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Why canít we use money?
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isenhand



Joined: 24 Nov 2005
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PostPosted: Mon Sep 05, 2005 9:13 am    Post subject: Why can?t we use money? Reply with quote

This is really in connection with the future communities thread but I put it in a separate thread as it?s could start to get to be a big subject in its own right Smile


Why we can?t use money in a balanced economic system.

Introduction

The argument against money is based on the assumption that we need a balanced economic system. A balanced economic system is one in which the production rate is set to match the demand while the ecological impact is minimised by ensuring that no more is taken out then is returned to the environment, that is it balances supply with demand and technology with ecology. Such a system works to minimise energy consumption and production. It does so by producing energy efficient products with as long a life expectance as possible. It is expected that such a system will minimise production as well. Why we need such a system is beyond the scope of this post but such a system forms the basis for the argument against money.

Economic Systems

Essentially for a balanced economic system it is necessary to measure some variable that is a direct indicator of what the system is doing. All closed loop control systems work by taking a sample of some physical variable of the system and feeding some proportion of it back to the input where it is subtracted to provide a controlling input. Such a system is called negative feedback and has been show to be an effective means of control of physical systems.

All economic systems are physical systems. They are constructed of production machinery, people, goods, raw materials and use energy. As such they obey physical laws. Therefore, the same control analysis used for other physical systems can be used to analyse economic systems.

The actual economic system is non-liner, dynamic and chaotic. It has inputs in the form of raw materials and energy and well as consumer demand. It has outputs in the form of products that are purchased by consumers. Currently such systems are regulated by money. It is the argument of this article that money is not an adequate means of controlling economic systems if such a system is to remain in balance.


Characteristics of Money


Money can not be used as a means of regulating a balanced system because of its characteristics as follows:

1. Money can be generated from nothing. This is the function of banks. Banks issue money in the form of loans and this creation of money leads to inflation. This then means that the money in the system is not reflecting the production capabilities nor the actual wealth in a system and, therefore, it is not a physical variable suitable for control. This then conflicts with the need to accurately measure the control variables.
2. Money can be saved. This means that the money in the system is not reflecting the current state of the system. Again, this makes it unsuitable for control purposes as it is necessary to know the current state of the system else control changes to the system will not be changes that are need now but changes that were need at some point in the past and may no longer be valid. This can lead to a system oscillating and becoming unstable. In the case of an economy this will be cycles of booms and busts and depressions.
3. Money can be exchanged. This can be achieved in a number of ways such as gifts or by steeling. This again means that the money does not adequately relax what is physically going on in the system.
4. The value of money is subjective and the supply of money is artificially keep scares. This is another characteristic that means money is not a true measure of the production of goods.
5. It forces the system to grow. As a general rule, companies exist to make money. As new products are produced to generate profit the economy grows ad infinitum, ignoring the fact that it is a finite system with finite resources.

Money can have other characteristics but the ones above are sufficient to show that money is not directly measuring what the economic system is doing. Money, however, does have some effect on production which results in the system going in boom and bust cycles.

An Alternative to Money

For the system to be in balance an alternative to money is needed, one that measures what the production system is doing and can be used as a control variable to maintain production and demand. On such variable is energy. All production systems utilise energy to convert raw materials into goods. A system based on energy would allow the system to balance the amount of energy available with the amount of energy required with the additional goal of minimising energy usage.


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isenhand



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PostPosted: Mon Sep 05, 2005 9:21 am    Post subject: Reply with quote

I found this:

Quote:
"You will change nothing until you change the way that money works"
-- M. King Hubbert



Cool
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MacG



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PostPosted: Mon Sep 05, 2005 11:00 am    Post subject: Reply with quote

I agree, but not completely!

Todays system of fractional reserve fiat currencies is probably the worst accident which has happened mankind, but "Money" as a concept is probably one of the smartest things ever invented.

Historically, many other forms of money have been used than our current form, which has its roots in the late 1600's.

