Home > Uncategorized > Is money — really — neutral in the long run?

Is money — really — neutral in the long run?

from Lars Syll

Paul Krugman has repeatedly over the years argued that we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:

So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.

I doubt that Keynes would have been impressed by having his theory being characterized by catchwords like “tendency to return to full employment” and “money is neutral in the long run.”


One of Keynes’s central tenets — in clear contradistinction to the beliefs of mainstream economists — is that there is no strong automatic tendency for economies to move toward full employment levels in monetary economies. 

Money doesn’t matter in mainstream macroeconomic models. But in the real world in which we happen to live, money does certainly matter. Money is not neutral and money matters in both the short run and the long run:

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted in either the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.

J. M. Keynes A monetary theory of production (1933)

  1. January 25, 2019 at 2:25 am

    It appears to me that the the rate of change of money in an economy is more important that the quantity alone.

    • January 25, 2019 at 2:33 am

      What do you mean by “the rate of change”? “Money’ doesn’t change – a dollar bill is a dollar bill – the amount it can be exchanged for can change but not the money itself.

      • January 25, 2019 at 2:56 am

        The quantity of money in the economy changes with time. I am referring to the rate of change of the quantity of money. The units would be dollars per month or dollars per some other unit of time. It is the velocity of money increase or decrease. The velocity of money in the economy is an important piece of data and it is montered. I am speaking, however, of the velocity of change in the money supply.

      • January 25, 2019 at 4:35 am

        Why is the velocity of “money” so important to you? Certainly, the quantity of “money” in a system is important as it will determine whether the nation is in a state of inflation or deflation – one creating the perennial booms and the other the perennial busts.
        I know economists and others talk about the velocity of “money” but how does it impact on the daily lives of people and the “economy” overall?
        I suppose one needs to know what should be the purpose for having an “economy” in the first place. Is the purpose aimed at improving the welfare of a society? Is that a good thing to aim at? Or is the purpose of an economy simply to ensure the most efficient use of available resources?
        I guess, if we are going to introduce “efficiency” into the equation we need to ask, “Efficient for the benefit of whom?” That then raises the question of how one is to measure what is “efficient’ and what isn’t?
        The more one looks at this pseudo “science” of economics the more one finds there is a lack of answers to so many fundamental questions.

      • January 25, 2019 at 9:01 pm

        The Fed keeps tabs on the velocity of money. If it dropped to zero it would mean no one is buying nor selling anything. It would be a dead economy. As economic activity increases the velocity of money increases. If the velocity gets too fast then the Fed will tell you the economy is heating up They will then raise interest rates and/or start selling debt in their OMOs.

  2. January 25, 2019 at 2:30 am

    Keynes got it wrong – “money” does not “behave” in any way at all – it is completely neutral. “Money” is a human construct – an idea – aimed simply at providing a convenient and effective medium of exchange. That’s it. “Money” has no other purpose – if it can’t be exchanged for things people need or want it is totally useless.
    Just think about. Has any economist, or anyone else for that matter, ever given any consideration to an alternative to a “money” system, apart from going back to a barter system? What alternative is there?
    To act as a reliable medium of exchange whatever token is created it needs to have two essential characteristics. The token must be universally accepted within a given area, as it becomes a nightmare situation if there are multiple tokens based on different parameters. The second characteristic is that the token must come with a guarantee that it is not a false token. In today’s world, essentially, only a nation’s Government is in the position to declare what shall be a nation’s legal tender and only the Government is in a position to guarantee the token’s authenticity by punishing counterfeiters.
    “Money” is controlled by people and it is the behaviour of people that determines how money is used.
    What most economists seem to ignore is that fact, that in today’s world, “money” has become an essential tool of survival for the vast majority of people everywhere. It is as essential as food, water, clothing, and shelter, and there is virtually no economic system that truly addresses this issue.
    All economies around the world are obsessed with production and making a profit, but they all seem to ignore the fact that production itself does not produce one single dollar of profit. Every dollar of profit comes from consumption, in exactly the same way that every dollar of taxation comes from consumption. Every business builds taxation and profit into their pricing and it is always the consumer who eventually pays. As always, the consumer is ultimately the people.
    Surely, it is axiomatic that it is pointless to produce anything, anything at all, unless it is going to be consumed?

