Transcript Folie 1 - Peter Knauer

1
Fair (= neutral) money
to prevent financial crises
2
Four theses on
1) The added value of money
2) The non-neutrality of money
3) Interest and compound interest
4) A fee for liquidity
making money neutral
3
1st thesis:
Money has not only a nominal value
but also an
ADDED VALUE
which consists in its liquidity advantage.
4
Comparison between
• Robinson Economy
• Barter Economy
• Monetarian Economy
5
Economy
of Robinson Crusoe:
1) No division of labour.
Working is not very efficient.
2) No exchange.
An extremely limited economy.
6
Barter (direct exchange of products)
is already much better,
but has some failings:
1) Limited in space and time.
Exchange only here and now.
2) Difficulty of finding partners.
The hungry tailor seeks the baker feeling cold.
3) Isolated singular action.
Only two take part in it; otherwise it may go
as with „Happy Harry“.
7
“Happy Harry” (Hans im Glück)
Chain of barter
= quite disavantageous exchanges
chunk of gold
horse
cow
pig
goose
grindstone
nothing
8
Monetarian economy:
Replacing a difficult exchange
by two easy exchanges.
Instead of roses for a car
roses for money / money for a car
9
Barter:
one difficult exchange
1.500 Bunches of roses for a car?
But the car factory is in no need of roses.
10
in a monetarian economy
replaced by two easy exchanges:
€ 8.990
11
Barter Economy
A
B
The liquidity advantage
of money consists
in its easy
exchangeability against
everything.
Monetarian Economy
A
C
E
M
B
D
F
• Money as a standardised
means of exchange,
• to be divided at one’s whim,
• trans-temporal,
• acting as a catalyst,
not itself being consumed,
but only going into other hands.
12
A jewel is better not divided;
it would loose its value.
13
Money can be divided
and re-composed
without loosing its value.
14
Monetarian Economy seems to be best:
Without limits of time or place.
For money there are no costs of transport; it can be used transtemporarily.
2) Money as standardised means of exchange.
To be divided at one’s whim; no major problem to find partners.
3) Exchanges in chain reaction.
The money remains after an exchange; it is not “consumed”, but has
only gone into other hands; it can broker further exchanges. But retained, it can also interrupt a chain of exchanges.
4) But it is normally easier to buy than to sell.
Anyone who wants to sell, has to wait for a buyer and has many
other costs (transport, stocking, maintenance, publicity).
15
Money is accorded validity
through the declaration of the State
that one may pay taxes with it.
It is not necessary
that it be covered by gold
or other assets,
but its quantity must remain controlled.
16
The functions of Money:
1) Unit of measurement for prices
2) Means of exchange
3) Way of storing (claims to) values
either
– or ?
As long as one retains cash,
an entire chain of exchanges is interrupted.
17
Holding cash:
1) Possibility of direct transactions
2) Security provision
3) Chances for speculation
Monetary
service
stream
= Liquidity advantage
18
If money instead of being used
as a means of exchange
is retained
as a way of storing (claims of) values,
(= hoarding),
an entire chain of exchanges is hindered.
If there were no interest,
But normally,
wouldasanyhow
peopleithoard
little as possible,
bethey
morewould
advantageous
to hoard interest,
one’s money
because
have to renounce
of lending it:
which instead
one receives
It is anmoney
advantage
to benefitagain
from its liquidity
for bringing
in circulation
(= monetary
service stream).
by lending
it.
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1
2
3
4
5
selling
buying
selling
buying
selling
buying
selling
buying
selling
buying
circulation of money
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1
2
3
4
5
selling
buying
hoarding money
selling
buying
selling
buying
selling
buying
selling
buying
If money is hoarded, it is withdrawn
from its function to mediate exchanges.
An entire chain of exchanges is hindered.
21
Money is not consumed, but
• it is either transmitted
(by buying, donating or lending)
• or it is retained (hoarded)
(disappearing for a time from circulation).
22
Should not a scale of measurement
itself remain unchanged?
23
Should not a scale of measurement
itself remain unchanged?
Yet: money as a scale contineously changes its value.
The same nominal sum
after a time becomes worth only half as much.
[This inflation becomes necessary, as we will see, in
order to cope with the effects of compound interest.]
