Freedomain Radio

I just had a thought, that the amount of money in an economic system shoud be directly proportional to the population. I am no expert at economics (I consider myself an enthusiastic amateur) but I thought it would be a system that would be more flexable and stable than the gold standard, without the dangers and instability of a fiat currency.

It seems such an obvious and simple system that i can only assume that it must have either have been proposed by someone before, or have some fundamental flaw which I have not considered.

Please tell me what is wrong with this idea.

Bungle:

Please tell me what is wrong with this idea.

Imagine a population sitting around chewing betel nuts. Imagine another population of the same size busily creating products of value for trade (grains, bread, trinkets, widgets, etc). Should they each be restricted to hold the same number of units of a single currency after a period of time?

If your answer is 'yes', then you understand socialism.

If your answer is 'no', then you understand the concepts of efficiency and the creation of value in a free market.

Basing the currency on the number of people in society is basically the exact system we have today, in that we are not basing the currency on real value, but on a meaningless set-point. But as far as I can see, so long as there is a control on the amount of currency in circulation, any random amount of currency (if kept at that constant amount and accepted by the population) should work to exchange value. It is when the controlling power (usually as a result of a state-enforced monopoly) starts printing MORE currency without any relation to value that we get inflation and all the troubles we see today. So if we kept the amount of money set at 300 million dollars (roughly the U.S. population today) and never again increased that amount in society, I think Austrian economists would agree we would eventually see deflation of prices and rising standards of living.

Does anyone have anything to add to my analysis?

Who issues it, and why would anyone accept it? If a monopoly issues it, there is little reason to believe they will play by the rules you have set out, and if not a monopoloy I think very few people would accept it unless it was backed by some sort of production credit or commodity in which case it does not escape some of the risks of Gold.

 Freespirit:

When I had this idea I was thinking only whithin a country (or what ever will replace them), the money only would be accepted within the "country". If a neigbouring "counrty" was unproductive then that would be refected in the exchange rate between the currencies.

Chris3443:

"Basing the currency on the number of people in society is basically the exact system we have today"

I cannot think of a more erronious statment, a fiat currency has no limit to the amount that can be brought into existence, they could double the money supply daily if the wished. This system, like the gold standard, has a limiting factor. In the gold standard you can have no more currency than their is gold, i have simply replaced gold with population. If the population increased or decreased, so would the money supply.

The advantage of this system is that it is proportional to the one thing that give all other things value, humans. The value of gold for instance is only because we value its rarity and that it is pretty to us. Without humans I would just be a bit of shiny stuff in the dirt. The value of gold fluctuates with how much we can find, and how many people want it at any particular time.

As you know the two factors that change the value of a currency are; the amount of the currency, and the number of people competing for it, or "supply and demand". By having a money supply which is proportional to the population the effect of more people competing for the currency will be dampend by the relative increase in the money supply.

The value of the money will only be relative to the productivity of the "country".

Worblux:

I considered this system only in a stateless society (DRO or otherwise) as one possable way of providing a banks customers with a currency of stable value.

Thank you all for commenting so quickly, i would love to hear anymore ideas you have on this subject.

Bungle

Bungle:

 Freespirit:

When I had this idea I was thinking only whithin a country (or what ever will replace them), the money only would be accepted within the "country". If a neigbouring "counrty" was unproductive then that would be refected in the exchange rate between the currencies.

His point was not that neighbouring countries have different static wealth, but that each individual has a completely different dynamic wealth. With every moment of education one undertakes, they become more valuable, there is no way to generalise the idea, it wasn't a practical analogy.

It's also worth noting that trade barriers do not naturally occur, and there would be no rational or even concievalbe way to voluntarily categorise people into "productive" and "unproductive" classes.

FreeSpirit:

Bungle:

Please tell me what is wrong with this idea.

Imagine a population sitting around chewing betel nuts. Imagine another population of the same size busily creating products of value for trade (grains, bread, trinkets, widgets, etc). Should they each be restricted to hold the same number of units of a single currency after a period of time?

If your answer is 'yes', then you understand socialism.

If your answer is 'no', then you understand the concepts of efficiency and the creation of value in a free market.

 

I don't agree with the op, but as far as i know, the amount units of currency has no nescessary correlation to the amount of capital in the society that uses it.  If money is more scarce it simply becomes more valuble. Obivously there has to be enough units to meet the needs of trade but more wealth built up would just deflate the currency.

 http://www.youtube.com/watch?v=LhKC6F_-uzk

Beginning from about 5:00 he addresses the basic question raised in this thread.

'Money' is not wealth, it's simply a means of measuring wealth.  "Tangible wealth consists of all the real products produced by man from the raw materials of nature and by the use of which man derives survival, comfort and pleasure. Tangible wealth includes such things as shoes, Ping-Pong balls, movies, Coca-Cola, automobiles, cheese soufflés, light bulbs, mousetraps, brassieres, newspapers, yachts and houses. There is also intangible wealth. It consists of knowledge and ideas, (and) the things we must have in order to produce tangible wealth." 

Every physical thing detioriates (decays) over time, so if money is to measure wealth (as defined above) realisticaly, it must obey Entropy also.  In it's current form, money disobeys Entropy.  The result is the boom-and-bust 'business-cycle', inflation and the 'economic growth imperative' of modern society.  Money is fundamental to the function of any complex society. The money system used by the ancient Egyptions was based on a very tangible form of wealth - grain;  All grain in Egypt was stored in government silos and each farmer was issued a receipt for the quantity of grain he deposited. These grain receipts were the basis of the ancient Egyptians' money system. There was a catch; Because grain detioriates in storage, the receipts for the grain were also subject to a gradual discount over time, a process known as Demurrage, so that the granaries were not caught short if people came to exchange their receipts for grain. This created an incentive to spend the receipts quickly, converting them into more durable goods, before they lost too much value. This monetary system was revived in Medieval Europe (1030 -1300) and is known as the Brakteaten system. Under a Brakteaten money system, wealth was stored in the form of real intrinsicaly valuable goods or infrastructure and not as accumulations of money. It was under Brakteaten that ordinary workers enjoyed the highest comparative level of purchasing power in history. Ironically, it was the introduction of Gold coinage that brought this 'golden age' to an end. The idea was revived again last century, during the Great Depression, in what's become known as the "Worgl Experiment".

It doesn't matter what is used as money, as long as all participants in the market (voluntarily) agree to use it.

No-one should have a monopoly on the issue of money. No-one should be compelled to accept any scrip in exchange for wealth, EXCEPT the issuers, who MUST accept their own scrip.

Ideally, the supply of money needs to be able to expand and contract, automatically adjusting itself to the seasonal ebb and flow of the underlying economy.

Money serves two functions -  "medium-of-exchange"  and  "measure-of-value".  "Store-of-wealth" is NOT a valid function of money.

~~B~~