    • January 25, 2019 at 2:22 pm

      You said a lot of what I think but lost me at the profit from production thing. If I buy and then flip a house, condo or business making a profit, where is the consumption? Speculative exchanges create profit don’t they?

      • January 25, 2019 at 9:30 pm

        OK, ‘antireifier’, speculation is not production and that is what you are doing when you flip a house. Take the house as an example. A builder builds the house and it cost them a heap of “money” – most of which they have probably borrowed from a bank. The builder has bought a lot of raw materials from suppliers who have charged the builder with the costs, which for them would include their profit margin and also a provision for the taxes they have to pay. However, the end product of this exercise is the finished house for which the builder has calculated all his costs then added his profit margin as well as a provision for taxes. That house will sit there on the block of land and not earn a single dollar of profit for the builder until it is sold. Thus, profit always comes from the sales, the consumption of the of the products and it is always the final consumer who finished up paying all the taxes the government has added to each link in the production chain. Companies and corporations never pay any taxes – they just transfer funds from the consumer to the Government, or if they are rational, they find tax avoidance and tax minimisation schemes to whittle down the monies they have received from the consumer and have to pass on to the Government. Any such minimisation translates directly into increased profits.

  3. January 25, 2019 at 3:35 pm

    Keynes, with all his considerable smarts, apparently wasn’t aware that it isn’t possible to devise a comprehensive theory based on observable facts that fall within the field of study. (e.g.) When one’s premise is that money _is_ a store of value, however desirable that point of departure may be, it will at best be ad hoc; i.e. valid when a part of the field is considered, but paradoxical with respect to the field as a whole. A valid economic theory obtains its premises from outside the field of study, and let whatever money _is_ roll out of those premises. The difficulty lies in coming up with premises that, unlike the orthodox ones, are realistic; and then following those, whatever the consequences may be. For that could mean needing to abandon what had come with many years of hard-earned learning.

    Following my premises, Keynes was right when he considered money to be non-neutral. But that isn’t the end of it. A comprehensive solution to the problem would be arranging the economic conditions in such a way that money becomes neutral, or at least nearly so. And I don’t mean, again following my premises, by the application of a useless monetary policy; but instead by a policy that remains consistent with the fact that something created out of thin air cannot be a physical store of anything. That sort of trick was last accomplished some 14 billion years ago.

  4. January 25, 2019 at 7:11 pm

    Guggsie has “got it wrong” on so many points that it is nice to agree with his first point, that money does not “behave”. A token is a sign: the equivalent of a word, and it is we who behave, in response to it. And words can be use to tell lies and in stories and take on different meanings in different contexts.

    “Money” is aimed simply at providing a convenient and effective medium of exchange? On the contrary, in the modern era it has been used in a conspiracy to dispossess cottagers and force them to work for others in exchange for the mere hope of an adequate livelihood. Is this not being admitted? “What most economists seem to ignore is that fact, that in today’s world, “money” has become an essential tool of survival for the vast majority of people everywhere. It is as essential as food, water, clothing, and shelter, and there is virtually no economic system that truly addresses this issue”.

    Of course it can have another purpose – in accounting for wages and prices paid and other debts and for creating the illusion of monetary profit: for bank money produced out of thin air is in itself worthless. Indeed, what does it profit a man if he is able to buy the whole world but suffers the loss of his own soul? The first definition of ‘profit’ in my dictionary is the gain to be made out of employing capital, which in real terms is defined as addition to good or value, benefit, improvement. Pushing up rents, share valuations and house prices does no good to anyone and endangers the souls of the projectors.

    “Just think about it”, says Gussie. “Has any economist, or anyone else for that matter, ever given any consideration to an alternative to a “money” system, apart from going back to a barter system? What alternative is there?”