24
Non-neutrality of money
Merchandises and services
• Transport costs
• Maintainance costs
• Publicity costs
• Constrains in timing
Money and its
joker privilege
• Freedom of choice
• Freedom of timing
Disadvantages
on the side of merchandises and services,
advantages on the side of money.
25
Stocking
merchandises
“Saving money”
(lending, not hoarding)
Costs of storing,
of maintenance,
of compensation
for losses,
of surveillance
Gain through
interest
26
Therefore: by its added value
(its advantage of liquidity)
money is a JOKER on the market
always winning the trick.
27
– +
Nominal value € 100,00
fixed,
like km
+ annual added value € 3,00
streaming,
like km/h
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2nd thesis:
In traditional money
the owner of money
can disfruit gratis
of its inherent added value,
or when lending money,
he can sell the added value
against interest
going in his own pocket.
29
Net interest =
premium
for renouncing the advantage of liquidity
In brutto interest there may be added
• the banking costs (personal, buildings),
• a compensation for inflation,
• a compensation for risk.
30
Net interest =
premium
for renouncing the advantage of liquidity
this may presuppose renouncing consumption,
but the premium is not given for renouncing
consumption, but only for renouncing
the advantage of liquidity.
Even in the traditional system one would not
gain a premium only for hoarding money.
31
3rd thesis:
It is the non-neutrality of money
which makes simple interest
and compound interest possible.
The effects are desastrous.
32
Our traditional money is not neutral on the market.
It is priviliged by its added value
which consists in its advantage of liquidity.
If one lends money,
one remains the owner,
but renounces for a time its advantage of liquidity;
this is paid for by the net interest given to the owner,
although the advantage of liquidity in reality
is a public product.
Interest is not a reward for not consuming or not spending,
but for forgoing the advantage of liquidity.
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What happens
when lending money?
One continues to be its owner,
but instead of hoarding it,
one lets it circulate anew.
In exchange for what does one receive interest?
One renounces the liquidity advantage of money.
And this is paid by interest.
34
GERMAN CIVIL LAW CODE
§ 248 Compound interest
(1) An agreement made in advance
that interest not paid in due time
is to carry recurring interest again,
is null.
The State wishes
to guard against
compound interest,
but with
interest bearing money
this is technically
not possible.
(2) Savings banks, loan corporations and owners of banking affairs
may reach an advance agreement
that interest left in the account
are to be considered as new interest-bearing deposits.
Loan corporations, having the right to edit
interest-bearing debenture bonds
according to the amount of the loans granted to the holder
are enabled to receive the promise in advance,
that interest not paid in due time
may be charged anew with interest.
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$ 10.000
Guess,
please!
with 3 % compound interest will be in 50 years ………….
with 4 % compound interest will be in 50 years ………….
with 11% compound interest will be in 50 years ………….
with 12% compound interest will be in 50 years ………….
In order to calculate roughly the time during which the
initial capital doubles, the number 72 must be divided
through the interest rate.
36
$ 10.000
with 3 % compound interest will be in 50 years
$ 43.839
with 4 % compound interest will be in 50 years
$ 71.066
with 11% compound interest will be in 50 years $ 1.845.648
with 12% compound interest will be in 50 years $ 2.890.021
with 12% compound interest
will be after the first 10 years still only:
$ 31.058
with 12% simple interest will be in 50 years:
$ 70.000
37
Interest
would not be a big problem,
if there were not compound interest,
which increases exponentially.
But if money brings interest,
there is no technique
to avoid its earning compound interest.
38
Interest is
the rental price for the added value
of money.
It compensates justly
for renouncing this added value.
Therefore it cannot be forbidden.
Otherwise people
would not lend their money,
but hoard it
and thus hinder its circulation.
39
In Germany,
in the prices for merchandises and services
incl. rents for appartments
on the average was hidden, ten years ago,
ca. 30% of interest.
Today on the average ca. 40 % of our prices
is hidden interest
to be paid for the debts of other people.
cfr.: 40% Zinsanteil in den Preisen — eine Diskussion
http://www.humane-wirtschaft.de/pdf_z/creutz_zinsanteil-in-preisen_diskussion.pdf
03.11.2009
40
‘Third-world debt’:
the original sums
are – by interest – repaid
many times over
while the poor countries
remain indebted.
