Common Concerns about the Implementation of a Living Income Guaranteed

The following is a Q&A discussion from the Living Income Guaranteed Facebook page.

Do we have equal education, ambition, and iq? should the cashier and server make the same as the entrepreneur with more risk and skin in the game? If you want more pay, find a profession in high demand. Also, if positioning the government to raise minimum wage rates only creates a market distortion inducing hyperinflation, increasing the rate of automated points of sales, job elimination, and pricing some smaller companies completely out of markets. i find it hard to believe that the people on this page can't see through a socialist ideology for the disaster that it is.

Hi - it's not within the Living Income Guaranteed proposal to give each one equal wages, regardless of skill, profession or education. However, it is within the Human Rights Declaration to provide each one with certain rights - which requires a minimum living income. Wouldn't you say it is hypocritical to promise or guarantee these rights and then refrain from providing the means through which these rights find their expression - which in our world, is money? In terms of the inflation argument - please check out the hangout we did on that topic:

A living income is not a right. It's a right to persue, it. How can someone be provided something equal, or to a hyper -standard of their personal production? If a living is "guaranteed ", what is the motivation of the indevidual to continue to be a productive member of society? Where is this guarantee coming from, if the incentive to work is gone? Will farmers farm if they are guaranteed a living even if they dount? Will truckers get up at 3am and drive? Will doctors continue to practice?
The truth is, this utopian, society you are promoting sounds like roses and rainbows but the facts are, you are pushing the same socialist ideology that has been failing for hundreds of years.
I hope you never see the day your agenda is a reality. I hope you never have to explain why you have to stand in line for the only meal of the day. I think you should be studying the reasons for the collapse of the Soviet Union, or for that matter, Rome. Noone can guarantee you a living, it's a fact. The people who say they they can, are only going to make those promises until they realize, that giving you that guarantee, means taking from someone else who WORKS for it. It's called slavery. What some see as greed and unfair, I call success.
Asking your government to guarantee your living, is in turn relinquishing your liberty to them. If you want to know your rights, read the constitution. There are no guarantees in life. If you want freedom and peace, and your rights? You have to work and fight for them. And that means taking personal responsibility for your actions and wellbeeing. If you want someone to guarantee you the the things that sustain your life and you are over the age of 18, you are completely delusional.

Hi - I hear your concerns regarding the Living Income Guaranteed proposal as they have been brought up before. If we lived in a world where jobs and opportunities for success were readily available to all - then, yes, we can suppose that it is ever person's choice to live in poverty and there might be reason to leave someone to their own vices. However, that is not the world we live in today. Not everyone grows up in the same environment that supports them with the skills to enter the job-market. Not everyone has access to decent education and even with having a degree and the will to work, youth unemployment is a growing phenomenon, because there are no jobs available. For a different perspective, I suggest you read the blog 'Redemption and the Right to a Living Income' as it is directly pertinent to the point you raised here. Placing that absolute 'rule' or 'principle' that only those who can make a decent living within the economic system rightly deserve it is problematic when you consider the world we live in, because it can not simply be argued that those in poverty choose to be there and/or that they are unwilling to change their living conditions.

In terms of work incentives, we looked at this point as well. If staying at home still provides you with your basic living necessities, would there be a reason to work? One point here I would like to bring up is that pilot projects for a basic income have all shown that work efforts are not reduced when a basic income is provided. So, there is reason to believe that our fears are just that - fears. But do we want to take that risk? We'd rather not. Therefore, within the Living Income Guaranteed proposal, we suggest that the minimum wage be double the Living Income. That means that those with a job can definitely afford more luxurious lifestyles than those living with just the basic requirements - which therefore provides an incentive to take up employment.

In terms of your argument of taking from someone else who worked for their income to provide another with a living income, I suggest you read the Living Income Proposal itself again as we suggest a way of financing the Living Income Guaranteed that does not require means such as income tax which ensures that no one pays for anyone else's Living Income.

That guaranteeing a Living Income stands equal to, or is a slippery slope towards communism is quite a leap. Consider that communism was characterized by central planning and the centralization of ownership of resources. We propose instead that capitalism remains the way in which economic activities are conducted and we support the decentralization of power with minimal government - less government in fact than a welfare state implies. Herein, we agree with Libertarians such as Matt Zwolinski who recently wrote an informative and insightful article titled 'The Pragmatic Libertarian Case for a Basic Income Guarantee'.

The constitutions and the values and principles that we've been upholding are products of the past - where once upon a time, they were considered useful and an improvement over what was here before. However, if you look at the abuse that has been allowed in the name of these values and principles, it becomes clear that we have to formulate new principles for our global society to live by. We simply cannot continue as we are. If not for those in need - then out of self-interest - because in the battle where each person is fighting for their rights - we are disregarding the planet we live on and some day, we will all have to pay the price - unless we change what we're doing. That doesn't mean we have to implement a utopian society of equality - but would it be so outrageous if each person was given the bare necessities to survive?