    Must be new here. I’ve been doing that for several years. Paid off as due, an interest-free credit card can be used interchangeably with money. Physical money drawn against a personal credit account provides a limited amount of tangible credit accounted for in advance for convenience in face-to-face transactions; the account also has a generous credit limit allowing flexibility in combining necessary expenditures with responsible frugality. This inverts the normal arrangement: employers (or the community constitutionally) give credit before work is supplied to repay it. Kids etc get supported while they study. The message spelled out by the credit account is how much has been spent, so how much do I need to earn? (As against the ancient sailor’s practice: “Now I’ve got my screw, let’s get drunk”).

    • February 8, 2019 at 11:20 pm

      Thanks for your comments Dave, but what I questioned about an alternative was in relation to a “money system”. A credit card is simply an adaptation of the existing “money system” – take the concept of “money” out of a credit card and you are left with nothing. The same can be said about cryptocurrencies – they conform to the fact that anyone can create “money tokens” the trick is in getting them accepted and guaranteeing they are not false tokens. The cryptos are, of course, monumental confidence tricks that do not exist in reality, which is why the scammers choose to portray them in the form of gold type coins.
      As for the way “money” is used is really just an extension of human perversity and/or initiative but that does not get away from the fact that if a “money token” – in whatever form it is legitimately allowed to take – cannot be exchanged for something that a person needs or wants, the token is useless.
      Money, per se, does not have “value” – especially so for digital “money”. Paper and plastic “money” can be burnt to create some heat and keep a person warm for a short while. A metal coin can be used to open a beer bottle top. In this respect, physical “money” does have some alternative uses, but you can’t eat it and you can’t drink it, and unless you can exchange it for what you need to survive it is largely useless.
      The “value” of any object or service is entirely in the perception of the buyer and seller. Money is simply a convenient means of measuring that perception, and if an agreement can be achieved, then an exchange can occur.

      • February 9, 2019 at 8:19 am

        Guggzie, excellent points. I agree. Just one comment. The “value” of money, whatever form it takes is created by those who use it. That includes but is not limited to sellers and buyers. The public economy uses various forms of money but has no sellers or buyers. Even economic transactions that include sellers and buyers take thousands of different forms from culture to culture. Americans generally, and American economists would neither recognize or accept some of these actors as sellers or buyers.

      • February 9, 2019 at 7:58 pm

        I would question your assertion that public money has no sellers or buyers, Ken. No matter how public money is used it will always result in some form of transaction. If the money is used for infrastructure purposes then it will involve buying materials and labour to construct a structure that is deemed necessary for public consumption, e.g. a bridge or a road. If the money is spent as a welfare payment to those in need the recipient will use it to buy what whatever they need, and presumably, at the most economical price according to the way they “value” the item. This applies to whatever form the “money” takes, whether itis a cash handout or a digital transfer to a bank account.
        The perception of “value” most definitely applies to the huge gambling casino called “foreign exchange markets”, which treats “money” as a commodity – something that, in reality, it really isn’t. None of the gamblers in those markets will ever buy a currency for more than they think it is worth. On the other hand, a seller can often be caught out through leverage and forced to sell at whatever price they can get. Like I say – a huge gambling casino where people just lay their bets and hope for the best. If a money token were directly linked to say, gold or silver at a guaranteed exchange rate, then there would be some justification for classing the tokens as commodities, but in today’s world, as far as I know, every currency is a fiat currency and has no intrinsic “value”. The only measure of value is what the token can be exchanged for.