I recommend Bernard Lietaer's "The Future of Money". Again! Smile
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khim



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PostPosted: Mon Sep 05, 2005 11:24 am    Post subject: Re: Why can?t we use money? Reply with quote

isenhand wrote:
One such variable is energy.

One ? You are joking, right ? There are no such thing as "one measurable energy". E=mc2, remember ? If you have 10 tonns of granite and I have 10 barrels of oil you have more energy for your disposal ! Yet of course 10 barrels of oil are more usefull - they have more usefull energy. But... what's usefull and what's not is matter of 10'000 conditions: if you'll find easy way to pull uranium from said granite you'll be able to get more usefull energy from it then I can from 10 barrels of oil. And if someone will be able to use fusion on pure helion (not deuterium or tritium) then few liters of water will have even more usefull energy then 10 tonns of granite! What is now "energetic black hole" can tomorrow be "energetic bonanza" - and vice versa. This means any try to actually use energy instead of money will just create surrogate money (we'll replace one arbitrary number with another one), nothing more.

Money is not ideal indicator of system position, but it's the best we have right now.
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isenhand



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PostPosted: Mon Sep 05, 2005 11:33 am    Post subject: Reply with quote

MacG wrote:
I agree, but not completely!

Todays system of fractional reserve fiat currencies is probably the worst accident which has happened mankind, but "Money" as a concept is probably one of the smartest things ever invented.

Historically, many other forms of money have been used than our current form, which has its roots in the late 1600's.

I recommend Bernard Lietaer's "The Future of Money". Again! Smile


Clever, yes, but not necessarily good Smile (not in the sense of achieving the goal)

By money I mean any form a debt certificate as that is the sort of thing that pushes growth (which is counter to the objective of a balanced system) but that does not mean all forms of exchange. The only alternative currency that I have seen that I think is some measure of what is going on is the time dollars, but that I don?t thin drives the system to minimise energy or resources.

If we are talking about forming a network of communities then things like LETS is good for starts but I don?t think for the long run.

It would be interesting to see if we could make a simulation of the different alternatives. I will have to start thinking about that this week.


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grinu



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PostPosted: Mon Sep 05, 2005 1:38 pm    Post subject: Reply with quote

What would happen if you had some crops you were planning to exchange for other goods, but all your crops failed? If there was no form of carrying debt then you'd perish unless people were willing to trust your goodwill and give you their goods/services anyway (which would in effect be an IOU, and therefore a form of debt).

I think that IOU's in some form or other are definitely required. The main problem with money is the way it's applied and used. I think debts could be settled with written statements that you would pay for the goods through an exchange of 'whatever' when you get it. This would rely on a build-up of trust to function, which can only be a good thing.

Also, money is good for storing wealth - what happens if you have to leave everything behind in a hurry and start over somewhere else (say your village is attacked) - you can't exaclty carry a field of wheat away with you, but if you'd saved some pennies then you'd have something you could quickly grab and carry away with you and use to start a new life elsewhere.

I do think a lot of bad is caused by money, but I don't think it's possible to get by in the long term without some type of portable system of carrying wealth.
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isenhand



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PostPosted: Mon Sep 05, 2005 1:48 pm    Post subject: Reply with quote

<< What would happen if you had some crops you were planning to exchange for other goods >>

In the context of an energy credit system. Each person has an equal share in the energy available. If one person?s crops where to fail then they need to use their credit to transport food from else where. In such as system they would not exchange their crops for others goods either, they would exchange energy credits.

<< Also, money is good for storing wealth>>

You would still have the same energy credit entitlement, so you would use that.

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grinu



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PostPosted: Mon Sep 05, 2005 7:28 pm    Post subject: Reply with quote

Ah, I see. Smile
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grinu



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PostPosted: Mon Sep 05, 2005 7:28 pm    Post subject: Reply with quote

Ah, I see. Smile
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grinu



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PostPosted: Mon Sep 05, 2005 7:31 pm    Post subject: Reply with quote

Ah, now I see. Smile

How would that work if energy use went right down tho the level of using a water powered mill to produce grains, using human and animal power to move things, using your own windmill to produce your electricity? Wouldn't it be very difficult to measure?

