Funny Money: Adapting to a Down Economy

Funny money

Adapting to a down economy

By Art Powell

Cover notes

This book is for people disillusioned with both capitalism and socialism. The author has studied economics, history and anthropology to understand how people exchange goods and services. The result is a book which points out the weaknesses of both capitalism and socialism and a number of areas in which what we do is not what we preach. It tries to pick out what is good and needs to be saved. This book identifies some serious problems with the fractional reserve way of creating money and proposes an alternative. While this book is based on economic principles a lot of the conclusions will probably be rejected by many economists.

In this book you will learn:

why the economic principles of marginal cost and the elasticity of the demand curve say it should be priced at 99 cents.

why relationships are an important part of economics.

what it takes to make a good relationship.

that our civilization is based upon a huge agricultural surplus which should be considered an inheritance to be shared equally by everyone.

how the financial and the physical aspects of the economy interact.

how money is created out of thin air and the problems this creates for our well being.

how we can finance a guaranteed annual income scheme.

how to become a part of the ten percent,

how not to become a slave.

Funny Money

Adapting to a down economy

By Art Powell

Published by Art Powell

Text Copyright © 1916 by Art Powell

All Rights Reserved

Cover Design by Jeremy Taylor

Cover Photograph by TaxRebate.org.uk

Smashwords edition

Dedication

This work is dedicated to all the young people in this world including Brandon, Kate, Joshua, Emma, Amlie, Mattias, Tristan and baby noname yet, who all call me grandpa

Table of Contents

Cover Notes

Pricing this book

Preface

Chapter One: Introduction

Chapter Two: Relationships

Chapter Three: The Isms - Ideological ways to organize the exchange of goods and services.

Chapter Four: Other proposed solutions

Chapter Five: Understanding Economics

Chapter Six: Economic Issues

Chapter Seven: Government in the Economy

Chapter Eight: The Market Economy

Chapter Nine: Funny Money

Chapter Ten: How to Distribute the Agricultural Surplus

Chapter Eleven: Guidelines for a New Economic Order

Appendix: Population on the Island of Tikopia

About the Author

Pricing this book

I believe this is the most important book on economics ever written and I deserve to become a billionaire. However I have also studied enough economics to know there are two principles which interfere with this fantasy.

The first is that the price of any item should be equal to the marginal cost of producing the last item. With electronic publishing the marginal cost of each item is zero. Amazon offers writers two royalty options, 35 per cent with a minimum price of 99 cents or 70 per cent with a $2.99 minimum. The reality of electronic publishing is that Amazon's cut is the marginal cost.

The other principle is the elasticity of the demand curve. Basic foods are said to have a very inelastic demand curve because we have to eat and will pay whatever is the going rate. Producers of food can do very well when there is a shortage as higher prices will more than compensate for lower total sales.

The author of this book is in a very different situation. No matter how good or important this book is I have to fear the demand curve will be so elastic that few people will be willing to pay much for it.

As I want lots of people to read it I should probably just give it away. However I have been eying a classy specialized wood turning chisel which with taxes and shipping will cost about $100. I have decided to price this book at 99 cents. A goal of selling 300 copies is marginally more realistic than the opening sentence of this section.

Preface

This book is based on the weblog economics101.wordpress.com which I wrote for about five years. I got to a point where I was repeating a lot of comments and feeling a need to get my thoughts organized. Some of this book is new writing and a lot is posts copied from the weblog. As the posts were written as stand alone articles, there is a lot of repetition of basic ideas. On the other hand, I think there are some interesting insights and observations in them. As I get near the end of the book I am feeling a desire to get back to the weblog.

One of the themes of this book is the importance of good relationships. I must say this book was written from within a good relationship. Lorraine, take a bow.

Chapter one: Introduction

Six things are done by friends:

To take, and give again;

To listen, and to talk;

To dine, to entertain.

No friendship ever comes

Without some kindly deed:

The very gods respond

To gifts they have decreed.

As soon as presents cease.

So soon does friendship die:

The calf deserts the cow

Whose udder has gone dry.

Introduction

This book makes what many people will consider radical proposals for changes in the way we organize our economy. It proposes that we strive for a sharing economy (based on the true meaning of the word rather than the Uber meaning) in which goods and services are exchanged according to the principles of perfect competition (there would be no profits). We also need to recognize the fractal nature of economic activity and we should change the way in which we create money to one based on the LETS system (local exchange trading system). The reason for the current economic crisis is that we have used up the most easily accessible of energy and mineral resources. The funny money in the title will be dealt with later. I think the term funny money describes the way we currently create money. Some people will think it describes the alternative proposed in this book. I would like to redefine money as "agricultural surplus credits to reflect that our civilization is based on the huge agricultural surplus we are currently producing and which should be considered a part of the inheritance of each of us.