      • February 10, 2019 at 5:48 am

        Guggzie, my error. I was not clear enough in my statement. The public economy, unlike the private economy has an additional, central actor who decides both the form and the value of all transactions. That additional actor is the government, mostly in the form of public bodies elected or appointed who make these decisions. For example, planning, zoning, environmental, etc. government bodies have the final say on land purchases, new construction, siting, etc. On services such as electricity, regulatory commissions decide about power plants, resource mix, and the price the consumer pays. Even in those cases where the utilities themselves are privately owned and operated. Since the 1970s there has been an attempt to reduce the role of government in all the public economy areas. To replace it with “competition.” Not only have these efforts failed miserably, they’re led to higher consumer prices and public economies more complex than anyone wants, and most customers and many legislators no longer can comprehend. In other words, the free-market aficionados have accomplished their usual result when they interfere in the public economy – higher prices for consumers, bigger profits for capitalists, particularly financial capitalists, and confusion and complexity that makes effective government regulation difficult, sometimes impossible.

      • February 10, 2019 at 7:16 am

        Totally agree with that summation, Ken. Privatization is really just an ideological gimmick, and a false one at that because it can never be proven that a profit-driven service will ever outperform an equivalent non-profit service.
        Fundamentally, all Governments today, irrespective of their “colour” or makeup, ultimately support the capitalist system at the expense of the people. To the extent that the capitalist system requires a workforce, the Government provides a level of support for unemployed people, both to make sure they are available when the capitalist system needs them and also to reduce the chance of unrest that might otherwise disrupt the orderly process of the system.

      • February 10, 2019 at 9:28 pm

        Guggzie, privatization is just a way to gain and protect wealth. Private wealth. It’s worked well for that. And the public and private economies can coexist so long as the latter serves the needs of the former. And is not allowed to trample the public economy. To trample the community. That’s the issue we face today. Under those circumstances, there is no compelling need to allow the private economy to continue. Those in that economy need to learn not just good manners, but also community responsibilities and duties.

      • February 9, 2019 at 10:11 am

        Guggzie, excellent points. I agree. Just one comment. The “value” of money, whatever form it takes is created by those who use it. That includes but is not limited to sellers and buyers. The public economy uses various forms of money but has no sellers or buyers. Even economic transactions that include sellers and buyers take thousands of different forms from culture to culture. Americans generally, and most American economists would neither recognize nor accept some of these actors as sellers or buyers.

  5. January 27, 2019 at 2:25 am

    Our obsession with Keynes continues, which is fine. But did he not also comment (off the top of one’s head) that in the long run we would all be dead? The whole global system has been struggling for decades now, and it was perfectly predictable. “Slobalisation” is the latest key word on the cover page of the Economist this week. And I do not even recommend the FT or other sources. They really do all seem to agree on the fundamentals and the basics. I wish Economists would too. We could then at least turn our attentions to other really pressing issues of today’s world: climatic collapse, total lack of accountability, vulnerabilities of various kinds for the vast majority of humanity, unprecedented polarisation within and without borders, wars and coflicts and so on.

    Helen Sakho

    • Carmen Basilovecchio
      January 27, 2019 at 3:23 pm

      “…life itself and everything that meanwhile makes life worth living … depends first, last and always on the manner in which the production and distribution of wealth is regulated.” (Edward Bellamy, 1897.)

      We have legislated our own ‘inhumanities’ upon life.

      Frederick Soddy.(The Role of Money. 1934) “The public is expected to believe that the misfortunes that beset us are acts of God and that, though we have the science and the necessary equipment and organization to produce wealth in abundance, it is beyond the wit of man to learn how to distribute it.“
      “Capitalism to be administrated for the betterment of the common good of the INDIVIDUAL while at the same time for the common good of the ENTIRE GROUP. With equality and justice for all, this new Capitalism could be one of the greatest achievements of mankind. A government that would administer this system with an HONEST CENTRAL BANK to make the money FLOW to “…help form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”

    • February 8, 2019 at 4:20 pm

      Keynes made that comment in reference to Hayek and the austerity gurus from the Austrian school of economics when they argued that the government should not intervene with the market because in the long run the economy will reach an equilibrium. Keynes then replied that in the long run we are all dead. I have never understood that silly notion of equilibrium. It defies all logic and experience. As we approach the edge of chaos and entropy increases, complexity becomes greater and equilibrium is but a fleeting dream. And we are always approaching the edge of chaos. Climate variables, weather changes, population changes, plagues and illnesses, etc. There are too many exogenous variables at play to give any credibility to equilibrium theory.

