Coinage .me New Economics 102 Global Value Exchange Accounting System Monetary System Dynamics

Gold Coins

New Economics 102
by Richard Gerber

The purpose and intent of a monetary system is to facilitate the exchange of value. In the economic system there are producers and consumers. Each adult economic system participant (ESP) is generally both a producer and a consumer. Monetary units representing tangible value or an intangible value can be used. In the current system fiat currency or monetary units having intangible value are used because a tangible currency based on a single precious metal would not be practical.

Generally a producer provides a single product or service to other ESPs while consuming a multitude of different products and services. The financial system serves to create a flexible symbolic representation of value so that the exchange of value can be liquid and easily proportioned since not all products and services are proportionate to each other. This also allows for transactions to occur between ESPs with only a casual quickly formed temporary relationship.

In our economic system there are producers and consumers and a third party that maintains the symbol used to represent value, the privately owned central banks. This third party controls the creation and distribution of symbolic units to the producers in the system. The creation of the symbolic units is the result of an accounting entry, money is created from nothing, out of thin air, and only a small portion printed as green backs. Generally the transaction that creates new money is a producer or group of producers going into debt. Which is to say based on a promise to create future value the producer is given units in the present representing some of the future value that they will create. There is a charge or fee for this monetary unit creation known as interest which must also be paid back in addition to the principle amount of the loan. If no new debt is created no new monetary units are created and preexisting monetary units would increase in value.

A natural economic system is simple in principle and requires only that it maintain and allocate units representing value in a balanced manner. With new monetary units created in proportion to the amount of goods and services produced by the producers in the economic body over time. The purpose of the financial system is to facilitate the balanced exchange of value between producers and consumers and in doing so creates a harmonious and prosperous economy. If it does not maintain a balanced exchange of value then it results in strife and conflict between the economic system participants.

Cash or currency can be thought of as the blood of the economic body and it must flow if the body is to function. Value is determined by the consumers in that they would be willing to labor or produce in exchange for receiving goods or services produced by another producer or group of producers.

So the economic system should be designed to properly manage the exchange of value between participants.

As we can see the current system has not done this and the primary reason is that the system infrastructure required to support an equitable system is not in place and would require foundational changes to information technology systems. For the first time in history we have the technology and means to implement an equitable balanced value exchange system.

Prior to now the systems have been managed based mostly on guess work and periodic artificial adjustments to correct errors that manifest as recessions and depressions. The systems also allow for corruption where some can extract wealth without creating genuine value for other economic system participants. These fluctuations would not exist in a balanced system designed based on economic science rather than economic quackery.

In a proper system the idea is that the producer requests the creation of new monetary units (loan) based on their future production of value for other economic system participants. One reason to do this is to allow the producer to obtain the tools or skills and or build the infrastructure necessary to produce value for other economic system participants. It is a benefit to ESP consumers to "loan" to a ESP producer so that the producer can be a productive participant in the economic system.

The role of the bank has been to determine the ability of the producer, or group of producers to generate the future value, and then to make sure that the producer does indeed generate that value. The bank does the risk analysis and creates and tracks the necessary transactions. The only problem is the banks do not have a scientific method to determine in actuality what value the producer can produce in the future because there are so many factors that are involved in the determination. They can only determine prior ability and performance in producing value and their current revenue stream. Value is determined first by needs and demand and these fluctuate over time, and are very dynamic. It may also be determined by want, but want generally covers things not essential. There are some needs that expire and their are new ones created. For example polluted water creates a need to purify water.

There are natural needs and fabricated needs. Those that do not expire and are not fabricated needs are known as the essential economy. These would be food, shelter, energy, physical injury repair, education, and transportation. On top of this we have the artificial economy which is based on wants or fabricated needs. For example the creation of a complex financial system creates the needs for accountants and financial analysts.

It is important to understand that money is created from nothing based on a promise to create future value. The financial system is supposed to support the accounting and analysis needed to manage and maintain a balanced exchange among the participants.

The current system is to slow and incomplete to keep up with the expansive market dynamics. It is not an economic science based system but rather one of quackery and fudge work with a modicum of reality taken into account leading to great disparity and imbalance.

I think it is time to make economics a science and base it on math and reality and provide the needed information infrastructure and systems to support it.