Day 257: Living Income Practicality

Q: Will LIG result in the replacement of jobs by machines?

A: The foundation of LIG is to provide the necessary access to the living necessities as a human right, therefore if jobs are replaced by machines as an on-going trend, people will receive the LIG as a means to have their living needs covered. Therefore we don't directly endorse the idea of replacing human labor with machines as that is at this stage decided by each corporation's capacity to implement it in their business. However, also to consider that with LIG, due to financial security, many will feel more confident to start new business ventures, which will again create more jobs.


Q: How do we prevent those receiving LIG from being exploited by greed? For instance: Everyone working is receiving at least double the Living Income. What is to stop the price of goods from moving up so that it's not feasible for people on LIG to afford goods?

A: There will still be short-term fluctuations in the prices of various goods. However, when the prices of the commodities that represent living necessities follow an upward trend to such an extent the Living Income becomes inadequate – the Living Income amount will be increased. If the Living Income goes up, it means the minimum wage – which is defined as double the Living Income – will proportionally increase as well – thus increasing costs for firms. In the long-run it is therefore in firms’ best interest to expand operations in order to meet the increased demand rather than increasing prices. The period where inflation due to an increase in demand is most likely to occur is after the implementation of LIG. It is key, therefore, to ensure that the implementation is done in a transparent way, so that any increase in demand is not unexpected, but firms are prepared for the change and have defined strategies to expand their output.


Q: How will people be motivated to work and perform well under LIG?

A: The classical notion that money is what motivates people to perform well – where the more one earns, the better one performs, has been disproven – for perspective, watch: http://www.youtube.com/watch?v=u6XAPnuFjJc.
By setting the minimum wage at double the Living Income, every worker is recognized as a vital part of the company, which creates loyalty and a commitment to the goals of the company. It has been shown that when employees receive more than a subsistence income, a firm incurs less turnover costs as well as less costs relating to monitoring the employees. That being said, the relationship between employer and employee is likely to change as LIG increases the bargaining power of employees significantly; no-one will ‘need’ to work anymore. Currently – the threat to lose one’s job is often enough to compromise oneself within one’s job by accepting inferior labor conditions – because one knows that there are always others who will do any job just in order to survive – and thus one is replaceable. With LIG – working is no longer a matter of survival and employers will require to put in the effort to make jobs attractive by creating optimal labor conditions and treating every employee as an individual and not merely as a cog in a machine. The above-referenced video includes several examples of how appealing to employees’ sense of purpose creates far more effective motivation than the threat to lose one’s job.


Q: One point that came up for me is that with the Erasmus program in Europe many students travel to other countries for one year. The student is integrated into the local university system and learns about the culture and the language. In general students' mobility is highly supported by the EU. If there is a country that offers LIG at lower age than most other countries, then that country might see an influx of immigrating youth - would this play a role?

A: Being a student in a country doesn’t make one a citizen, and so, one is not entitled to a Living Income. Countries can specify whether permanent residents would receive LIG, as well as citizens – this could also go in stages, where initially only citizens can claim a Living Income and later, as more countries implement LIG, permanent and perhaps even temporary residents can receive LIG as the inflow of immigrants will not be as intense at that stage.




For context and more information:

Living Income Guaranteed - the Proposal: http://livingincomeguaranteed.wordpress.com/the-proposal/
Living Income Guaranteed YouTube Channel - watch the hangouts: https://www.youtube.com/user/BIGuaranteed?feature=watch
Living Income Guaranteed Website: http://livingincome.me

Day 244: Transforming Currency into Money with Living Income Guaranteed

In the video "Hidden Secrets Of Money - Ep1 'Currency Vs Money'" Mike Maloney and others present one of the problems we are facing in our current economic system and that is - how the value of our currency is able to change over time - where it can both appreciate and depreciate - but throughout history it has mainly depreciated until it becomes worthless and then a new currency is introduced. The video explains the problem, but it doesn't offer a real solution - which I will be discussing in this blog.

Now - when I said 'the value of our currency is able to change over time' - with 'our currency' I am not referring to a specific currency such as Dollar or Euro or Rand - I am referring to fiat currency. For those who are not aware of the history of our currencies: paper bills were introduced as IOUs - a piece of paper stating that: I owe you 5 gold coins, for instance. Say that you deposited 5 gold coins at the bank. The bank would then write you a claim check that specifies that with that piece of paper, you can at a later time come and claim those 5 gold coins back. Now - over time what started happening, is that when people would go to the market place and wanted to buy something for 7 gold coins, but they only had 2 on them - they would go: "You know, I only have 2 gold coins on me, but I've got 5 at the bank, how about I give you the 2 gold coins plus the claim check for the 5 gold coins at the bank, and then you can just go and claim them." And from there, the ball started rolling and less and less people went to actually collect gold at the bank and started simply trading with the paper claims - which is what we currently know as paper bills. From there, it didn't take long before banks would just start printing money that was no longer 'backed up' by any gold at the bank. From this point onwards - we started trading with fiat currency - a currency that is not limited by the resources that is 'backing up' the value of the currency.

