“All the perplexities, confusion, and distress in America arise…from downright ignorance of the nature of coin, credit and circulation” John Adams in a letter to Thomas Jefferson
1)We should have never ‘put together’ “store of value” and “medium of exchange”.
2) If something has intrinsic value which is expected to go up in time, it will be hoarded and exchanged less often.
3)’Money’ is a “unit of account” which we ‘exchange’, in order to efficiently get the things we really need and want in life.
4)Inflation/Deflation are simply measures of whether ‘money’ is abundant or scarce relative to the economic activity we desire.
5)In the economic system we have created, purchasing power is gained either through paid work or through credit.
7)As long as companies earn a profit, they retain more ‘money’ than they distribute in wages and other payments, thus there is insufficient medium of exchange to meet the supply of goods.
7)Even if companies invest the profit in new projects, this only adds to the previous supply-demand imbalance unless new medium of exchange is added endogenously in the form of credit.
8)Advances in technology make the old paradigm of Work=Job=Income obsolete; purchasing power is lost.
9)Credit only makes the scarcity of ‘money’ more acute because new medium of exchange needs to be added just to pay the interest on the debt; a vicious cycle develops.
10)This credit/debt cycle also eventually comes to a natural end (2008); no more purchasing power can be added even endogenously.
11)If we want to keep the current economic system going, we need to find a new way of generating ‘purchasing power’.
12)But if the paradigm has shifted, normalization is meaningless; instead of going back to something that does not work, let’s look forward.
12)’Helicopter money’ has an, unjustifiably, bad reputation historically.
13)UBI is politically unfeasible to implement in a large country with open borders.
14)The problem with them in the past has been our lack of knowledge of existing economic activity, and thus our inability to disburse the right amount of purchasing power needed.
15)M≠PxT, so we invent V, in order to MxV=PxT
16) Both of them, however, are great ideas which need to be put in the context of our existing institutional framework.
17)The central bank opening its balance sheet (CBDC) to the public at large is the next step in monetary/fiscal policy.
18)Blockchain, as in a large, open, decentralized, distributed, real-time database of all economic transactions, is the digital equivalent of ‘GDP’ of the industrial era.
19)The Fisher’s equation above then takes the form of CBDC=Blockchain, ‘money’ matches economic activity.