Money And The Economy


The miracle of Wörgl

In 1932, in the middle of the Great Depression, the Austrian town of Wörgl was in trouble and prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job, and 200 families were penniless. He came up with a solution. And soon a miracle occurred.

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Joseph interpreting the Pharaoh's dream

Joseph in Egypt

Natural Money was already in use more than 2,000 years ago in ancient Egypt. According to the Bible, there was a fellow named Joseph who advised the Egyptians to store food in large storehouses. The Egyptians followed his advice and built storehouses for food. The food helped to create a financial system.

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Slums in Jakarta

From scarcity to abundance

At some point we may not need more products and services, and even if we believe we do, we may not be able to go deeper into debt to buy everything we desire. As a consequence businesses will find it more difficult to make a profit. This is why interest rates have gone down in recent decades and may go negative in the future.

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Picture of my invisible friend taken near Nijverdal

Our invisible friend

To understand market economies, you need to know about our invisible friend, the invisible hand. Somehow market economies can distribute goods efficiently without anyone planning this. According to the economist Adam Smith it is as if an invisible hand makes this miracle happen.

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Amazon Blue Front Economist

Supply and demand

There is a saying, teach a parrot to say ‘supply and demand’ and you have an economist. Economics is about supply and demand. It explains how the invisible hand does its magic. Not surprisingly, this is one of the most important laws in economics.

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Jeep Grand Cherokee

The law of diminishing marginal utility

The more pizza you have eaten already, the less you like one more. This is the law of diminishing marginal utility. It is an important law in economics. The more you have of something the less useful an extra unit is to you.

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Coin hoard

What is money?

Money has been invented to make trade easier. With money, it becomes possible to buy and sell stuff and to keep track of debts. But the value of money is just a belief. Most of the money we currently use is debt. The value of our money depends on debtors being able to repay their debts.

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What is the use of banks?

If you promise to pay this might suffice. But with large groups of people, it becomes difficult to track all these promises. That is where banks come in. They administrate the debts so that people can use them for payment. It is the magic trick banks perform. They turn debt into money.

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How the financial system came to be

Once upon a time when gold was money, goldsmiths rented safe storage to other people because their vaults were well-guarded. The goldsmiths were also in the business of money lending. And so they came to lend out other people’s money. This was the beginning of modern banking.

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Of Usury, from Brant's Stultifera Navis (the Ship of Fools)

The problem of interest

Suppose that Jesus’ mother had put a small gold coin of 3 grams in Jesus’ retirement account at 4% interest in the year 1 AD. Now suppose that the account was kept for his return. How much gold would there be in the account in 2017? It is an amount of gold weighing 11 million times the mass of the Earth. But there another, and much harder to solve, problem with interest.

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Graffiti near the Renfe station of Vitoria-Gasteiz

The monster called financial system

What a scary monster the financial system has become. This terrible creature could easily wipe out human civilisation as we know it. That nearly happened in 2008. And it can still happen. We are hostage of this monster. It is too big to fail. But what created it? It wasn’t Frankenstein for sure. The answer is already out there for thousands of years.

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The future of interest rates

There is a relationship between the amount of capital in a market economy, wealth inequality, savings, the level of debt, and interest rates. If an economic depression or a world war can be avoided, this relationship may decide the future of interest rates and interest rates may go negative. If that doesn’t sound exiting, don’t read this post.

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Doughnut economic model

A model for the economy

Our greatest challenge at present is dealing with the limits of the planet. The second greatest challenge is to provide for an acceptable standard of living for everyone. This is an economic challenge. But how can it be done?

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Feasibility of Natural Money

Will Natural Money become the money of the future? And what are the consequences? The financial system could become stable, the economy could flourish, there could be more capital and wealth, the economy could be made sustainable and wealth could distributed more evenly. It could happen.

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Free money for everyone

In the future machines may replace humans. Alternatively we may need to reduce economic activity in order to live within the limits of the planet. But that could also mean that human labour will replace machines. It seems likely that there will still be work for humans in the foreseeable future. So do we need a Universal Basic Income or are there better solutions?

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