      • February 8, 2019 at 4:50 pm

        “Let us be wary of this dangerous theory of equilibrium, as supposedly reestablishing itself automatically…An inevitable equilibrium, it is true, is reestablished in the long run, but it is only by way of a frightful amount of suffering.” (transl. mine) pg. 220 of: Nouveaux Principes d’Économie Politique; 2e éd. Vol.2, Paris, 1827.

        When Keynes was right he wasn’t original, and when he was original he wasn’t right.

      • February 9, 2019 at 10:17 am

        Antireifier, you are right to be suspicious of how the notion of equilibrium is used by mainstream economists. Like money and other economic things equilibrium’s status and import is situational. It is established by those who engage in the actions being created as balanced or symmetric. They establish the criteria and how these are used. For mainstream economists those criteria are mostly mathematical. The equation is supply is equal to demand. This is always a judgement call for economists, since the two are almost never the same. How close to “the same” must the two be for the economist to judge them equal? That judgement varies from economist to economist and from one period to another. If we as social scientists want to understand how and why economists create equilibrium, and the kinds of equilibrium they create, we need to focus on observation. Lots of observation.

  6. February 8, 2019 at 11:13 am

    Money is a cultural tool. We give it numbers to keep track of how much there is and where and how it is used. Its fundamental purpose is to provide a means for people to satisfy their needs for physical products and services. It is not suitable for nor expected that it meets spiritual or psychological needs. Although it can be used to purchase certain services that can have spiritual or psychological effects. As a cultural device, money only exists in the in-betweens of people, in their interactions. For most of its history money has had a physical form and presence, e.g., the bill, the coin. Today more and more money exists only digitally on computers and electronic storage media. Of all the cultural devices or tools humans have created money is thus far the most flexible. It can be used in almost any exchange, from food to housing, from sex to weapons, from protection to art. Early money simply circulated continually from exchange to exchange, some involving some form of market, but most not. Later those favoring capitalist markets seized money to provide the dynamic for their capitalist markets and ownership. But money is separate from and does not require capitalism. Also, because of its flexibility and appropriation by capitalism, money was made into a measuring tool to establish cultural status of groups and individuals. And thus, plutocracy and plutocrats are added to human culture. Money also is a powerful ideology of our time, a single, interchangeable, impersonal instrument — the very essence of our rationalizing modern civilization. Money’s “colorlessness,” as Georg Simmel saw it at the turn of the twentieth century, repainted the modern world into an “evenly flat and gray tone.” All meaningful nuances were stamped out by the new quantitative logic that asked only “how much,” but not “what and how.” Whether conservative or liberal, all saw the expanding cash/money nexus as the source of evil. But Simmel and the others are wrong. Examining how people use money contradicts all of this. People fit money not only to their needs but also to their dreams, fears, loves, hates, and desires. Re-purposing it for new futures or failed pasts. Making all kinds of what Zelizer calls “special” monies. From domestic and foreign money to gifted money and charity money. From poor peoples’ money to stolen money and war money. This social lexicon of monies shows that money itself is nothing. It is how people shape it and use it that makes money whatever it is. This richness is lost when we accept Simmel’s gray and flat world created by a money economy.

  7. February 8, 2019 at 11:26 am

    Neglected to check the boxes.

  8. February 9, 2019 at 9:13 pm

    In response to my earlier comment, Guggsie said “Thanks for your comments Dave, but … A credit card is simply an adaptation of the existing “money system” – take the concept of “money” out of a credit card and you are left with nothing.”

    So yes, it is simply an adaptation of the existing “money system”. That is a huge advantage in that, in the event of the change of interpretation of the concept “money” I am proposing, most people will already understand how it affects them and (in their credit card accounts) have an example of what trading asks of them: that they pay off their debts by earning their keep.