Why does that matter? It matters from the perspective that the amount of gold in the world is limited and therefore, the value of gold stays round about the same over time. What determines the value of gold? It's determined by how much of it is in circulation, and thus - by consequence, how much we are able to buy with it. So - let's take an example of a little village where 10 people live and there are in total 10 gold bars in circulation in this mini-economy. These 10 people have certain goods they want to buy and each a certain amount of gold that they are willing to spend on it. This determines the demand for the goods in the village. The suppliers balance their costs with profits - where they know that if they charge a high price, there will be less villagers able to buy the product, and if they charge a lower price it will become harder to make a profit and eventually even difficult to cover their costs. So - balancing demand and supply - a price for the goods is determined. Now - let's say that suddenly - instead of 10 bars of gold, there are 20 bars of gold - what will happen to the prices? They will go up because the demand goes up. Herein - understand that demand means: people want it and they can pay for it. So - when there is more money - it doesn't mean that people suddenly want more of something - it means they always wanted that amount, but they couldn't demand it because they didn't have the money to demand it. So - with demand increasing - the suppliers will realize that they can now charge a higher price - and so the prices of the goods in the village go up. What has happened to the value of gold? The value of gold decreased, because with the same amount of gold, people are now able to buy less of the goods - because the price went up.

So - with currency initially being backed up by gold - it limited how much money was in circulation - and so, it kept the value of money stable - because it was tied to the amount of gold that was available in the world. Gold is not something we can create - we can melt gold down and change the form but we cannot make new gold. So - the amount of gold we have in the world today is the same amount of gold that we had centuries ago. With fiat currency, however, reserve banks are able to simply print more paper money, increase the money supply - and in turn prices increase and the value of the money depreciates.

So far the reasoning of the economists seems sound - however, it is not - because they are misusing the term 'inflation'.

When they discuss inflation they assume that it means: the prices of all goods and services in an economy go up as a result of an increase in the money supply - and therefore, money becomes worth less and people can buy less and less stuff.

But what is not considered is the following: with inflation - the price of literally EVERYTHING in the economy goes up - and that includes the price of labor. So - from that perspective - if the prices of 'stuff' doubles, it's not a problem, because your wage would have doubled as well. And so - technically - yes - the nominal value of money depreciates - but the real value remains the same: you can buy less with one dollar, but you can still buy the same amount with your wage.

So - this reveals a problem in our current economic system - and how it is deviating from how things should be done. Let's take again the example of a village where there are 10 people and there are 100 dollars in circulation. If the money supply suddenly increases to 200 dollars, suppliers will up their price because the demand increased. Now - this higher price has to also increase the wages of those who work for the suppliers - and when their wage increase, they will have no problem paying the higher price. The wage of the workers would go up simply because they will demand a higher wage through their labor unions because otherwise they cannot pay the higher prices. But instead - what's been happening: the suppliers keep the wages of the laborers the same or only give them a slight increase - and instead: just make a lot more profit. And have a look - that's exactly what's been happening in the world. Why? Because when laborers demand higher wages - what do the bosses say? Well - if you don't want to work for that wage - I let you go and I will find someone worse off than you and have them do the work. That is why we have so many companies that closed down in Europe and America that moved to China and the third world in general - because they could profit from people being worse off there than in their country, that were willing to work for much lower wages.

And this is why within Living Income Guaranteed - we suggest that prices be determined according to the value that was put into it - which includes your labor. And valuing labor means: your workers must have a wage that allows them a certain lifestyle. This should be enshrined in the Constitution as a Human Right - otherwise one creates cycles of abuse where some win and most lose. And so - if all prices in the economy go up because of an increase in the money supply - your wages will have to increase simultaneously - otherwise you're committing a crime against life.

Herein, then - it doesn't matter whether you have fiat currency or not - becaue the real value of the currency remains the same. In the video they explain how the difference between currency and money is that money is a store of value - its value remains the same over time - and with currency this is not part of the definition. So - with making this one adjustment to the economic system, so that it would function how it is intended to function - we would be able to say that our fiat currency is in fact money - because the real value of the currency remains the same over time.

Is it a solution to step away from fiat currency and go back to silver and gold? No! Why not? Exactly because the amount of gold and silver in the world is limited - it doesn't change. But what does change? The amount of people in your economy. So - if you take  again the village of 10 people with 10 gold bars and let's say each owns one gold bar, but now they all make babies and suddenly there are 20 villagers and still the same 10 gold bars - you obviously have a problem - because now each villagers (assuming an egalitarian society) only owns half a gold bar. And yes - the value of gold remains the same: you can still buy the same amount of stuff with one gold bar before there were babies as you can after there were babies - but not everyone has a gold bar anymore - so the standards of living goes down anyway as you can suddenly buy less stuff.