41
A child feels cold and asks his mother:
“Why doen‘t you turn up the heating?”
“We don’t have coal.”
“But why don’t we have coal?”
“We have no money to buy it.”
“But why don’t we have money to buy it?”
“Because your father as a miner is unemployed.”
“But why is he unemployed?”
“Because the mine has too much coal stockpiled,
and nobody buys it.”
42
Why is it necessary that the economy should always grow?
Only with a growth of the economy
of ca. 3% annually
can growing interest charges be coped with.
Otherwise, the interest charges grow
at the cost of all other parts of the budget.
3 % General growth:
part of interest growing
in absolute terms,
but in terms of percentage
remaining the same.
No general growth:
The interest component
growing
at the cost of the rest.
43
Interest 40%
in all prices
With the time, the part of interest
may grow to 60% and more.
If you wish to avoid this,
the entire cake must grow.
That’s the reason
why economy is forced to grow
exponentially.
Interest 60%
in all prices
44
What would we think about the engine of a plane
which had constantly to accelerate
in order not to stutter?
45
normal growth
exponential growth
and so on
46
Anyone who believes
exponential growth
can go on forever
in a finite world
is either a madman
or an economist.
Kenneth Boulding, economist
47
A statistic from 20 years ago.
If one divides
the German households
into ten groups,
equal in number of households,
according to the level of their
income,
the eight (or today even nine)
lower groups
have a negative interest balance,
while the highest group
has a positive balance
of daily (according to estimations)
between € 100 and 300 millions.
48
An advertisement
(some years ago)
for the German
“Bank for Social
Economy”:
How you can
obtain money
without any
real work …
“What I am just
doing?
I am earning
money.”
You may let
your money
earn some extra.
9 % annually.
49
Voluntary unemployment of some people
because they can let their money “work”.
Unvoluntary unemployment of many other,
because
1) in the long run all enterprises will cease to exist,
which do not achieve the rentability of money
and
2) servicing debt service
and therefore the shortage of money
means ‘economising’ on workers.
50
Rentable
enterprises
interest level
(less) rentable
enterprises
will be dropped.
51
We need growth
according to our real needs
instead of growth
oriented on returns.
Why do share values increase
when workers are “let go”?
52
Normally new money comes into circulation
in form of a loan,
for which interest is to be paid
although nobody yet has “saved” anything.
So this interest is in reality the fee
for supplying the advantage of liquidity (= a. l.),
and this money in the beginning is neutral.
But from the moment this money is used to pay a bill,
it goes – with its advantage of liquidity –
separately on its own way,
and the costs for this advantage
remain with the first who borrowed it.
From now on, this money is no longer neutral
and it becomes possible for individuals to sell its added value
for interest going into their own pocket.
So they can make money with money.
loan
a. l.
interest
fee
a. l.
interest
53
It would be better to bring new money into circulation
as payment for goods and services for the state,
instead of being given as a loan.
But nevertheless it is to be recommended
that a fee for supplying
the added value of money’s liquidity advantage
be permanently bound to this money.
54
If somebody pays
an addition
with money he has
borrowed,
from then on
the money
with its liquidity advantage
goes its own way,
while the interest charge
(the fee for the liquidity
advantage)
remains with him.
Separated ways
Annual liquidity advantage € 3
Nominal value € 100
Annual supply fee € 3
Annual supply fee € 3
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A
A gives B
a loan.
Sum of accumulated
simultaneous interest
for the same sum of
circulating money.
Interest from
B to A.
B
C
With the loan
from A, B buys
the same day
from C.
C, already rich,
gives the same day D
a loan with the
money got from B.
= 2x
Interest
from D to C
D
May be: and so on.
56
It is possible
to charge the
same sum of
money with
a private fee
(interest)
for the supply
of the liquidity
advantage
several times
during the
same runtime:
Separated ways
Everybody who is
paid with (even
borrowed) money
can eventually
again lend it out
against interest.
Annual liquidity advantage € 3
Nominal value € 100
Annual supply fee € 3
Annual supply fee € 3
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Interest:
a private tax for the use
of a public means of traffic.
as if somebody would demand a ransom payment
for returning rail freight waggons
that had carried merchandise to his property …
58
Interest:
To give money
to someone who causes a traffic jam,
that he may drive on.
