the asset is seized. The money supply then grows.

                There would have to be laws carefully calibrated to protect both creditors and debtors.

    • John, the casino chip analogy simply does not stand. The reason is they are convertible to dollar. And they come into circulation through buying them. They can never overprint because the house always wins 37/36 (or something like that) with roulette. I’m not sure about the odds with Black Jack or poker, but I’m sure you do.

      Should gamblers have endless credit, allowing them to create all the chips they wanted, this would lead to them converting their wins and defaulting on their losses. The House would be broke before you could say LETS.

  11. REN permalink

    Interest free loans implies that savers are “loaning” out their money to debtors. The only way money can be usury free is if the debtor pays a fee instead of compounding interest. The Fee is then respent back into the money supply. For example, a 10 dollar loan is really 9 dollars to debtor, while 1 dollar is kept as fee by Creditor. You will still need some sort of authority to insure that fees are paid instead of compounding usury. Also, who decides if the loan is for productive capacity and not consumption?

    A pure money system can also be captured by rents in other economic spheres. Maybe oil is found, it is priced high, and then is used to string land to land. Ownership of land’s free gifts then allows high rents on these gifts – pretty soon a few Oligarchs own all of the money supply and the land with labor suppressed. A new feudalism emerges where labor works on landed estates, and the floating money supply is captured. The fee structure on money loans fails at this point. Some sort of authority will be needed to tax land rents.

    Both Credit as money and floating money have their problems. We should be hard eyed realists about this. The trusting population doesn’t care about how money came into being. Credit or floating money – it doesn’t matter to most people. They just want some sort of tool that allows them to trade their output fairly.

    • Dark Dirk permalink

      Of course we need land reform. I you have red the Silvio Gesell’s Natural Economic Order the first reform is free land reform. I you do not like free land than land value tax may be used (http://en.wikipedia.org/wiki/Land_value_tax).

      • REN permalink

        Dark, I’m sure you’ve intuited that I’ve read it, and also George. Let me also add that fiscal policy is the flip side of monetary policy. They go together like the two sides of a coin. Taxes, spending, and market mechanisms all get short shrift in the alternate currency movement. For example, the population is a bell shaped gaussian distribution, and their asset acquisition will follow. So how does an asset driven money supply deal with redistribution necessary in any complex society. “let them eat cake?”Taxes and redistribution must be a part of the mix, or there will be social explosion, and the subsequent destruction of any fancy money construct. LIke Anthony says, “Awareness is increasing” a good thing, in my view.

  12. Lou permalink

    In the case of MPE, the money supply is regulated by the fact that promissory obligations are paid out of circulation at the rate of consumption of the underlying assets. This means that the volume of money is in equilibrium with the volume of goods/production in the economy. Although minor price fluctuations may occur in the short term the Free Market will always reach equilibrium.

    The key component to the problem of price inflation today is interest. When you pay 3 or more times for the cost of production of a house because of interest you expect to get that back if you sell it. A $100,000 home sells for $300,000. With interest removed price inflation disappears. On the issue of speculation if demand is high and supply is low, producers will always increase supply to meet demand.

    I don’t understand your splitting of the concept of credit and money. In MPE, money is created as debt (a promissory obligation) backed by a product/good that is being purchased and repaid at the rate of consumption of the good. “Credit/Debt” cannot exceed the volume of money because it is the volume of money.

    If all obligations are repaid there is no money. Of course this is not a problem because purchasers of goods can create new money when needed.

    • Thank you. This comment gets right to the heart of the issue from an MPE point of view. Please allow me to respond.

      “In the case of MPE, the money supply is regulated by the fact that promissory obligations are paid out of circulation at the rate of consumption of the underlying assets.”

      AM: Yes, but how will this stop asset bubbles? People will pay more and more for appreciating housing assets and will have access to all the credit they can plausibly pay off with their income.

      More and more credit based money will flood the housing (or other asset) market and this will raise prices.

      “The key component to the problem of price inflation today is interest.”

      AM: I fully agree. But this is because the (Central) Banks keep the money supply limited, i.e. manage the volume. They want money to be scarce. In the paper based banking units of today they do allow the money supply to grow enough to not bust people at the current rate of interest. But clearly the volume is managed. Of course, they do so in a way to create the boom-bust cycle, but still it is managed. Were it not, price rises would be even far more rampant.

      “I don’t understand your splitting of the concept of credit and money. ”

      AM: the fact that the money is credit based does not mean money equals credit. Money is created as credit. But money is that which we agree to be a means of exchange. As such it lives a life of its own. The credit is backed by assets. But prices are a function of the volume of money, not so much what is backing the money.

