Alternative View on Money- IV

In my previous post on this subject, I had alluded to the need for creating an economic system in which even a person with a minimum standard of living would have enough discretionary income to support a ‘reasonable’ level of consumption. My definition of a ‘reasonable’ minimum living standard (and consumption) is a discretionary income of about 30%. The idea is that a person would have 30% of their income left over after paying for essentials such as food, utilities, decent shelter, transportation etc.

I do not see exponentially increasing medical costs as either inevitable, or possible to achieve. In any case, that issue will be the subject of a future series.

The first objection to my idea is most likely:

How will we pay for this? and why?

The answer to the first part of that question is quite simple, but requires us to reanalyze the reason we ask those questions. Money is still seen as a zero sum game, in which someone has to lose for someone to gain. The real question- Is money a zero sum game? In a world of gold = money, the answer is yes. However in an age of paper/ electrons = money, the answer is no. I propose we create money that is not based in debt, and can be adjusted according to prevailing needs. While some of you are still waiting for the nth coming of gold as currency, I believe that such a move is not compatible with our current technological civilization. While there are many reasons for that statement (which will form the basis of another future series), the most important reason is the fundamental effect of technology on making things and providing services- it keeps on making them less expensive and with fewer employees. However making things and providing services requires consumers who will buy them. A currency that retains its value will inevitably concentrate in a few hands, discourage spending and reduce economic activity –the velocity and flow of money. Without a healthy velocity and flow of money, you get a feudal-type system in which titles and occupations are hereditary, laws are arbitrary, contracts are unenforceable and everyone is trying to screw over everyone else. If you want to take your chances with such a system, go ahead.

The second part of that question, the ‘why’, has been partially answered in one of my previous posts. The most important purpose of money is to facilitate non-violent exchanges of things and services. It is easier (and more desirable) to pay for something than rob/ kill the person who can provide what you want. Given the effect of widespread application of technology on costs and labor intensiveness of products/ services, it is in the interest of producers to make sure that there are consumers for their products/ services.

The next set of objections to my idea are most likely:

How can we motivate people to work and excel if there is no extra reward? How do you prevent the idle from becoming rich in such a system? What about inflationary effects?

The answer to that comes in two parts. First- Those with jobs will keep the money they earn in addition to the basic amount. Essentially, the employed will have much more discretionary income than those on the minimum income. Surely, most people cannot object to such an arrangement, can they?

The second part of the answer is that everyone will have to spend their minimum income by the end of every calendar year. Carrying over any unspent amount to the next year, saving it or investing it will be forbidden. However the money earned in a job can be saved, invested etc. While some people will try to cheat the system, it will be inconsequential as long as the cheaters are kept at levels similar to those who cheat on their income taxes.

It is extremely important that the workings of this system are openly explained to people. The minimum income should not be seen as charity, but as a necessity to keep the flow and velocity of money from going below safe levels.

Inflationary expectations can complicate matters, however they will subside once people understand the system. In any case, paper and electrons can be created and destroyed at will. Moreover technology has been deflating product/services costs and will very likely continue to do so. Inflation is less destabilizing than a deflationary spiral, as the rise of dictatorial regimes in the 1930s can attest. It is easier for people to accept loss of savings than loss of income, food and basic human needs.

I have no illusions that we are going to go down this road willingly. In the end, circumstances and events that will force us to explore the possibility of creating such a system.

I will answer the following two question in an upcoming post:

How can such a system be implemented, given the human tendency to cheat and abuse systems?

What conditions will force most people to go along with such an idea?

The next part: Alternative View on Money- V

  1. Alkibiades
    December 22, 2009 at 5:20 pm

    You start from the assumption that money is seen as a zero sum game. The problem is that is not how money is viewed in micro-economic theory and practice. If you have a source saying otherwise, please provide it.
    I look at how people behave as opposed to what they say, whether they are eCONomists or feminists.

  2. Alkibiades
    December 22, 2009 at 10:47 pm

    Even if, as you say, you look to how they behave, then I still don’t think your zero sum assumption is correct. Most economic transactions are of the mutually beneficial variety. Exceptions would be in cases of fraud or other criminal activity being involved. Where your zero sum approach has more validity would be in the trading of stocks and commodities, which aren’t economic activity per se. In those types of transactions there will be a winner and a loser.
    Most economic transactions are indeed mutually beneficial. However it is the high impact (large amount) transactions that still work on zero sum assumptions.

  3. Alkibiades
    December 22, 2009 at 11:33 pm

    In my next posts on this topic. There is a lot I have to say about it, and have many examples. My major problem is condensing it into posts of 500-800 words without losing impact or continuity

  1. December 22, 2009 at 6:11 am
  2. December 30, 2009 at 2:48 am

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