Thus it is a reward
for ceasing to hoard money,
for ceasing to be a spoilsport in commerce.
59
Lending money
should be
equated
by means of
a fee for its
liquidity
advantage,
to lending
other assets.
?
Lending bread:
Instead of having had
costs by stocking
one’s bread in the
deep freezer,
one gets back a fresh
bread, but not more.
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4th thesis:
The added value of money,
which consists in its liquidity,
should be compensated by payment of a
fee for the supply of this added value;
and this fee should always remain
bound to the liquidity itself:
NEUTRAL MONEY
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– +
+ annual added value € 3,00
Nominal value € 100,00
– annual fee for the supply of the added value € 3,00
Neutral Money.
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Konfucius (551−491 B. C.)
If language isn’t correct,
then what is said,
isn’t what is meant.
If what is said,
isn’t what is meant,
then also the actions will not be in order …
and people don’t know
where to put their hands and feet.
Therefore one should pay attention
to that the words be correct.
This is the most important of all.
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Such an annual fee
for the supply
of the liquidity advantage
would prevent money from being hoarded
instead of remaining in circulation.
So the fee also secures circulation.
But originally it is the compensation
for enjoying an advantage.
Therefore it should be called
“fee for the supply of the liquidity advantage”
rather than “fee for assuring circulation”
as if one had only duties
and had not received an advantage
before.
64
The fee for the supply of the added value
can be deducted
• from giro accounts automatically,
• from banknotes
recalling them from time to time
e. g. according to their coulour drawn by lot
and exchanging them against payment
of a charge.
65
There should be coins
of even € 10 and € 20.
From coins a deduction may not
be necessary
because they are not suitable
for the exchange
of big sums of money.
66
This would mean
• that hoarding cash is costly;
• lending out money
relieves one from these costs;
• so there remains an incentive to lend money
instead of stocking it;
• but there would be no more net interest on ‘savings’,
and a fortiori no more compound interest.
• loans continue to have to be repaid
after the time agreed upon,
but this now is easier because no interest is charged.
67
Fair money?
1) Inflationary money:
The owners of money lose value from their propriety.
2) Deflationary money:
The owners of money are privileged.
3) Stable money:
The owners of money are still privileged
unless the advantage of liquidity
is not compensated by a fee.
4) (Stable) money with a fee for the supply of its
advantage of liquidity:
The joker privilege is compensated:
Neutral money / fair money.
68
The supply fee
for the liquidity advantage
of money
Annual liquidity advantage € 3
should always remain
with the money itself.
linked
Nominal value € 100
Annual supply fee € 3
69
In medieval Germany there were coins
called bracteates
which regularily
had to return to the mint
and were given back
discounted.
This was neutral money.
With this sort of neutral money
the township of Ulm
(then less than 10.000 inhabitants)
was able to construct (from 1377)
its famous minster.
70
Imposing a fee for the supply
of the advantage of liquidity
would be an “Archimedes’ screw”
to influence directly the circulation of money.
71
To influence
the circulation of money
by controlling its quantity
works like a very long lead.
72
To influence
the circulation of money
by setting a fee for the supply
of the advantage of liquidity
works like a short lead.
73
Objection:
–
This proposal unjustly penalizes the ownership
of money which has been earned with hard labour.
Answer:
The nominal value of money may indeed
have been earned with hard labour by the owner.
The nominal value of money is therefore
the due and just compensation for this labour.
But the added value
of money,
its liquidity privilege,
is a public product
and should be paid for.
He who enjoys
this added privilege
should bear costs for it.
74
Aristotle (in his “Politics”, I, 1256b 26 – 1257 a 17)
distinguished between two ways of acquisition:
• οἰκονομία (oikonomía),
the exchange of products (by means of money),
and
• χρηματιστική (khrēmatistiké),
making money with money,
which he considers “unnatural”.
With neutral money,
χρηματιστική would no more be possible.
And there would no more be possible
a financial crisis as that of 2008/2009.
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If you wish to know more:
http://userpage.fu-berlin.de/~roehrigw/suhr/nngengl.html
Prof. Dr. Dieter Suhr (+ 1990)
The Neutral Money Network
(NeuMoNe)
A Critical Analysis of Traditional Money
and the Financial Innovation "Neutral Money"
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