    Money is a concept of the value of goods or services; that may have been realistic when money was a token of an valuable commodity like gold, but now the gold has been taken away (and in practice largely had been since the invention of Reserve banking), while it has long been known (and Werner recently demonstrated) that it is what Carmen keeps reminding us the Nobel-honoured physicist Frederick Soddy pointed out in 1934: a token of ‘nothing’! Soddy begins Chapter 2 of “The Role of Money” saying:

    “What is modern money? Let us commence our study of the role of money by a comprehensive definition of what modern money is.

    Money now is the NOTHING you get for SOMETHING before you can get ANYTHING.

    Our task is to understand all that this implies”.

    So if money is a token, it is now a token of nothing. Yet we have to be given it, or earn it, or steal it, or borrow it before we can exchange this token of nothing for anything of real value. For the banks to persuade us it is equivalent in value to gold and charge us interest on the ‘nothing’ we borrow from them has been the most lucrative scam ever, besides destabilising the system by requiring an economy to create more money out of nothing for it to borrow to pay the interest, thereby inflating prices so borrowers have to borrow still more of it!

    I’m proposing that honest money is a token of its possessor’s credit-worthiness, as shown in the credit limit on a credit card account If I withdraw physical tokens of it from a cash machine and on my personal account this is deducted from what remains of my credit limit, it is still part of a credit limit and I can only buy goods with it up to its token value, be that £10 or $1000. As of now, children learn to use money by being given pocket money but habituated to earning it by doing jobs they are becoming capable of, i.e. as their credit-worthiness increases. By the time they are given their own credit card account and a self-maintenance living allowance in the form of limited debt write-offs, they must continue (in this scenario) to live frugally enough not to normally exceed this allowance, a generous credit limit enabling them to invest in durables like housing. With money being limited and accounted for personally, there is little incentive to steal it, nor again, to steal someone else’s credit card when one can have as much credit as one needs for free. Banks don’t give us credit, we are given it by vendors and it is acccounted to us personally when we buy using a credit card, so the risk of fraud can be further reduced by having local and regional currencies with bank managers who know our circumstances. Remember, this just a scenario for discussion; there are a whole range of implications that can be discussed about practical education, not being able to buy what hasn’t been produced, and the role of governments changing: from facilitating industry to agreeing incomes and prices on aggregate costs of what needs doing, i.e. to maintain and/or replace what is being used and to regenerate the world’s ecology.

    An interesting thought was triggered by your comment, Guggsie. If the security for our credit card is our own credit-worthiness, do the credit card companies perform any real function? On the face of it they do, for we use credit rather than debit cards to insure us against loss. But if the loss insured against simply lowers our credit limit and allows a few free-riders limited purchases compared with the numbers now living it up on rents, profits, interests and insider gambling, what’s the point? One’s local bank manager can check out the circumstances and if necessary simply write off the fraudulent purchases..

    • February 9, 2019 at 11:02 pm

      You are offering quite a range of options. Dave, to which I see one fundamental flaw. Who or how is one’s creditworthiness decided? Even before Soddy (whom I also consider extremely valid) there was C H Douglas who wrote “Economic Democracy” and “The Monopoly of Credit” – he perceived “money” as simply a “ticket” system. One acquires a “ticket” which provides access to a variety of “things” according to one’s needs or desires.
      How one acquires their “tickets” was the issue dealt with by Douglas in considerable detail.
      As for the current credit card system, Timothy Madden, a Canadian financial analyst who, in the early 1990s, built software models to analyse credit card accounts, he estimated that payouts from the bank’s own reserves are necessary only about 2% of the time; and the 2% merchant’s fee is sufficient to cover these occasions. The “reserves” necessary to back the short-term advances are thus built into the payments themselves, without drawing from anywhere else. Timothy found his spreadsheet computer/software models of the credit/charge-card system kept “blowing up,” because of the “divide by zero” errors related to the return-on-equity equation.