Economics is mostly about relationships. It is about how we deal with each other to exchange the goods and services we need to survive. This involves a large part of our social activity. The way to solve economic problems is to study what makes good relationships and evaluate economic policy according to the criteria.

The lines in the opening of this book are from The Pancha Tantra, a book of wisdom literature from ancient India. These lines were chosen because they sum up the essence of good relationships – a more or less equal exchange of gifts, conversation and dining.

Back in the early 1970s this guy worked as a journalist on the newspaper in Penticton, British Columbia. In the Penticton library I found a book on the economics of money and banking. I was so fascinated with the explanation of how money is created by the banks making loans that when my first family disintegrated I went to the University of British Columbia and earned a degree in economics with an informal specialization in money and banking.

I also started asking questions about the different ways in which it is possible for people to organize the exchange of goods and services. This led me into economic history, history and anthropology. I even took a course on the economics of soviet Russia. This took me way beyond conventional economics. One of the first and most important lessons I learned was that to do well in economics one should regurgitate what the professors said and give it back to them. One did not always get good marks for thinking. The advantage of this is that I have a fairly good understanding of from where economists are coming. I feel I know enough about the subject to be able to offer some criticism.

I am reluctant to call myself an economist because I don't want to be associated with those who do. My economics is too market orientated to appeal to those on the left and too market orientated to appeal to people on the right. I see perfect competition as a utopia because it features zero profits and a high degree of equality. While we like to tell ourselves we have a market economy the reality is that our economy is based on legislation which restricts competition so that some people can make profits. Almost all business enterprises are trying to take us for as much as possible. It would be more accurate to call ours an exploitative economy

The ideas in this book are outside mainstream economic analysis but I believed they are mostly based on the economics I learned as a student at the University of British Columbia.

We will look at the formula from the quantity theory of money which I prefer to call the connectivity formula  because it shows how the real part of the economy connects with the financial. There have been many ups and downs in the total goods and services produced part of this formula. These changes have impacted previous economic crisis. The underlying cause of the current crisis is probably the unsustainable use of resources.

Three ways of creating money are considered (gold, fractional reserve and Local Exchange trading system [LETS]) and the advantages and disadvantages of each. If there is anything that should be considered funny money it is fractional reserve money. Therefore I suggest we base our new agricultural surplus credits on a LETS (Local exchange trading system) expanded into  a NETS (National Exchange Trading System)

Such a radical change in our financial organization would be an opportune time to make other changes on our economic organization. I would like to see the perfect competition model used as a guideline.

I believe subsidies should be given to consumers rather than producers therefore I propose that transfer payments and subsidies should be replaced with a universal subsistence program.

The golden years of prosperity

The years 1950 to 1973 were a golden age of unparalleled prosperity, according to Angus Maddison in his 2007 book, Contours of the World Economy.

"World per capital GDP rose at an annual rate of near 3 per cent, world GDP about 5 per cent and exports almost 8 per cent. Performance was better in all regions than in any earlier phase. There was a significant degree of convergence in per capita income and productivity, with most regions growing faster than the US (the lead economy).

After 1973, there was a marked slowdown. Global growth was cut by half. There was substantial divergence between regions and performance in many of them was below potential. (pages 71 and 72.)

I am curious about the timing of the end of the golden age – 1973.

In 1972 The Club of Rome published the book The Limits to Growth which suggested that economic growth would be slowed by limited resources. At the time the book was controversial but maybe the authors were not so far off the mark.

A recently report by the World Wildlife Fund said the world’s population is currently using resources at 150 per cent of the sustainable level. I wonder if we were using resources at 100 percent level about 1973?

Compassionate austerity to deal with the economic crisis

To cope with the economic crisis we need austerity with compassion. Stimulus as a policy will likely make things worse more quickly and austerity as currently practiced is mean and hurting victims. Those people voting for politicians urging austerity may regret their votes when they too get caught in the crisis.