So - to have your money supply absolutely the same over time, regardless of a change in population, is also counterproductive. When it comes to money creation - it should be calculated according to two points:
- available resources
- population

Furthermore - which is quite fascinating - in the video the economists point to history and how throughout history every fiat currency reverted back to zero - and therefore we should use gold/silver instead. But they ignore the fact that throughout history people have always also gone back to fiat currency - simply because it is much more convenient to carry around paper or a plastic card with a chip than a bunch of gold bars. I mean - making gold/silver the currency would eventually lead to history repeating itself, just because it's not practical to transport gold for transactions.

Therefore - instead of telling people to invest in gold and silver because currency will become worthless - and then at least you have something to trade with - rather correct the problem with fiat currency so that it works for everyone.

We continue in the next blog with our discussion on money and currencies where we'll have a look at the nonsense of having currencies with different values.

Related articles

• Day 251: Living Income Guaranteed and Market Mechanics
• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 247: Only in a Broken System does Misery equal Profit
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes
• Day 339: Why the CommonWealth was Never the Common Good

Day 241: Will Inflation be a Problem with Providing a Living Income Guaranteed?

‘Inflation’ is one of those big posh words that people like to use when they want to show off that they’re “in the know” of economics and money mechanics. You hear it on the news, tv, the internet and when you listen to other people talk about it, it never really becomes clear ‘what it is’ or ‘why it is so important’. But you won’t ask about it because you don’t want to appear like you’re “not in the know”. It’s kind of like the story of The Emperor's New Clothes, where only ‘smart people can see’ the clothes and where everyone pretends that they can see his wonderful clothes while he’s actually walking around in his undies (or naked depending on your source )… It’s just something everyone has agreed upon has ‘great importance’ but no-one really knows the “how’s” and “what’s” and no-one questions it.

So is inflation really this ‘big’ and ‘complicated’ concept that only our economists are in the know about? Not really. I mean, one of the first things you will learn when getting to the topic of inflation is that there is very little known about the exact causes of inflation and how good or bad it is for the economy. Most of the time, the concept will be used to suite the authors ideological standpoint and so you get a lot of conflicting answers to the same question.

So what is inflation? Inflation (because no-one really knows how it works) has been given a very simple and broad definition – so that you can’t really ‘go wrong’ with it:

“Inflation simply refers to the continuous increase of prices in an economy. So - two points are important to note: if prices go up and then remain stable for a while, we don't refer to it as inflation, as inflation only applies to a continuous increase in prices. Secondly - if the price of petrol keeps rising, but all other prices remain somewhat stable, we're also not dealing with inflation, because in the case of inflation all prices keep rising.” 

This is taken from one of our previous blogs we made which was on the topic of Inflation, so if you want to read up about it you can do so here: Day 64: Inflation - Part 1 (also read the comments).

So you see, inflation is nothing scary or complicated, it’s just prices of all things going up and up over time. When the ‘issue’ of inflation is brought up, it’s not so much the rising of the prices that is an issue – but the wages that lag behind. Because what happens is that you used to be able to buy say a thousand breads with your monthly salary, and with the prices going up and your wage remaining the same – you can now suddenly only buy 800 breads. So here, you have a problem because your purchasing power has been diminished. Because obviously so long as you keep the variables on either side of your equation in proportion – you won’t have a problem and you’ll be able to buy just as much. It’s only when one variable goes up and the other one stays the same or lowers – that you get a problem in your proportions. What happens then is that people will start buying a lot and hogging things because they fear the future prices which will be higher, but then within this increase in consumption place the products in ‘higher demand’ and thus up the prices again – so it becomes a self-fulfilling prophecy to the point where you get hyperinflation.

So with putting into place a Living Income Guaranteed to ensure everyone’s Living and placing in a Minimum Wage amounting to double the LIG – yes, your prices will go up and so yes, that could be considered ‘inflation’. But remember that inflation in itself a neutral manifestation – meaning, it just is what it is as pricing going up. It doesn’t mean anything else. It only starts meaning something else when we fail to adjust ourselves where nominal wages remain the same while real wages go down. So yes, there will be inflation but it won’t be a problem from the perspective that your prices are directly linked and interconnected to your wages where at all times your Living is Guaranteed and thus your wages / living income will adjust to the prices to make sure everyone is able to live decently and vice versa where your prices will adjust to ensure that you get a decent wage. Here one must also consider that we will have Bureaus of Standards in place managing Quality Assurance and Control where there will be a move from obsolescence and disposability to quality and durability – which means that you will have to buy less.

