Remaking Money

I'm going to make an argument here about what could be done with a monetary system. I make no assumptions as to whether this idea is better or worse than the system commonly in use today. I suspect that as I develop the idea its advantages and disadvantages will come to the surface.

I outline an alternative to money as it is currently understood. My system involves making those who use the most money (not necessarily the richest) bear a proportional share of the costs of money. It would also setup infrastructure that would allow for directly stimulating the velocity of money, and finely control the amount of money in circulation, which in turn influences interest rates.



Economic Value is a subjective term. The value of any commodity is different for each person, and different for the same person at different times and under different conditions. Often the value of things is not based on the value of its practical applications, but rather on how people feel about those things. Jewelry is a good example of a commodity that does not fill a basic human need, but that commands an unusually high value.

Functions & Properties of Money

Money has several basic functions in the economy:

  1. It is a medium of exchange.
  2. It is a measure of value.
  3. It can be used as store of value.

As one half of every transaction money makes trade dramatically more efficient. Money as minted coin, paper, or digital accounts is far easier to move and measure than any other trade good. Money improves the speed and profitability of all economic transactions.

Money allows all products and needs in an economy to be measured against the same standard unit of value. This allows products from all over the world to be compared directly. Having a standard unit of account allows many more opportunities for investment. Loans, investments, and insurance are only really possible because there is a predictable unit of measure.

Money can be treated as a commodity. That is, when money is owned it can be used as a store of value. Storing value as money depends heavily on the time behavior of the value of money.

Some practical properties of money are that it is:

Sources of Money

There are at least two kinds of money: commodity money, and fiat money or currency.

Commodity money is the simplest to understand. It is some set of items or materials that a society recognizes for use as a common medium of exchange. Commodity money is created by market activities like manufacture or mining. Commodity money has been wampum or seashells, but most famously gold or silver.

Currency is money that is created and regulated by an institution rather than directly as a product on the market. The value of fiat money is determined by a rather complicated relationship between the amount of money in circulation (not the amount in existence), and the rate of economic activity.

Value of Commodities

Because commodity money has intrinsic value in the economy its value, and the amount of it in circulation is governed by its supply and demand. Finding new practical uses for the money commodity or finding new sources of it can dramatically change its value in the economy. Aluminum was more valuable than gold until a cheap way was found to manufacture it.

Some practical uses of the money commodity may be stifled because of its inflated value in the market. With a commodity form of money, the amount of money in circulation cannot be adjusted to reflect economic needs.

Much of the wealth in Europe created after the discovery of America was caused by the sudden influx of gold and silver that allowed greater circulation and investment. It was not the presence of the gold that made the economy soar. Gold doesn't make buildings or ships, nor is it edible. It was the availability of gold as money in circulation combined with the new markets in the Americas that created the boom.

Value of Currency

The only difference between currency and a commodity based medium is that the currency only has value as money.

Issuing institutions for money have been banks, governments, or large businesses, sometimes individually and sometimes as part of a larger system. In all cases the value of the currency is based on what can be bought with it.

Today the world economy is not backed by commodities because the amount of money in circulation is far, far larger than any commodity could back. Only the economy itself can sufficiently back the amount of currency in circulation.

The Costs of Currency

Currency has basic costs involved in its creation and maintenance. (A commodity money would also have cost associated with its manufacture.) The physical (or digital) creation of money, management of debtors accounts, and management of the amount of money in circulation are forms of work that have associated costs. Even digital money has its ongoing costs: the costs of maintaining and securing the various institutions and agreements that allow digital money to be consistently used and processed.

Currency is owned by the institution that creates it. Typically today, currency is issued as a loan. That is to say that all currency in circulation was issued as a loan to someone or other. The interest payments on these loans fund the issuing institutions. As such, the global burden of the cost of money and any profits of the issuing institutions is carried by the debtors of the world.

Today a few private corporations (banks) hold the entire credit side of the worlds monetary system. The full cost of the money in circulation including these banks profits is paid by governments, investors, and consumers who use credit. As such, these private banks alone stand to profit on the service of that debt, and they alone control the amount of money in circulation.



A growing economy indicates that more resources (wealth) are available for consumption. An economy that is growing faster than population indicates an increasing mean standard of living and more opportunity for societal development.

