How Should Money Flow Through an Economy?

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This is an important question that every monetary policy should address. If a monetary policy is guided solely by the fantasy of the pure free market, value will inevitably concentrate in the hands of groups who can manipulate the laws and regulations that control the flow of value throughout an economy. Value can flow through many value creation streams, including: the production and sale of commercial products and services; the delivery of nonprofit products and services; informal volunteer work; social activities that bring communities together; stewardship activities that protect the community from harm; nonprofit scientific research and educational activities that enhance the performance and value of the entire ecosystem; among others.

A Narrow Perspective on Value Creation is Destroying Capitalism. Nearly all fiat and crypto monetary systems today fail to take into account the diversity of value creation streams that actually exists in the real world. Instead of intelligently designing a monetary system that takes into account a broad diversity of real-world value creation streams as an intrinsic part of the monetary system itself, nearly all fiat and crypto policymakers today put their faith in the fantasy of pure free markets; or, they use fiscal policy and taxpayer funds to arbitrarily fund projects linked to their biggest campaign donors. In either case, their artificially narrow perception of the value creation and distribution process produces profoundly negative socioeconomic consequences, broken incentives, market failures, and numerous tragedy of the commons problems. These problems are destroying the broad wealth-generating capacity of capitalism, the ecological environment, and the social integrity of human societies in many countries today.

Free Market Price Signals Ignore Many Costs. When policymakers are in free market mode, they often assume that market price signals alone are sufficient to define and transmit value throughout an economy. However, the deliberately broken capitalism that the largest corporations and their political patrons in government have given us today completely ignores many costs to society that are caused by their artificial and myopic definition of price signals. In particular, the costs of environmental pollution and degradation, natural resource depletion, destruction of human capital (due to land squatters and other economic inefficiencies), structural unemployment caused by broken trade and labor policies, human deaths and disease caused by unnecessary poverty and malnutrition. . . . These are all real costs for which taxpayers pay, but the gigantic corporations that profit from producing these negative externalities don’t pay any of these costs because they can dodge taxes and pass all costs on to consumers.

Banks Don’t Suffer from the Inflation that They Create for Everybody Else. In addition to all the obvious broken incentives within the banking industry, the fiat banking system places central banks and highly concentrated commercial banks at the center of the money supply distribution process. This rewards bankers simply for being bankers by giving them access to newly created money before it trickles down to the rest of the population. This gives the banks and their shareholders more purchasing power because they can spend and make profits by lending out newly created money before its inflationary effects dilute the purchasing power of everybody else in the economy. Then when inflation strikes, they can simply increase their interest rates and fees to preserve their own wealth and purchasing power while the rest of the economy suffers.

The Fiat Banking System Is Not Aligned with Long-Term Economic Sustainability. Allowing banks to be at the center of money supply distribution gives their executives and shareholders enormous economic and political leverage over the entire economy because they can dictate how the wealth and capital flows throughout the entire ecosystem. Then they use their special access to newly created money to generate profits as quickly as possible, often from speculative land squatters and financial engineering gimmicks. That means they have no economic incentive to fund long-term ecosystem-building activities that would strengthen the economy over the long-run.

Trickle-Down Crypto Monetary Policies Create the Same Problems. Merely dis-intermediating the banks is not enough. The money supply itself must be decentralized, too. This is why all major cryptocurrencies today are hopelessly broken. They create the illusion of decentralization by decentralizing their physical networks, but their money supplies are far more concentrated than any fiat economy today. Moreover, their crypto money supplies will always be far more concentrated than the money supplies in fiat economies today because their project leaders don’t have the economic incentive or ideological flexibility to implement meaningful ecosystem stability mechanisms. The primary power of an economy comes from the flow of currency, not its network topology. Whoever controls the currency controls the economy. Thus, all these super-concentrated cryptocurrencies today are nothing more than interesting science projects at best; at worst, they’re new crypto tyrannies trying to replace the old fiat tyrannies.

The principles in this article are the inspiration for Gini’s unique Value Streams system, which ensures that the Gini ecosystem will never be dominated by the kinds of oligarchs and centralized organizations that dominate all other fiat and crypto ecosystems today.

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