So from that perspective – the whole “inflation” horror story will become something of the past as it simply won’t be able to affect anyone to the point where it does damage, as your wages and prices are no longer separate bodies but closely connected and intertwined. You will thus at all times, be protected.

Another point where inflation becomes a problem is when it is linked to a growing money supply without a matching growth in economic activity. So when the government for instance decides to finance its debt simply by printing money – you suddenly have an increase in your money supply which makes money ‘worth less’ (because ‘scarcity’ makes things ‘more valuable’ and so the opposite happens). Because this money came out of nowhere without originating or being connected to any form economic activity of real value such as labor and production – your system / equation gets thrown out of balance and all these money born out of ‘no value’ in turn has the effect devaluing / tainting all other money already present.

This type of situations will not be occurring within a Living Income Guaranteed as proposed by the Equal Life Foundation, as you will be able to discern for yourself from our previous blog on banking: Day 240: A Bank for the People, as banking/financing will always be directly related to actual activity, actual growth and actual value – and will thus not be able to throw the system out of balance.

Also check out Will the Living Income Guaranteed cause Inflation?, to get a new perspective on Inflation and to see and realize how inflation it its traditional use of the word has become a distraction of the actual Inflation taking place in our lives and in the economy – where inflation is an actual problem.

Related articles

• Day 330: Inflated Egos, Deflate Reality.
• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 251: Living Income Guaranteed and Market Mechanics
• Day 227: The Myth of Conscious Buying
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes

Day 79: Monetary Policy - Part 2

I forgive myself for accepting and allowing myself to think that it is normal that banks are able to lend out money they don't have and, on top of that, charge an interest fee - which means that, when the bank wants to collect money owed to it - it will receive funds from various different individuals plus interest - and as such sucking all the funds towards itself, out of people's wallets.

I forgive myself for accepting and allowing myself to think that the story of the money supply is really as simple as it is as how it is presented in economic textbooks - while, in actual fact - money doesn't just 'get created'. Because when a loan is given and some positive number is written in a person's account - at the same time a negative number is created: as debt - and thus, even though it seems that money was created, it did not, because the debt must be paid - and the debt must be paid to those who created the money out of thin air: the banks.

I forgive myself for not accepting and allowing myself to see and realise that the apparent 'generosity' of banks in 'wanting to help you out' with buying a new house or a new car, is attached to a day of reckoning, where outstanding funds are collected and if the moneys can't be paid - the bank will take everything you own and you are left with nothing - and herein there is no mercy or generosity - only the actual reality of the situation: Greed.

I forgive myself for not accepting and allowing myself to question a world where each one apparently has the right to a decent life, but where, if one is unfortunate or has made a bad decision in life - one can end up in a situation where one's house, car and all valuable assets are taken away, becaues the bank is trying to mitigate its losses and what that means to you is really irrelevant as you are just one little player in their big money-making scheme.

I forgive myself for not accepting and allowing myself to realise the absolute abhorrence of the nature of the human race if we think it is okay and acceptable and normal that wealth and money come before each one's basic human rights - and where we don't even stop to think what it means if banks have the ability to take away people's houses just because a person doesn't have enough money - instead of realising: who the fuck cares how much money a person has - each person needs a house to live in - as a human being, it is a simple common sensical point to take care of one another and make sure each one has a fucking roof over there head - who the fuck are we if we can't even fulfil such a simple, basic point?

I forgive myself for accepting and allowing myself to define a person's worth according to the number in their bank accounts, instead of realising that a number is just that: a number - it doesn't even refer to anything real, it is just a digital picture - instead of realising the value of the person as a physical human being and treating each person as such - an equal - because we all breathe, we all shit, we all eat, we all piss - and therefore no-one can say that they are better than another from a physical stand-point - we are all the same - and therefore, any value system must consider our actual physical reality and recognise the equality of reality - instead of entertaining the inequalities of all the fictional parts that we perceive to form part of reality, such as money, opinions, thoughts, beliefs, etc. - because if our value system only considers fiction, then we disregard the physical reality - and this can be measured in fact, as we see the status of the physical world deteriorating each day, with more species going extict, with more air and water being polluted, with more land becoming unarable, with weatherconditions increasingly becoming more erratic, with natural habitats being destroyed each day.

Day 75: The Demand for Money - Part 1

Within the previous blogs, we've looked at the Supply side of Money [Day 71: The Money Supply - Part 1, Day 72: The Money Supply - Part 2]. Within this blog we'll be looking at the demand side of things.

At any point in time, people can hold their wealth in various different forms, such as 'real assets' with include things such as property, "valuable items" such as paintings, rare carpets, antiques, etc. and 'financial assets'. Within financial assets we can further distinguish between money and bonds.

Bonds are a financial tool where the debtor promises to regularly repay the owner interest and will pay back the capital amount at a certain date. Governments for instance work with bonds to finance some of its expenditure.