There are various physical limitations to how fast an economy can expand. New workers can only be trained and gain experience so fast. new factories and equipment takes time to build and put in operation. marketing can only penetrate new markets as fast as people are willing to need new products.

Inflation occurs when money enters circulation faster than the economy's real value is able to grow.

Supply Side vs. Demand Side Economics

Growth is driven by consumption. Because of fixed costs, excessive production capacity does not produce lower prices, instead it engenders unprofitable businesses and underutilized resources. The exception to this rule are the non-competitive markets where monopolies exist: such as patented products, legal or technical monopolies. This is why favors for large businesses do not tend to reduce prices and stimulate the economy but rather boost profits for their stock holders and executives.

Consumers do not spend in direct proportion to their income. The lower the income, the greater the portion of income that is spend immediately. Poor people have a higher propensity to spend. While the wealthy enjoy seeing their money collect and grow as they save or invest. In conclusion, more money in the hands of the poor stimulates demand more than money in the hands of the rich.


If there are more poor people than rich people, then more evenly distributed income will favor poor people more than rich people. Since growth is stimulated by demand and demand is greatest among the poorest it follows that the more evenly income is distributed the more growth there will be in the economy. More even distribution will promote a better housed, fed, and educated lower class. Such conditions will reduce crime and dependency on social services further increasing stability and making more resources available for economic growth.

Maximum Utility of Resources

All unused resources are an economic loss and opportunity. Resources may be natural, financial, or human. Some unemployment of resources is unavoidable, but reducing that amount should of primary concern for economic growth. Higher demand, better education, and less crime promote full utilization of economic resources.

Money that is not in circulation, just as any asset that is not economically active, is an unemployed resource: interest is being paid for its existence, but it is not being used for economic activity.

Stability & Continuity

Businesses are only interested in investing and opening new markets when they have confidence in being successful. To be confident of success investors must feel that business conditions are sufficiently stable. Conditions such as taxes, interest rates, the availability of human and other resources, and a healthy consumer market must be stable or at least predictable in order for investors to risk their capital.


Fiscal policy is the use of government taxation and spending to create economic change. This change should be targeted to promote growth through stabilization of business conditions, fuller employment of resources, and more even distribution of income.

Monetary policy is any means used to change the value of money or its amount in circulation.

Economies respond much more to the feelings of consumers and investors than they do to any technical conditions that may be present. A strong economy is often more the result of strong, confident, and consistent leadership than to any other factor.

Gross Product

Q: The quantity of goods and services sold

P: The Average unit market value of goods and services sold

M: The amount of money in circulation

V: The average number of times each unit purchases goods or services (Velocity)

C: The market value of all final consumer goods and services.

I: The market value of all investments made.

G: The market value of government expenditures for goods and services.

X: The market value of all exports.

IM: The market value of all imports.

Gross Product
GP = Q P = M V = C + I + G + ( X - IM )

Gross product is the total sale value of all final goods and services sold in an economy minus the purchase value of all imports. Gross product is equal to the product of the amount of money in circulation times the average number of exchanges that money undergoes. It also equals the number of goods sold times their average price. It is the sum of consumer spending, investment spending, government spending, and the balance of trade.

Stimulating growth

In the US the Federal Reserve Banks stimulate growth by buying debt on the open market. In doing so they inject new capital into the economy and drive down the cost of debt (reduce the prime interest rate). In this process the newly injected capital goes to governments and large banks.

Both investment and consumption are affected by interest rates. There is a negative relationship between Investment Spending and interest rates, such that businesses will only tend to invest when the expected return on investment is greater than the expected return on a loan.

In lowering the cost of debt consumers are more likely to overextend themselves if their creditors allow it. This is what caused the US housing crisis in the late 2000's. Low interest rates also promote investment in marginal opportunities of low return.


Publicly Owned Money

There is no reason that the issuer of public credit need be a private entity, nor is there any reason that it need be for-profit. A not-for-profit, publicly owned network of central banks is an entirely possible paradigm. Money should be a public institution created and maintained for the public good, or at least for the good of the depositors.

Disallowing Money as a Store of Value: Promoting Circulation

Money used as a store of value by definition is removed from circulation. Money removed from circulation is no longer available as investment capital, and can also affect prices and domestic product.

Money used as a store of value is money that is not available for investment or to create demand. To counteract this problem banks today treat all deposits as investment capital risking both transactional and investment accounts.