      ““Credit/Debt” cannot exceed the volume of money because it is the volume of money.”

      AM: We agree, of course, that this is the proposed situation of many interest-free credit schemes.
      What I’m saying is that this will lead to a growing money supply with rising prices as a result, ultimately leading to deflationary crashes.

      Concluding:
      Interest-free credit based money, including much of what MPE has to offer, is great. But the volume issue does not seem to be under control.

      • Lou permalink

        1. Asset bubbles.
        In the case of the housing market there is a misunderstanding. By nature houses are depreciating assets the same as cars or tvs or any other good. Why do we not see asset bubbles in these goods? The error is in our perception. A house is built with materials that degrade over time just as the others. There are 2 key differences.The land the house sits on which is a whole issue on its own and timeframe. The prescriptions of MPE do not address a definitive solution on the land issue. Founder Mike Montagne has said that although he has his own opinions on the subject he has left it open to each nation or group adopting MPE to decide on the issue of land for themselves.

        So let us focus on timeframe. We don’t see houses as depreciating because they outlast us in use and purpose. Build a house and let it sit for 100 years with no care or attention and it will depreciate in value.

        The reason the housing market bubbles is because we mistakingly think houses appreciate in value when in reality the prices only increase because of the cost of servicing debt subject to interest.

        If you eliminate the interest housing prices will stabilize and reflect the cost of production. In MPE money is not created as credit but rather debt. You can only create the value of the house. Without interest the value is its cost of production minus any depreciation/consumption just as with cars, tv’s or ipads.

        2. Price inflation caused by interest.

        Today bankers create a scarcity of money by imposing interest. There is never enough money to pay off principal + interest so we must reborrow the entire amount in a cycle of escalating debt. This causes price inflation because industry must raise prices to cover the increasing cost of servicing the debt.

        This is what happens in the housing market too but with the combination of foolish speculation caused by the misconception that houses appreciate in value.

        3. Money created as credit.

        In MPE money is not created as credit but as debt. Any money that exists is a debt that must be paid out of circulation.

        Prices are a function of perceived value, supply and demand and cost of production.

        MPE does solve the volume issue because it solves the inflation issue both circulatory and price. You can’t inflate the volume of currency relative to the demand in goods. There is an equilibrium that is always moving towards zero circulation. There is a perfect ratio 1:1:1 of money in circulation : promissory obligation : depreciating asset.

        • REN permalink

          “The reason the housing market bubbles is because we mistakingly think houses appreciate in value when in reality the prices only increase because of the cost of servicing debt subject to interest.”

          No, housing and especially land, do not follow supply and demand curves. More money entering the supply does not always translate into more housing, and it certainly does not translate into more land coming on line. Land is fixed. Also, there is a time function that is not considered. Lots of money flooding into the supply can and does happen with asset/credit as the basis for money creation. It is a three factor problem, not simply credit that liquidates over time. The mathematician did not put all of the variables into his equations. Lots of money per “short” unit of time, causes asset inflation. Also, the asset will not depreciate, especially because the land attched to house will not depreciate. (Is the population going to decline?) Is there going to be Georgist taxation to make homes and land different categories?

          What actually happens is that MPE loan is created, and the former home owner receives his pay. The former home owner receives the full price for the home. The former owner then may or may not pay the full amount into the public money supply. Too much money can then push the supply, as land and homes are “sticky.”

          So MPE function machine does not take into account the current market price when it values the asset? Of course it does. MPE must make assumptions about price, and price is in turn pushed by money volume via markets.

    • “No, housing and especially land, do not follow supply and demand curves.”

      Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha!

      Buy a house in the Bay Area and tell me that!

      • REN permalink

        You’ve got to be kidding. The Bay Area is a perfect example. Prices go up quickly because the “bay” is restricted. Where there is a supply of land, say Texas, homes can be built satisfying demand, although there is some time lag. This then allows supply to meet demand (money). This is classic economic theory, and has been known since at least the French Physiocrats.

        South sea bubble, Tulip Mania, Tokyo Bubble, Roaring twenties, on and on. So, how many real world experiments do we need to be before the simple concept of supply and demand are understood? Money is demand when it is in the supply. Tulip Mania was an example where Tulip growth couldn’t keep up with money supply seeking that asset category.

  13. Bourchakoun permalink

    Well – cudos to You Anthony for ever thinking several steps ahead concerning future money systems.