Within this context, the demand for money is the amount that the different members in the economy plan to hold in the form of money balances. Remember that the demand for money is not the same as the ‘want’ for money. So within the context of the ‘demand for money’ – we are only looking at those members of the economy who have an income / possess wealth. You can read up on the concept of Demand within Day 49, 50and 51.

When looking at the demand of money we are looking at a few factors:

·         Money for the purpose of transactions

·         Money for the purpose of precaution

·         Money within speculation

These three points refer to functions money can have. Money is a universal tool for transactions, you need money readily available for you to do your groceries, for companies to pay their workers, etc. People also save their money for unseen events and expenditures.

When looking at the speculation point within money, we are basically looking at the trade-off between holding wealth as money, which is a flexible form as it can be exchanged at any time for something else– and holding bonds – which are more inflexible, but on which one can gain interest. The demand for money is thus directly related to the function it performs, and what function the wealth owner prefers best.

So depending and the person, and their circumstance – they will either prefer to hold some/most of their wealth as cash and demand deposits – or as bonds on which they can gain interest.
Within this, the particular interest rate which is being applied plays a role. A person might want to keep their wealth in the form of cash / demand deposits because he/she values the liquidity of money in this form more than bonds at an ‘x’ interest rate – but if the interest rate suddenly goes up, the person might change their mind as they can see that they could be making more money through having bonds, and so will forego the liquidity of cash for bonds (until the interest rate drops again). Within the concept of ‘supply and demand’ – we saw that prices are the main determinants which direct supply and demand for goods and services. Within this context, we can view the ‘interest rate’ as a price being put on loanable funds. And so, as the price goes up (high interest rate being paid out) – the more people will be willing to move some of their wealth in in the form cash/demand deposits – to holding it in the form of bonds.

(There are various interest rates, such as the repo rate, interbank lending rate, prime rate of banks, rates on deposits, mortgage rates, government stock rates,… and so the list goes on. At this point you do not require to know what all these different interest rates do/mean – all you need to know is that there are different ones. And that although there are different ones, they will follow the same pattern in their movement (up or down). So when we speak of ‘the interest rate’, it should be seen as a ‘representative’ rate for all the individual rates which are in play.)

When I first heard about 'the demand for money' -- I immediately went within myself 'Oh cool, now we are going to learn how the money supply has to adapt to the amount of people and levels of poverty -- because if there's more people / a lot of poverty obviously a lot of money is demanded because these people require money so they can access basic resource in order to sustain themselves'. So I was in for quite a disappointment when I learned that the 'demand for money' has got nothing to do with people and them being able to take care of themselves. It only cares about those who have money and how they act within their self interest in terms of whether they want to be flexible with their money or want to make money out of money. No consideration whatsoever for real issues -- a very big disappointment indeed.

Related articles

• Day 71: The Money Supply - Part 1
• Day 50: Resource Distribution - Part 2
• Day 67: The Functions of Money
• Day 88: Advanced Economics
• Day 103: Passion for Economics
• Day 128: Economic Slavery and True Activism

Day 70: Feedback on Inflation and Purpose of This Blog

Below is a cool discussion that took place in the comments section of the blogs:

Day 64: Inflation - Part 1
Day 65: Inflation - Part 2
Day 66: Inflation - Part 3

Ninasaid...

1. Moderate inflation does not necessarily cause loss of competitiveness in international markets. Usually inflation occurs when there is an increase in money supply. Exchange rates adjust to changes in money supply faster then prices do. Prices are relatively sticky.

2. Higher demand does not always come inflation. In fact, the level of demand which is significantly below production capacity pushes
costs up, because it makes per unit fixed production costs and marketing costs to increase. Therefore a very low demand is just as likely to cause increase in prices as very high demand.

3. Demand depends on the population structure. Young population demands a lot of goods and services. Older population is conservative with spending and has high propensity to save.

4. Although it is true that hyprinflation is destabilizing for the economy, a moderate inflation is believed to help job creation and promote economic growth.

August 12, 2012 5:04 PM 

Maite Zamora Morenosaid...

Hi Nina,

Cool that you're following this blog and adding your input. Though your statements are accurate (and btw don't contradict anything that was written), they are irrelevant to the purpose of this blog - which is to give readers a basic understanding of economic concepts so that they may gain insight into economics and how economics affects their lives. We're working here with simplified models so that the essence of the information can be grasped. The reality of economics is never this clear-cut and in practice contains many shades of grey - but the essence of the concepts remains and the understanding of them is really all that's necessary to gain a clearer understanding of what makes this world go 'round.

Now, Nina - I challenge you to look further than your schooling and merely entertain yourself with the extent of your knowledge - but to really question the implications of this economic system. Instead of regurgitating the general opinions and beliefs about it as how you've been presented with them in your education, investigate it for yourself in common sense. Our economic system has become far more than some 'fascinating object of study' - it is the one thing that controls people's lives. So - wake up and smell the coffee. Time to take responsibility within the knowledge that you have.

