Inelastic money

http://detlevschlichter.com/2013/01/incredible-confusions-part-1-positive-money-and-the-fallacy-of-the-need-for-a-state-money-producer/

You will know if you have read the relevant posts that I take the view that the only reason there should be  more money in existence is if there is genuine growth. I don't mean growth in GDP,  because growth GDP can include things which are bad in themselves, or from putting right things that are wrong.

I concluded that only things that are good for humanity should count as growth. The thought process follows through that what is good for humanity is indicated by increased population. This is because increased health and happiness will lead to longer lives and therefore increased population, but also simply because twice as many equally healthy-happy people equals twice as much health-happiness.

But I have been itrigued by the idea in the essay linked to above - inelastic money. This is a money supply that never grows or shrinks and only varies in velocity. If the value (utility) of goods and services increases, then there is deflation as each unit of money represents more goods and services.

I am finding this intrigung and shaall certainly give it more thought, some of which I shall undoubtedly expatiate here.

Classical Economics lunacy

http://www.positivemoney.org/2012/12/new-documentary-economic-science-and-the-debt-crisis/

This video has mainly Swedish dialogue and (retro-added) English subtitles, occasionally the reverse, and yet more occasionally dilogue in a third language with in vision Swedish subtitles superimposed with retro-added English subtitles. This can make it hard work if you don't know Swedish, and occasionally the English subtitles are obsured by the video content.

A main point I took away from this is that classical economic models do not include the banks and debt, and this is why economists mainly failed to see the latest financial crisis coming. You can take delight in watching various Nobel prize winning economists splutter and stammer when this point is put to them - unsurprising as (and the film points this out via other commentators) they have built careers and reputations over many years using the flawed model. One at least cogent retort is that banks and debt can be ignored becuse "for every loan there is a lender" (I think I quote correctly) , but this conveniently ignores the fact that debt carries interest, so debts are always greater than loans.

The film concludes that reducing the size of the financial sector in an economy - resetting it  - is the way forward, but this srikes me as either doing less of the wrong thing, or doing the wrong thing righhter, or just again in the hope that this time it will be OK.

The film stops short of really showing up the contradictions / fallacies in our GDP growth paradigm. It features a Spanish family who narrowly avoid eviction for mortgae arrears, and a vast unoccupiable housing development started before the bubble burst. The references to the 'value' of homes were in the common usage of the price they could be sold for, ignoring the fact of an underlying value of the home as an amenity. [Nature /  physics teaches us that there is entropy. So, untouched, a buiding will eventually crumble: its innate value is falling from the moment the builders leave the site - it is depreciating in real terms. Yet we are so indoctrinated by market orthodoxy that we tend to equate price and value.]

Monetary reform

From my limited knowledge of particular monetary reform proposals, I would say they are a stepping stone to an RBE. The reforms proposed by Positive Money are very inviting. The obvious one is its proposal to eradicate the fractional reserve system, and I'm going to agree and set that to one side.

One of my rerservations centres around the control of money supply. They propose to wrest this from the hands of bankers and politicians - yay - and give it to n independent body. OK, but how is this independent body going to decide by how much to increase money supply, and in whose interest will they do so? Their own, presumably. And will they be inccorruptible?

My other observatiion is that most ordinary people will still have to work to get hold of money, and therefore there will be pressure to create work so that people can do it, which leads us straight into the idea that problems (say  disease and disorder) are s good because they create work/jobs for people to solve them. This does seem to be a weakness of money that these reforms have not addressed, unless I'm mistaken.

Under Positive Money you would enter into a bond, actively allowing the bank to use your money for an agreed period during which you would not be able to take it back. You also get to decide which projects your capital will be spent on. Logically fine, and on the second point you can already choose ethical investments.

The problem as I see it, though, is that some people will still want the maximum return on their investment, so even if the projects invested in aren't sociilly constructive, and/or if they liquidate natural capital and call it income (to quote Natural Capitalism), they will still attract investement because they give a high return on the money put forward.

As I understand it, posiive money is itelf undecided on how it will quantify money supply.  And he point is that even if we willingly put a brake on money supply, the limiting factor is still real resources and not money.

Nevertheless, we cannot ignore this stepping stone. The looming finacial crisesmay be alleviated by a system which uses positive money.