By charging interest against all cash and transaction accounts The central bank can effectively prevent them from being used as a store of value. Such interest would have to be calculated as continuously compounding to prevent games being played with transaction times. The amount of money in an account would be recalculated by computer every time a transaction occurs or the balance is checked. Cash would be depreciated from its date of issue. Its value and lifetime could be maintained by attaching stamps to the bills.

Investment accounts would still be available to store value if its interest rate were sufficient. but with the understanding that this money is reinvested and is at risk.

Funding Public Money

A bank can be funded with fees: fees on accounts or fees on transactions. This is common and we could argue that it is fair--those that use the most services pay the most. But if we change our paradigm and create such a bank for the good of the economy as a whole and that money is a public institution

Other Financial Institutions

The central banks could certify, regulate, and insure other financial institutions. Even so other banks and institutions could not be allowed to manage their own operating accounts.

Creation of Money

The best place for money to be injected into any economy is among its poorest people. Not only does it raise their standard of living, but the economy is stimulated because they immediately spend it. When money is loaned to large institutions there is debt that must be serviced, also such institutions may not spend the money quickly or domestically.

Instead of creating a complex system of debt, or a complex systems to determine who is poor enough to receive, the central banks could periodically make a deposit for every account holder. Not a deposit to every account, but to every account holder. Since Social security numbers are already associated with each bank account it should be a simple matter for each person to select an account where they will receive their deposit.

Loans & Interest Rates

Since the central banks will not be creating money for the purpose of loans, where will loan funds come from? From deposits in investment accounts. People and businesses not wishing to lose excessive value of their money will invest it in some way: buying bonds, certificates of deposit, savings accounts etc. In any of these cases that money then becomes available for loans or other investment. The Interest rates on these various investments will be determined by the supply and demand for capital. The central banks will be able to monitor the various interest rates to determine if there is enough capital in the economy and may adjust the Cash rate or Injection rate accordingly.

Loan rates will have to be significantly higher than the cash rate because they must both offset the cash rate and cover the institution's revenue and any investor profit.

Setting the cash rate too high will obviously force loan rates high in turn slowing investment. But it would also create very motivated spenders/investors. Banks would not be able to offer investment opportunities of sufficient return to be profitable. People would likely prefer to spend their money on hard commodities rather than watch it disappear.

Foreign Trade

The central banks will not be able to certify foreign banks to take deposits of money because they would not have legal jurisdiction over them. Therefore expatriation of capital could only occur as cash. No foreign entity will want to hold any significant amount of domestic money. Foreign exporters could sell the domestic currency in foreign exchange markets, but such money will only be useful to foreign importers. The value of the domestic currency will adjust on the foreign exchange until a balance of trade is achieved. The net result for foreign trade will be de facto balanced trade because the domestic currency cannot be profitably expatriated.

A positive trade balance could occur if foreign currency's could be profitably imported. Foreign currency could only be profitable if it were appreciating against the domestic currency. In this case a positive trade balance could be useful to boost the domestic economy against the rising foreign one.

Fiscal Policy

Depending on economic goals such a central bank could be very active, or nearly invisible. Capital injections do not necessarily need to be made at all, while the cash rate could be so low as to only cover the operating costs of the central banks.

The higher the cash rate and injection rates are set the more such a system begins to resemble a wealth redistribution scheme. Even so it is one that promotes economic activity and sustainable lower classes. In an economy where profits are being concentrated in large businesses with ever greater degrees of productivity and automation there is ever less need for the marginal lower labor classes. These people, often through no real fault of their own have little place in the modern economy. When unemployed or suffering some other crisis they contribute to crime, abuse and dependence on social programs. If we consider money and banking as a public institutions designed to bolster the entire economy and not just the rich it should not be difficult to perceive this system as benefical for all even if it could tend to redistribute wealth.

As long as changes in the CR and IR are graduated rather than abrupt they should not contribute significantly to economic instability.


Such a system will encourage people and businesses to spend or invest. It will reduce the value of money as a reserve of value and emphasis its use as a medium of exchange. Money spent will result in more jobs or more dividends.

Such money will have little value in a foreign exchange because it cannot be effectively expatriated. International trade will self balance as a matter of course. This will encourage more domestic jobs and manufacturing.