      The interest is all gravy because the transactions are all funded by the signed payment voucher issued by the card-user at the point of purchase. All the losses resulting from credit card default, and even fraud, cannot be charged against the operator’s equity because they don’t have any. This is why almost all banks, everywhere, have to write-off 100% of credit/charge-card accounts in arrears for 180 days, with virtually no impact on the bank’s bottom line.

      Essentially, the Credit Card system is the Ultimate Shell Game

      Economist, Hyman Minsky, observed that anyone can create money; the trick is to get it accepted. The credit card companies have achieved this by being allowed to turn the customer’s IOU or promise to pay, into a “negotiable instrument” acceptable in the payment of debt. A negotiable instrument is anything that is signed and convertible into money, or that can be used as money.

      • February 10, 2019 at 1:40 pm

        Thanks for your comments, Guggsie. Your question, “Who or how is one’s creditworthiness decided?” and your remarks on Madden’s analysis of the credit card system as it is currently understood, show you haven’t yet grasped the [Copernican] inversion of meaning I am arguing for. Creditworthiness is not in the first place what you can afford to pay back, as now. It is axiomatic that as a human you have as much right as anyone else to live decently, which standard is limited by what there is available and how many of us there are and how fast we can reproduce what we need, which is (say) half what we currently produce. The discussion this time round has not got onto the capitalist incentives to mass produce and thus end up wastefully competing; The alternative to the incentive of monopoly rents I envisage is a prize fund about the same size as the livelihood fund, with our eventually mass-producing materials and competing in local production on quality, and in the developments of methods of production which are safe and worthy of being shared. Prizes would simply add to the winner’s credit limit, increasing the rate of expenditure write-off until the residual limit became normal.

        Year by year the real resources we consume and what we have regenerated of it allow the affordable level of “decency” to be reassessed. Sanctions would be directed at those who, without good cause like disability, fail to live decently by earning their keep (i.e. doing what needs doing) or living dissolutely, e.g. spending too much on the likes of drugs, druink and habitual gambling.

  9. rddulin
    February 10, 2019 at 2:06 pm

    Money is simply a tool useful in the measurement of value, just like a ruler is a tool for the measurement of length.
    Anyone can create a ruler if it is properly calibrated (standardized).
    Rulers, standardized weights(masses), time keepers, thermometers, etc. are well known and utilized in production and commerce trillions of times a day. Each catagory has it’s own special requirements and the system works well.
    Money creation and calibration has ancient roots of being controlled by people with the political power to do so. Old paradigm.
    There is no reason to theorize and fret about why some disadvantaged person deserves credit in the form of a dollar loan.
    It is reminiscent of opposition to slavery with arguments such as aren’t slaves people just like the rich people,don’t they have pain like free people,etc? Of course, slavery is wrong.
    Restricting access to good money, and in the process creating bad money, for the benefit of the few is wrong also.
    Dave has a great idea but follow it to it’s logical end and just give everyone of legal age free dollars to calibrate the money system.
    New paradigm.

    • Craig
      February 10, 2019 at 6:23 pm


      “Money creation and calibration has ancient roots of being controlled by people with the political power to do so. Old paradigm.”

      “Dave has a great idea but follow it to it’s logical end and just give everyone of legal age free dollars to calibrate the money system.
      New paradigm.”

      Now you’re talkin’. And then just slide in the never recognized fact by anyone except myself that retail sale is the terminal end of the entire legitimate economic/productive process for every consumer item from bubble gum to a house, which by definition then makes it the terminal expression point for any and all forms of inflation….and then implement a direct monetary policy of a 50% discount to consumers at that point that is fully rebated back to the enterprise giving the discount….and voila! You’ve resolved the two biggest and most thorny problems of modern economies, namely scarcity of individual income/business revenue and chronic inflation….in one fell swoop.

      Complete inversion/transformation of present realities. The classic signature of a paradigm change.

