Once we get our heads wrapped around these basic ideas, it is possible to begin to understand our money. Additionally:
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We need to stop thinking of ourselves just as consumers. In order to consume it is necessary to also be a producer of goods or services. Combining these two functions, we must instead see ourselves as traders.
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The term 'trader' has been taken over by people who only trade financial instruments for their profit without doing productive work. In what follows, the term trader will be used to describe individual and group traders in the productive market, rather than financial traders.
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Unlike consumers, traders have power in the market both in how they earn money and how they spend it. If small traders get together and cooperate, they can become a major factor in the economy.
Simple accounting money
First let us look at how simple accounting money works. In simple accounting money systems, money is created by the individuals making trades. Money is created every time a transaction occurs. This is a zero sum game, and every one's balance revolves around zero. Generally, neither large positive or negatives balances are approved. Money created in this way is called mutual money.
As an example, if I buy some thing or service with simple accounting money, and don't have a sufficient balance in my account, I get a negative entry equal to the amount I don't have. In doing so I make a commitment to bring my account back to zero by providing goods or services to others in my market/trading community. The seller gets a positive entry in their account, erasing part or all of any negative balance that they currently have, and/or increasing their positive balance. As I make sales/receive pay for work I do, I return my balance to zero, or make it positive. Rather than having a distinct loaning process, small loans/negative balances are simply a part of the operation of a balanced system.
The commitment I make to eliminate my negative balance/debt is called seigniorage in Economicspeak. We will learn more about seigniorage later.
Trust and trustworthiness are the glue that makes simple accounting money work. Traders have to be able to trust that other traders will keep their commitments. This requires transparency in system operation. On the community scale where simple accounting money has been practiced, transparency and community pressure is sufficient to enforce commitments. In this atmosphere, people are expected to, and expect to keep their commitments.
In such a system, if a community sees that there would be a benefit in investing in a member or group of its members, the community can give them permission to carry a larger temporary negative balance to complete a project or buy a service or product. This has the same effect as large loans in today's economy, except that the decision of who will be given this permission, and the terms of this permission, are made by the community, rather than a bank.
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