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Current System:
Vertical money
• Gov’t forces us to pay
taxes; we must accept
money or go to jail
• Our economic production
backs money supply
Current System: Horizontal Money
& Industrial Capitalism
 What if there’s a great lending opportunity, and
bank has already lent 19$?
 Where do i (interest) and p (profit) come from?
 More loans or more vertical money required.
ECONOMIC GROWTH
 What if p<i?
 Procyclical monetary system (positive feedback
loops)
 Inherently unstable
Current System: Financial
Capitalism & Asset Inflation
Current System: Financial
Capitalism & Asset Inflation
Current System: Financial
Capitalism & Asset Inflation
 HEADLINE: Despite Drop in
Commodity Prices, Farmland Values
Rise
 Rising asset prices
 Most loans for mortgages, stocks,
other assets
 Drains money from real economy
 Companies buying back stocks
Factors promoting speculation
 Inelastic supply
 Supply increases little in response to price (land, fossil
fuels, food, minerals, etc.)
 Small increase in demand = large increase in price
Oil production and oil prices from 2003 to 2010. Oil prices more than tripled
between January, 2005 and July, 2008, while total production increased by less
than 3%.
Factors promoting speculation
 Inelastic demand
 Demand decreases little in response to price (essential
and non-substitutable resources: fossil fuels, food,
land, minerals, etc.)
 Small decrease in supply = large increase in price
Factors promoting speculation
 Large pools of capital seeking higher returns
(inequality)
 “Global FX volume reaches $5.3 trillion a day in 2013 –
BIS”
 ALL THESE FACTORS CONVERGE IN A FULL AND
UNEQUAL PLANET
What determines asset prices?
 P = asset price (e.g. land), R = income stream (e.g.
rent), r = opportunity cost of money (e.g. interest
rate)
 t= annual tax on asset (e.g. land tax)
 Asset prices also increase w/ expected future value
of assst E(Pt+1), decrease w/capital gains tax tcg.
 When asset prices are increasing, entire revenue
stream can be used to pay interest
What increases asset prices?
 Interest rates decrease
 Annual asset taxes decrease
 Capital gains taxes decrease
 Expected future price increase, driven by
speculative demand in positive feedback loop
 CREDIT AVAILABILITY INCREASES ASSET PRICES
 NYT Headlines: Welcome to the Everything Boom, or
Maybe the Everything Bubble
 “Around the world, nearly every asset class is
expensive by historical standards.”
Interest Bearing Debt in US
Growth and Inequality or
Collapse
 Debt is 360% of GDP and growing faster than GDP
 Interest on total debt is likely to be 15% of GDP.
Direct transfer to lenders
Credit market debt,
net of gov’t
Current System: Financial
Capitalism & Asset Inflation
 Bubble busts, banks capture assets,
stop issuing new money
 Industrial economy must also
collapse
Goals for the Needed
Monetary System
 Ecological sustainability
 Steady state throughput
 Just distribution
 Fair distribution of wealth/assets provided by nature or
by society as a whole (e.g. unearned income), within
and between generations Fair return to labor and
earned assets
 Efficient allocation
 Max QOL/sustainable throughput
Sustainable System:
Vertical money, 100%
fractional reserve,
green taxes
Characteristics of desired
system:
 Money Creation
 Spent on public goods
 Easy to target unemployment, misery, poverty
 Central bank purchases state/municipal bonds
 Decentralizes money creation, fiscal policies
 Loaned into existence
 Can be deposited in banks that service community, available
for banks to lend
 Money destruction
 Auctioned Environmental Allowances set according to
ecological constraints
 Tax unearned income
 May need net creation to cover currently unpriced
transactions, or net destruction as we reduce throughput
Characteristics of desired
system:
 Countercyclical (negative feedback loops)
 Society as a whole benefits from seigniorage
 Not dependent on growth
Rethinking taxation
 Not required for government revenue
 Required to:




reduce resource use
back dollar
achieve desirable income distribution
adjust aggregate demand, reduce money supply
Fiscal Policy
 Expenditures
 Government can target money to address unemployment,
misery, poverty; provide public goods; restore natural capital
 Taxation
 Tax rent, natural resource extraction, waste emissions
 Dramatic income tax increases, asymptotically approaching
100%
 How much residual is enough for rich?
 $5,000,000=99.9% tax rate
 $1,000,000= 99.98% rate
 Relative wealth
Marginal tax rates and
income share for top 0.1%