Enjoy.

August 12, 2012 10:31 PM 

Ninasaid...

Ah, sure, I already woke up a few years ago, in 2007, to be precise, when I wrote a letter to CFA institute, saying that with economic theory such as we have and teach we are headed streight towards the next Great Depression. I have explained back then why. I did not get a reply from them. I am not sure if you are interested either. The truth is, our economuc theory IS a mess. The reality is, we need this screwed up system to manage the screwed up people we have. If all people were 100% mature, 100% conscientious, 100% hard working and 100% willing to share we could have a much better system. But people are the way they are. Most of them lazy, irresponsible and greedy. This is why despite all the theoretical considerations the current fkd up system is the only one that works despite all odds with a little help from the governments, religious, charitable and various regulatory organizations. Ah, yes, andone more problem. We have 9 billion people on Earth and counting. Some believe it is too much. So we need a system that can help us reduce the numbers, no matter how faulty it may seem.

Not sure how this article is helping readers to understand the flaws of the current system. What I see is the concept tgat inflation is way too dangerous. And since it is sooo frkng dangerous let us make sure most people do not get access to money, because once theyget money they aregoing to demand goods and services, which will drive prices up. There are a couple of problems with this vision of inflation, which I have mentioned in my previous comment.

August 13, 2012 8:01 AM 

 

Maite Zamora Morenosaid...

Hi Nina,

There is a different way, I suggest investigating www.equalmoney.org.

In terms of the purpose of the blog - it's not to look at this one blog-post in isolation. In this post we're merely explaining the concept of inflation so that people may develop their vocabulary and more easily engage in/understand economic discussions and call out the bullshit.

August 13, 2012 3:49 PM 

 

Ninasaid...

I think I finally get the point. In a market economy the problem ofscarcity is resolved through a price increase. Suchway of a probkem resolution is in favor of the rich (who can still afford it at higher prices) and against the poor (who can not). Definitely this is unfair and causes numerous economic problems. I believe the 2008 crisis was to a large extend caused by that principle. First, the housing becomes sarce. Then we deal with the problem mainly by charging higher prices for real estate property. However, higher prices do not make scarcity disappear. They just make it less painful for people with sufficient money to pay themselves out of it.

This certainly goes against the rest of the people, who do not have enough financial resources to deal with scarcity by simply paying more then others do. One way they try to deal with it though is by borrowing more then normal, and for peope already struggling financially such borrowed money is almost impossible to repay, which leads to the credit crisis.

Becides, since scarcity can lead to higher prices and more profits it makes a lot of sense for some business groups to create it artificially! One fatal example of it I see when senior employees are purposefully sabotaging training and developement of junior employees withing the corporations. With more and better trained junior employees corporaions could produce more goods and services, which would be for everyones good. However out of fear of competition, or being replaced, or lising one's job, or having to accept pay cuts senior employees do their best to get rid of the juniors. That makes them more scarce and more valuable to their prospective employers! So juniors are punished into years of fruitless university studies and tens of thousands dollars of student loans that they can never repay, because they can not get jobs and acquire real skills necessary to do them. This way we have a waisted youth and a waisted economic system, capable of producing almost nothing at a reasonable cost. A better approach todealing with scarcity is certainly
needed and was previously concidered through planned economies. The concept was good. However implementation was tricky, especially with the leaders, who are not 100% trustworthy."

August 14, 2012 11:59 AM 

 

Maite Zamora Morenosaid...

Cool Nina - you should consider starting a blog of your own ;)

August 16, 2012 3:30 PM 

Day 69: The Functions of Money – Part 3

I commit myself to expose that Money is only a tool – and that we’ve currently accepted and allowed ourselves to use this tool in a way which does Not Serve Life and is Not Best For All – where Money is the tool which gives you access to Resources while at the same time have made it a ‘luxury’ which is not available for everyone – and where one has to ‘earn their money’ and ‘earn their living’ in a system which is not set up to provide money for everyone – and within that ensuring that not all beings born on the planet will have a life of sustenance

I commit myself to expose that how we currently use money is a scam, as money is a made up idea / creation of humans which is supposed to very closely linked to the ‘scarcity of resources’ – while the money which we currently use actually in no way represents the capacity of Earth or is managed in anyway whatsoever with the wellbeing of the planet and its people / animals / nature in mind – and so is just a fraud

I commit myself to expose that money backed up by gold or silver or money backed up by nothing is the same thing – as one is merely backing up one symbol representing ‘money’ with another symbol representing ‘money’ – where both are physical substances/manifestations to which we humans have attached a ‘special value’, where it is only valuable because everyone agrees that it is valuable – but that doesn’t make it valuable in fact – because as long as money is backed up by anything which has got no relation to Life and Sustainability we are just going to recreate the same system over and over again – as the money system will have no practical relationship with Life on Earth