      • rddulin
        February 10, 2019 at 7:41 pm

        Craig,I think we are all closer than anyone thinks. I just don’t understand the necessity of the discount and rebate step. Just give the slaves their freedom in their own right and every person the money that is rightfully theirs. Restore the right to quantify and exchange things of value with their own working money. Just like they all measure with rulers
        No reason to apologize to the lenders that have usurped the right to use money with their sneaky schemes or to the slave traders that capture people and declare they own them
        It would definitely be a inversion/transformation of long standing realities. Douglas being an engineer would understand.

      • Craig
        February 10, 2019 at 8:11 pm

        Yes, we’re close. However, consider this: the discount/rebate policy all by itself breaks up the monopolistic dominance of private finance’s paradigm of Debt ONLY as the sole form and vehicle for the distribution of credit/money. It’s a simple operation without being simplistic…like the operation of every historical paradigm change has been like INVERTING the position of the earth and the sun and in so doing TRANSFORMING our understanding of the universe, using a machine to ABUNDANTLY produce instead of one’s hands, demanding the FREEDOM to have a DIRECT AND RECIPROCAL relationship with god instead of having to slavishly do the sacraments through the monopoly state religion and IN CONCEPTUAL OPPOSITION staying in place and producing greater ABUNDANCE instead of wandering nomadically to find game and the low hanging fruit.

        If you will notice, every one of the capitalized words above are both signatures of historical paradigm changes and also aspects of the natural philosophical concept of grace. Furthermore, they are all signatures and effects produced by the 50% discount/rebate policy at retail sale. And finally, it shows that the natural philosophical concept of grace is not only the singularly defining new paradigm concept behind the monetary, financial and economic systems….but THE concept behind EVERY historical paradigm change.

        It’s about time we awakened to these “somewhat” significant facts.

      • rddulin
        February 10, 2019 at 9:57 pm

        Why not just send money equally to everyone when the economy needs it as it grows? What is simpler than that?

      • Craig
        February 11, 2019 at 3:40 am

        That’s simple alright, but it doesn’t deal effectively and terminatedly with the chronic problem of inflation like the discount/rebate at the point of retail sale does. And combined with the universal dividend policy it also doesn’t enable us to eliminate the transfer taxes for welfare, unemployment insurance and social security that every working individual and every enterprise pays now. You see, changing an old paradigm like the one I’m advocating often has “knock on” positive effects in other systems. In this instance it would integrate the normally opposed political constituencies of the individual and the business community because they’d both benefit greatly from such monetary policies. Integration is the very process wisdom. Hence integrate, and keep on integrating. You literally can’t go wrong by doing so.

      • February 11, 2019 at 1:03 pm

        “Craig, I think we are all closer than anyone thinks. I just don’t understand the necessity of the discount and rebate step”.

        Having just spelled out my prize fund concept, I do now realise I am closer to Craig than I had realised. If my prize fund is half the available finance, the effect on prices at the point of retail sale will be the same as Craig’s 50% discount, and we agree on breaking up monopoly by localisation. Where we still differ is his aiming for greater ABUNDANCE when we are already using the Earth’s resources too rapidly. Rewarding greater QUALITY will lead not only to greater durability and maintainability but also, given local credit, replace the waste of competitive mass production with the satisfactions, educational value, sociability and freedom of development in craft work,

        While the current form of the ideas I am sharing is my own, I would like to promote readership of the old books by great men which have most inspired me: John Ruskin’s “Unto This Last” and “A Crown of Wild Olive”. [The start of the Preface to the latter I found particularly moving; the Editor of this blog might consider putting it up for us to discuss]. G K Chesterton’s “The Outline of Sanity” on vision in education was echoed by E F Schumacher’s “Small is Beautiful” on intelligible technology, and it has been a relief to find Frederick Soddy’s “The Role of Money” had long anticipated my key argument about honest money being given as credit rather than interpreted as debt.

  10. rddulin
    February 10, 2019 at 2:12 pm

    Good money is neutral. Inaccurate(bad) money is not neutral because it influences the transaction.
    Is the fuel gauge on your car neutral. It is when it is accurate and is not neutral when it causes you to be stranded.

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