Hope my questions aren't dumb, I'm quite intrigued because I don't know much about this sort of stuff.... Smile

edit - sorry about the multiple posts everyone - I kept getting an error page, but obviously they got to wherever they had to anyway Surprised
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Bandidoz
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PostPosted: Mon Sep 05, 2005 7:47 pm    Post subject: Reply with quote

I've been thinking along the same lines, in terms of how could you feed tree-burning into a carbon ration? If fuel is rationed, enclosures of trees would have to be protected and guarded to prevent them being used for fuel (hmmm, Easter Island again....)
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MacG



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PostPosted: Mon Sep 05, 2005 8:51 pm    Post subject: Reply with quote

isenhand wrote:
By money I mean any form a debt certificate as that is the sort of thing that pushes growth (which is counter to the objective of a balanced system) but that does not mean all forms of exchange.


The little devil that pushes mandatory growth is called "interest". One day it will be very embarrasing for us when we have to admit that the moslems got that particular one very right. The pope HAD it right for a long period, but seem to have lost it along the way.
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MacG



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PostPosted: Mon Sep 05, 2005 8:52 pm    Post subject: Reply with quote

isenhand wrote:
By money I mean any form a debt certificate as that is the sort of thing that pushes growth (which is counter to the objective of a balanced system) but that does not mean all forms of exchange.


The little devil that pushes mandatory growth is called "interest". One day it will be very embarrasing for us when we have to admit that the moslems got that particular one very right. The pope HAD it right for a long period, but seem to have lost it along the way.
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Bootstrapper



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PostPosted: Tue Sep 06, 2005 5:01 am    Post subject: Reply with quote

isenhand wrote:
Money can not be used as a means of regulating a balanced system because of its characteristics as follows:

1. Money can be generated from nothing. This is the function of banks. Banks issue money in the form of loans and this creation of money leads to inflation. This then means that the money in the system is not reflecting the production capabilities nor the actual wealth in a system and, therefore, it is not a physical variable suitable for control. This then conflicts with the need to accurately measure the control variables.


Correct! That's why the (monopolistic) privelege to issue money must be abolished. Ultimately, every payment you, I and everyone else makes for anything, is with the product of our labour - the goods and services we produce for exchange in the marketplace. This includes wages/salarys. In a just (read 'balanced') monetary system, only those entities that produce goods and services for the purpose of trade in the marketplace would have the privelege of issuing 'money'.

Additionally, we are forced to accept official (monopoly) money regardless of whether it has been issued in a 'bona-fide' manner (honestly) or not. In a just monetary system, the only compulsion to accept a note is on it's original issuer, who must redeem the note for the face value of goods and services against which he issued it in the first place. Under a just system, the issuer suffers if he defaults on his obligation to redeem, under the present system we all suffer when the issuer renegs.

isenhand wrote:
2. Money can be saved. This means that the money in the system is not reflecting the current state of the system. Again, this makes it unsuitable for control purposes as it is necessary to know the current state of the system else control changes to the system will not be changes that are need now but changes that were need at some point in the past and may no longer be valid. This can lead to a system oscillating and becoming unstable. In the case of an economy this will be cycles of booms and busts and depressions.


Agreed! The reason money is saved is because it isn't 'redeemable'. That is, it comes into circulation but never goes out again. The result of this is inflation and the 'boom-and-bust' (business) cycle. In a just monetary system, all currency issued is redeemed by the issuer for the goods and services against which it was issued, within a prescribed time. That way, the supply of money rises and falls in concert with the quantity of goods and services available for sale in the marketplace.