I commit myself to expose that Money is not the Root of all Evil, and that a ‘moneyless’ society is not the Solution to the Problem, as Money is not the Problem but we Humans are – and thus we have to change the human as the human nature as our accepted and allowed value system where we value wants over needs and are okay with half of the members of our species living a life of misery if it means that some of us can do whatever the hell we want

I commit myself to expose that any money economy which uses money as a tool which gives people access to resources in order to sustain themselves, and then does not allow the system to work in a way so that all have access to the necessary money to get the resources they need – is evil – and those who accept and allow the system are equally evil – and such a system ought to be put to an end as it does not have the Best Interest of All Life at heart, but only the best interest of a few as those who have Money and such a discriminatory system is UNACCEPTABLE

I commit myself to show that Money works based on agreement, and that this agreement can be changed – and thus I commit myself to show that Money can be used in a different way as in the Equal Money System where all have access to money so all can have access to the resources they need – because Money is backed up by Life, and thus all get money by virtue of being Life and not because they had to go and “earn” it and prove that they are worthwhile to be kept a life by a Capitalist System that does not give a Shit about Life and who Lives and Who Dies as long as the creators of the Game and the Main players get their way

I commit myself to educate those who are willing to hear on how the Economic System and the Money System works, so all can realise what a SCAM it is, and that all the difficult and sophisticated sounding words and constructs are mostly just Band Aids for a System which is Doomed to Fail and within that educate / show that we can have a sustainable economy as the Equal Money System, which is PRO-LIFE and the first economic system which will distribute and manage resources responsibly while at the same time making sure that all constituents of the Earth are taking care off and that no-one is left behind -- which is what Economics was supposed to be about ALL ALONG

Day 68: The Functions of Money - Part 2

I forgive myself that I have accepted and allowed myself to have created a money economy, where money has no practical relation to the physical reality and sustainability – as money can simply be printed or made up out of anything without anyone regulating whether the amount of money in circulation actually represents the capacity of the Earth – as all our economic system currently cares about is the ‘pursuit of happiness’ -- but this ‘pursuit of happiness’ is only available for a few, where a few will have access to the majority of the resources while everyone else is being deprived – where an elite is living a lifestyle of abundance which is unsustainable with no regard for present and future implication / consequence

I forgive myself that I haven’t accepted and allowed myself to see and realise that the belief that money is only worth something when it is ‘backed up’ by ‘gold’ or ‘silver’ – is in fact false , as gold and silver are just material substances, like paper – which we’ve assigned particular values to, and so within backing up ‘paper money’ with ‘precious metal money’ is the same as backing up money with money – where we’re backing up one symbol representing money with another symbol representing money – which is the same as not backing up your money with anything

I forgive myself that I haven’t accepted and allowed myself to see and realise that even if money was backed up by gold or silver – that this would make no change whatsoever to the current situation in the world and the enormous inequality gap we are faced with – as the problem is not the money but us humans and our distorted value system, as we only value our limited self-interest and care only about our ‘personal pursuit of happiness’, without ever considering the happiness and wellbeing of the whole, as the whole of society and all living beings involved – and thus as long as we do not sort out our values it doesn’t matter whether our money is backed up or not – we’ll still be on a straight track to our own self-destruction as our value system is unsustainable and as far removed from physical reality as can be

I forgive myself that I have accepted and allowed myself to blame money as ‘the root of all evil’ – without seeing and realising that money is merely a tool, a concept to facilitate exchange and the allocation of resources – and the only real Evil is us humans, as we are responsible for the Equation through which money flows, which currently is seated within Inequality as the current Money Equation favours those who Have over those who Have Not – and so the suffering in the world as poverty, starvation and war is not the result of Money, as Money is merely a tool – but at the fault of those who wield the tool, which is us humans – and so the root of all Evil is us Humans as irresponsible wielders of a powerful tool, as Money is currently the tool which decides who lives and who dies

I forgive myself that I have accepted and allowed myself to have created an economic reality which relies on money and where people rely on Money to survive, but where we’ve accepted and allowed money to be Unreliable through manifestations such as Inflation, where those who know less about money and how money works are at a disadvantage where their personal access to resources will decrease overtime if they rely on money only simply because they are unaware of how the system works

I forgive myself that I haven’t accepted and allowed myself to see and realise that money as it is now is not a ‘fixed reality’ – as money is based on agreement and this agreement can change, where we collectively can decide to have a money economy based on Life and Sustainability where money again is just a tool used to facilitate exchange and the allocation of resources but which flows through an Equality Equation ensuring that All are taking care of, as All are Equally Valuable as Life – and so the Equal Money System do not prefer one Life form or being over another – and will cater for everyone, ensuring a Life of Comfort and Freedom for ALL in Fact, Now and in the Future