Theoretical Monetary Experiment: Population-Based Currency

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Don't need them. Repudiate the debt or part of it. Refuse to pay the entire amount of interest. It will knock the credit system silly for a while, but credit is as necessary for an expanding market economy as air is for breathing. Eventually it will come around again with some sensible rules. Like do not lend money unless the borrower can show there is a good chance of repayment out of ongoing economic production.

ruveyn

If I go bankrupt on the debt as an individual creditors won't lend me money for a long time or will charge me high interest rates. Under the Jubilee laws everyone goes bankrupt automatically so creditors can't hold it against you.

About this jubilee law.

When I deposit money in a savings account, the value of that savings account is a liability to the bank and an asset to me. I have lent money to the bank on their promise to pay me interest, and to return the principal on demand. Would that obligation expire with a Jubilee?

What about those Canada Savings Bonds? Is that loan forgiven? Bonds issued by companies are debt instruments--are they forgiven also?

Wanna bet? Even if creditors can't recover what they have lent you before the jubilee, they will know how much they have lost as a result of your jubilee bankruptcy.

If you have a structure that absolves all debt on a periodic basis, then why would I lend you money that must be paid back beyond that period? Why would I continue to authorize transactions on your credit card, knowing that I will not get that money back?

Why would we reward people who have leveraged themselves to the hilt to acquire assets, and punish those who have lived within their means?

Jubilee laws will make long term credit virtually impossible. Forget about building firms that will be in business for a hundred years. You are proposing to demolish the economy every seven years and rebuild it from scratch every seven years.

It was alright for the Israelites. They were bronze age dudes who main product was wool and grain. No manufacturing to speak of. No long term commitment to technology. None of the things that characterize a modern economy.

ruveyn

Present day Israel doenst use the jubliee laws either it was a good idea centurys ago but will not work now

My very point. Jubilee Laws are for bronze age economies.

ruveyn

Production based upon population isn't sensible. What if real GDP outstrips population growth(as is desirable in a growing economy) then deflation occurs.

In any case....
Pros:
1) Monetary rules make inflation and other issues predictable
2) Monetary rules reduce ability for bad discretion to be exercised.

Cons:
1) Monetary rules reduce monetary policy flexibility
2) If population growth and economic growth are not well-connected, then the rule will lead to deflation. The two are clearly disconnected in a number of 1st world nations.

The soia is a form of fiat currency, but it follows a monetary rule. The advantages are that monetary rules are predictable. The disadvantage is that monetary rules are inflexible.

The soia, will be very similar to a commodity standard. The major differences will be that commodity standards are more flexible because production is not fixed. Also that commodities are more prone to fluctuations in response to non-monetary demand.

In any case, I think the central issues are addressed in the major criticism of deflation, and the recognition that this rule reduces the flexibility of federal policy. In any case, if we're going to push monetary rules, we are better with one based upon RGDP or NGDP(real or nominal) rather than population.

People will "game" any such rules and make them ineffective. The activities of people either collectively or individually cannot be accurately predicted.

ruveyn

Just need to check something to clarify my confusion - it seemed like you were using money supply and production as interchangeable terms. Are the two chained at the hip so to speak or was that a typo?

If land is free and interest rates are zero percent you won't need a 30 year mortgage. Bankers who are opposed to the Jubilee laws want to keep everyone in bondage.

Yes I think he meant "money supply based on population"(your proposal) as opposed to "money supply based on economic production".

Am also puzzled by this idea.

Been doing a thought expirament to test this idea.
Lets ignore rapidily industralizing countries like China and India.
Lets keep it simple.
Let pretend there are only two countries in the world- one rich country (call it the USA), and one poor country (call it Nigeria).

If you want a global currency, but you want each country to print its own version of this global currency- then it wouldnt be a global currency. Its just putting different color ink on the money each county prints today and wouldnt change anything.

But- if you're proposing a true global currency (like the euro for the whole world)But unlike the euro- the currency will be alotted to each country by its population (rather than by the country's productivety) like the money given out to the players at the start of a monopoly game-then that would be different.

Nigeria would suddenly have the same amount per capita of the same currency that americans have. Thus Nigeria would have the same per capita buying power as America has- but the same lack of productivity that it has now. It would be ludicris and laughable!

This would cause Nigerians to suddenly import vast amounts of American goods.
Americans would have to bid against nigerians and would buy less of our goods (and nigerian goods). Since america produces more nigeria would have an upward spike in consumption importing our stuff and americans would loose half their living standard and would have a downward spike in consumption.

But then - americans would have all the money- since we would send them the vast net surplus in our goods and they would send us the net vast surplus in their money.

So in the next round of the game americans would have all of the buying power (comensurate with their greater productivity) because we would have all the money and nigerians would be broke. And things would be back to normal again.

So here is were you need to specify. What happens at round two?

If you do nothing things would go back to how they are now. The rich countries would have the biggest supply of this universal currency (and the most buying power) and the poor countries would loose their buying power after this one explosive buying spree.
And things would go back to exactly as they are now- no disaster-but no improvemen to anything.

But if you're proposing to maintain this condition of equal per capita money supply for every nation then you have to rectify the tendency of the universal currency to flow back to the high productivity countries. Buck the trend of the market somehow.

Dont know how you would do it. And if you were able to do it I would think that it would cause severe havoc to the world economy.It would amount to very severe global income redistribution.

The poor countries could use this lopsided monetary system to their long term advantage by abstaining from buying consumer goods and going full throttle into buying capital goods from industrialized world to industrialize their own countries. In the long term that would be good for them and for the rich countries as well.
So it could be viewed as a radical form of foreign aid. But its a little too radical.

In the short term it would screw things up severely.

Production of money based upon population. Sorry. My mistake. Producing money based upon the population is not sensible.