Money is a medium of exchange, ONLY! It isn't a store of value. This is one of the 'big lies' of Neo Classic economics. The correct way to 'save' is to invest surplus cash in physical things which have intrinsic value - gold bullion, artworks, buildings (the cathederals of the Middle Ages are a good example), or in money-making ventures.

isenhand wrote:
3. Money can be exchanged. This can be achieved in a number of ways such as gifts or by steeling. This again means that the money does not adequately relax what is physically going on in the system.


Money is meant to be exchanged. What makes graft, bribery and corruption possible now is the fact that improperly issued (official) money is indistinguishable from 'bona-fide' money. In a system where every note had to be (100%) backed by real goods and services, these things would become almost impossible, except on the smallest (and therefore economically insignifigant) scale.

isenhand wrote:
4. The value of money is subjective and the supply of money is artificially keep scares. This is another characteristic that means money is not a true measure of the production of goods.


Those with the privelege to issue money and the power to force people to accept it have invariably favoured certain segments of the population over others in making money available. That's why the world's economy is apparently awash in 'money' but most people never have enough to satisfy all their needs. Abolishing the monopolistic privelege to issue money solves the problem Smile

isenhand wrote:
5. It forces the system to grow. As a general rule, companies exist to make money. As new products are produced to generate profit the economy grows ad infinitum, ignoring the fact that it is a finite system with finite resources.


This is a function of interest. As you pointed out in #1, lending money into circulation is wrong, from an economic as well as a moral POV. To be bona-fide, money must be spent into circulation. When a bank lends money into circulation, it creates only the amount asked for by the creditor. Yet, the bank expects the loan principal to be repaid, PLUS an amount of interest. But the bank doesn't create the money neded to repay the interest. This creates a system where creditors must compete with each other for a share of a fixed 'pot' of money which is insufficient to repay both principal and interest. This system guarantees that some creditors will be unable to repay their loans and will default, surrendering their colatteral to the bank (and it's principal shareholders). To stave off the spectre of foreclosure, creditors are encouraged to pay off only the interest. This leaves them in perpetual debt to the bank. Thus, debt pervades every aspect of the economy, and becomes a factor in the price every consumer pays for every product and service. Any creditor who seeks to escape from this 'debt trap' is forced to grow their trade to produce a surplus sufficient to pay off both principal and interest, at the expense of someone else. To remain solvent, every other creditor must do the same (grow) or go bankrupt. Thus, the growth imperative.


We don't need to abolish money. It is one of mankind's most useful inventions. We just need to understand how it works and educate ourselves how to use it in a positive way.
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isenhand



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PostPosted: Tue Sep 06, 2005 6:09 am    Post subject: Reply with quote

<<The little devil that pushes mandatory growth is called "interest". One day it will be very embarrasing for us when we have to admit that the moslems got that particular one very right. The pope HAD it right for a long period, but seem to have lost it along the way.>>

Just as aside there was once in the English constitution a part that forbade the charging of interest as it was considered unchristian to do so Smile But that was taken out.

<<We don't need to abolish money. It is one of mankind's most useful inventions. We just need to understand how it works and educate ourselves how to use it in a positive way.>>

Bootstrapper,

As always an interesting post. I think we agree on more things that we disagree on Smile

I do, however, disagree with the last bit. I don?t think that education will fix the problem. I think it?s better to engineer the system so that it can?t be used in a negative way. I?m not convinced that a mutual credit system will drive a system so that it is balanced in the same way that an energy credit system will. Nor do see that a mutual credit system will drive the system to minimise energy usage.

Grinu,

<<How would that work if energy use went right down tho the level of using a water powered mill to produce grains, using human and animal power to move things, using your own windmill to produce your electricity? Wouldn't it be very difficult to measure?>>

Yes, but not impossible. The ideas for energy credit was put forward in the 1930?s, when we did not have the aid of computers. Computers make life easier but you can still calculate out things without a computer.

<<Hope my questions aren't dumb, I'm quite intrigued because I don't know much about this sort of stuff....>>

The only stupid question is the one that is unasked! Questioning is the path to knowledge.
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