Compassionate austerity would recognize we are dealing with events beyond our control and would therefore not blame the victims. It would include some sort of income support for people caught in the crisis

How one wants to deal with the economic crisis depends upon how strongly one believes in economic growth. If one believes this is just a temporary setback, then one probably wants either stimulus to keep things going or some austerity until the economy corrects itself and growth returns. This writer fears the crisis results from problems in the resource base and it is unlikely we will again see the golden years of prosperity which we have experienced in recent decades.

If this is the case, then austerity is something which will be forced upon us and we should try to cope with it with as little human suffering as possible.

I figure the basic economic problem is that while we have lots of energy and mineral resources left in and on the surface of the planet we have used up the most easily accessible. Those that are left take so much energy to extract it is becoming less feasible to do so. Suppose that during the age of prosperity we were able to build an automobile with 1,000 units of energy and labour and suppose it now takes 2,000 units to build the same car. Not only is this going to double the real cost of building a car it will probably limit the number of cars that can be built. It will certainly limit the number of people who will be able to afford them.

If this is a correct analysis of the problem, then clearly we need to make some revolutionary changes in the way in which we organize ourselves to produce and exchange goods and services. I predict there is little likelihood of the revolution starting until the economic crisis hits pensioners. For the time being it is mostly young people who are hurting.

There is a need to rethink our commitment to economic growth and rearrange our economy so we take advantage of modern technology so that most of us can live comfortably without having a job.

What disturbs me about austerity is that the people who promote it have so little compassion and understanding for those who have been caught by the crisis. Many of those who vote for politicians pushing austerity need to rethink their votes as it could be only a matter of time before they too will find their comfortable lifestyle being challenged,

Austerity with compassion should include some sort of income support. This writer would like to see a guaranteed annual income scheme combined with changes in the way in which we create money. However, the need is so great I will say we need anything that will provide everyone with a more or less equal share of the goods and services we are capable of producing.

Job prospects for young people and grandchildren

I was born in Western Canada during the 1940s and except for three years in England and Belgium I have lived here all my life. This means most of my life has been lived through an unprecedented period of prosperity and in one of the most prosperous corners of the planet.  There is now reason to fear that prosperity is coming to an end.

At my age the end of prosperity will not be terribly serious but my grandchildren are coming into their school years and I fear for their prospects and the future of all the young people throughout the world.

If we lived in a perfect world it should be possible to rearrange our economy so that most people could continue to live comfortable and fulfilling lives. However, most of us most of the time think and act in our own short-term interests as opposed to our own long-term interests let alone the long-term interests of everyone. This is not good news for all the young people living on this planet.

I consider myself and my generation to be extremely lucky in the time and place in which we happened to be born and raised.

Economics, palliative care and life regrets

The production and exchange of food is a major part of economics. Therefore economics is about life and living and it is appropriate to note a news item about the regrets of people of their death beds.

An Australian palliative care nurse has identified the top five regrets of people who are dying. Second on the list was ‘I wish I hadn’t worked so hard’. Men especially missed their childrens youth and their partner’s companionship. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence, said the nurse.

I see this as a reminder that each of us, on a personal level, should reevaluate our commitment to economic growth, the work ethic and retirement savings. ( I included the last item because retirement savings can be wiped out by inflation or the failure of firms. Our retirement standard of living will depend first upon relationships and then upon the ratio of people to the quantity of goods and services being produced at the time.)

Generally the most important things in life we have to learn for ourselves. But smart people also learn by listening to others. When one is in palliative care it is too late to learn.

The world economic crisis

Probably the best (and politically most impossible) way to deal with the world economic crisis would be to write off all debt and start over with a new way of creating money – one that is not based on debt. There is so much debt now that it is hard to see that it can ever be repaid.

If there is any such thing as funny money it has to be the money we now use which is based on fractional reserves and debt. Throw in the interest which is charged on the debt-money and we have a Ponzi scheme.  So long as there is steady economic growth it sort of works but as soon as there is an economic slowdown or decline it crashes.

In this book I try to explain how money is currently created and some of the problems. I also propose an alternative way of creating money based on the Local Exchange Trading Systems currently being used in several locations around the world.

The unemployed scapegoats

Apparently a lot of people are blaming themselves for their own unemployment. This is sad because there is a high probability that our commitment to the work ethic will make it difficult or impossible to cope humanely with the economic crisis.

I believe economics is largely about relationships and for relationships to be satisfactory they require a more or less equal two-way exchange including compassion and understanding. Too often the victims of the economic crisis are being blamed for their misfortune which is neither understanding nor compassionate. For them to blame themselves must be psychologically devastating.