    Currently that is only Science Fiction and on a more positive note education and mental foundation building in a future world. As anyone in marketing knows – sales pick up BEFORE the implementation of a widespread marketing strategy. Who knows why? Inner planes a reality? Mental-psychic connection between humans? We only know for sure that it happens.

    For now those thoughts are ivory tower schemings all the while the money power does a million times more of that on the other side through manipulation of academia, media and corporations.

    If truly positive and open people would truly rule – we could work out systems even on a trial and error basis and constant improvements. Even money-less systems would be within reach, since money and technology would be liberated and ample money for sound investments were available so easily.

    But of course that is only future-think. How much good did the worldwide-Anti-Monsanto day do? Nothing. It was almost completely ignored by the media. Millions demonstrated around the world – millions protest in Spain and Greece and they are mostly ignored. THEY simply do not care. How long until people will understand a complex issue like money creation before they will protest the same ineffective way as against Monsanto?

    The day will probably never come as the guy in a 5000-dollar suit and and million dollar job on Money-power-Media will always seem smarter and better than a way more superior and smarter Anthony Migchels. I am afraid that the cycle will have to go full circle. Life will dish out some surprises to the money power for sure. That is our main hope.

    • Perhaps you underestimate the importance of the issue Bourchakoun. Volume and Usury are in the same category when it comes to Money Power. Personally I believe the inconsistencies on volume are one of the key weaknesses of many interest-free credit proposals, hindering their advancement.

      And I do feel that many people understand far more about the monetary than is represented in the Alternative Media. Many people instinctively don’t like Austrianism and basically prefer some kind of commonwealth money, be it Public Banking, AMI, or whatever. MPE is also pretty influential and many people are looking that way for answers, which is wonderful.

      In all fairness: at this point I’d say the cat is getting out of the bag. More and more people are getting into this.

      I think it’s high time for some wider, fundamental debates. With the main aim of raising the standard of all, because many are still way too much into their own line of thinking. Schools of thought combating others.

      A major comparative discussion of and between the different proposals addressing the main issues, Usury, Volume, Money Power, decentralization of power, etc, is what I’d like to see and I think it’s probably not even too far away.

      Anybody of good will can just change tack for the better and improve in such a dialogue.

      • Bourchakoun permalink

        Of course – implementing an interest-free money system without also a volume reform is basically a toothless reform. Even Milton Friedman is supposed to have said this in private – according to him the abolishment of the fractional reserve system should be done in tandem with a reform of the money issue question.

        Maybe there is a small chance of implementing the system in small countries like Iceland, Tuvalu, bigger private islands etc. where like-minded people would converge. The media can ignore those places like they do with the banking crisis solution of Iceland.

        In my opinion this has to be way way more advanced in the consciousness of the people to really have any effect in real-life. I think you are underestimating the timeframe and the work that has to be put into it. We should start thinking in generations for real change just as THEY do. Sure – they thought that they could do more after WWI and WWII alone (have to read UNESCO speaches after WWII – it seemed as One World Government and Brave New World was 5 years away), but realistically they had also plans reaching centuries even then. Maybe generational plans would do the trick.

  14. moneylender permalink

    Interest Free Loans for productive capacity is a better option than Interest free credit.

    It’s self regulatory,loans are paid back and cancelled, money supply remains constant, nil inflation and no need for quangos to supervise it.

    • But this does not solve the issue of for instance mortgages. People should not be relegated to predatory lenders for such a vital issue as housing.

      • moneylender permalink

        Interest Free Loans can equally apply to buying houses too, as a result the prises of houses will not appreciate exponentially due to compound interest as it does now

        • Ok, I understand better now.

          My take is that we should create the money as credit. But as there will be more demand for credit than for money, we will need JAK banks and the like to provide the interest-free loans people need after all the possible credit-based money has been created and spent into circulation.

          • How can you have more money than credit?

            Nope. People hang onto their real assets.

            Without usury you would have to be extremely incompetent not to profit greatly from your efforts.

    • What does “productive capacity” mean to you?

      Only interest-free loans for hand work? Only for giant sweat-shops? What?

      “Sweat of the brow” should be worth something. I think there is room for loans without collateral.

      • moneylender permalink

        Any thing beneficial to the people at large is productive, as opposed to speculative capacity confined to a few.

        Interest Free loans are based on a proper cost benifit analysis, no need for colateral

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  1. More on Inflation, the Value of Money and Money as Part of the Commons | Real Currencies
  2. The Cult of Mathematically Perfected Economy and its Ridiculous Stance on Inflation | Real Currencies
  3. How to manage the Volume of Money in Mutual Credit | Real Currencies

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