Thursday, March 12, 2015

Franz Hörmann's Infomoney, Part III



One of the reasons proposals as radical as Professor Hörmann’s are still considered unworthy of serious attention by most is because of the assumption that humans have always traded economically, that trucking and batering is fundamental to human nature: homo sapiens sapiens = homo economicus.  This assumption contains a further assumption, namely that economic activity is synonymous with selfishly maximising advantage. This train of thought is logically impelled to conclude that human nature will find a way, within the current system, to perpetuate the perpetual growth dynamic it requires to function at all. Leading economists such as Paul Krugman are convinced it will be so. Why reinvent the wheel? And anyway, There Is No Alternative, right?

This mindset experiences capitalism as a true expression of human nature and ingenuity. Capitalism – it argues – has always found a way through its crises. It will therefore continue to find a way through. Unsurprisingly, there is much projection of our current dominant belief set evident in assertions that regardless of the culture, regardless of the historical or pre-historical period, capitalism is what is and was always being practiced when we peer beneath the surface. That consumerism, capitalism, work for wage and debt money are in fact mere babes relative to our genetic age is not satisfactorily addressed or refuted.

The above clump of intellectual conviction blinds. Confronted with the simple truth that infinite growth is impossible on a finite planet, acolytes and high priests of current orthodoxy blink, smile politely, and continue with the programme as if nothing had changed, as if, fundamentally, nothing can change.

Radical ideas come from the fringes, where loonies and nutjobs play. Seen from the cenre this must be so, but orthodoxy’s perception does not mean new and radical ideas are necessarily without value simply because their source is outside orthodoxy. As promised, today’s post delves deeper into what information money would entail. Again, I want to point out that this is a proposal to be tested, not a prescription to be obeyed.


Democracy begins with a democratic money system

Only after the entire population understands that:

1) Legal money exists today only as notes and coins;
2) Bank money in fact represents bank debt, i.e. commercial banks  indebt when they create "money" by issuing credit and when paying their bills;
3) Money creation can also occur democratically through an institution (Democratic Central Bank) specially (and legally) established for that purpose;
4) Neither debt nor interest need be a part of money creation by such an institution;
5) Money can be both a medium of exchange and of cooperation

… can society progress to a system of self-determination (or self-organisation) worthy of the title of democracy.

Contemporary "democracy" has a quite different definition:

"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. ... We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. … In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons...who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind." (Edward Bernays, "Propaganda")

Today, we can create an electronic full money [a.k.a. "full-reserve banking" or "100% reserve banking"] that does not require the co-creation of debt. "Full" means that the bits and bytes are no longer claims on money (money as legal tender), they themselves are legal tender. Furthermore, full money is always the property of the customer. The bank merely makes their computer systems available as a virtual trustee (just as goldsmiths' safes once were).

When you deposit your money with a bank today, it is no longer your property. The bank becomes the new owner of "your" money. You merely possess a claim on what was once your money!

Full-reserve banking reform is currently being called for by senior staff at the IMF. This reform would set up a money system in which there were:

No debt created when money is created,
No interest attached to money creation,
No insolvency and expropriation,
No taxes, and
No inflation.

Electronic full money can be created at any time without having to create a corresponding debt (claim on liabilities). Its accounting entry would be recorded as follows:

Cash on equity (at the Democratic National Bank)

The electronic means of payment is created on the cash side (as "money" itself, not as a "claim on money"), and on the equity side it is evident that we are as citizens all co-owners of the Democratic Central Bank. Money created as "cash on equity" would occur democratically and legally, and provide the entire population with purchasing power ("basic income guarantee").

However, we will also have to develop a new price discovery process, as the "law" of supply and demand would instantly encourage a scarcity of goods and services (and thus lead to inflation) in reaction to there being "too much" purchasing power in everyone's hands. Henceforward, we will call the price-regulated basic income guarantee a "basic guaranteed provision"


Money creation (in an Infomoney system)


Money creation in the information-money system is carried out as an accounting entry for every citizen by the Democratic Central Bank (DCB).

Cash on equity (at the DCB)

It would make sense to record these entries over people's social security numbers ["SS no."], as existing social security computer systems could be used. Democratic money creation would then fall under the remit of the social security system, meaning that the exchequer (treasury) would no longer be needed. For one thing, this system's new "full money" can be legally created at any time for the common good, and we will no longer need to go into collective debt (as the state) to privately instituted money-creation businesses to acquire purchasing power. Moreover, "full money" cannot be increased via interest or in pursuit of profit.

In these ways, information money resembles electronic full money. The difference between information money and full money is not in their creation, but in their destruction. 

Money destruction


When information money is spent, it is not transferred from person to person (as per claim and liability in accounting practice). Information money is destroyed when it is spent by means of the following accounting entry:

Expense on cash [“Aufwand an Kasse”]

This means that contracts are not completed between individual persons. Each citizen completes a "life contract with the whole community" (the social network, the "Democratic Central Bank"), a contract that can be specially adapted to each stage of life. For each individual, these contracts contain an individual price system (how much information money is to be destroyed at each purchase), an individual tariff system (how much information money is to be created for which delivered service) and an individual shopping basket (which goods and services are desired at what intervals and in what quality).

The accounts of the individuals involved in an exchange are affected independently when transactions are carried out, i.e., money is not transferred, and neither claims nor liabilities are added to any balance sheet. As such, information money does not circulate. One consequence of this is that neither inflation nor deflation can arise, another is that all issues pertaining to the velocity of money become moot. All money in this system is freshly created for each individual, at need, immediately ("cash on equity (at the DCB)"). It returns to the void (is destroyed) when it is spent ("expense on cash"). This latter feature means that money cannot be lent and no interest can be charged. 


Price discovery in the information money system

The goal of the information money system is to overcome scarcity across the world. This goal will be attained by the following distribution rules:

1) Goods and services that exist in abundance are simply ordered and delivered (without payment, i.e., because there is no symbolic consideration, no information money is destroyed).

2) Scare goods and services will be distributed at individual prices. In other words, the prices entered in each person's price system are offered, i.e. buying and selling will occur (information money is destroyed via the accounting entry "expense on cash"). If the price offered is too low, it is not registered and the good is not distributed to that person. However, when this occurs the production process is immediately published on the internet with all causes of scarcity displayed. Everyone is then invited to jointly resolve these bottlenecks. Those who succeed in resolving one of bottlenecks receive the good or service at the price they originally offered for it, as well as a bonus for contributing to the process of minimising scarcity.



Me again. Recall the attendant changes to the contractual system set out in the first post of this series. There we read about a radical design to encourage cooperative rather than competitive business exchange:
All the system’s participants complete a deed of partnership with the entire community (the social network, the “Democratic Central Bank”). These contracts consist of: individual price systems (how much information money is spent (destroyed) on goods and services: accounting entry: “Expense on cash”), individual tariff systems (how much information money is created [earned] for rendering services to the community by a particular individual: accounting entry: “cash on equity”), and individual shopping baskets (which and how many goods and services of what type and quality are desired at what intervals).
This new contractual arrangement severs the link between price and supply and demand. How exactly prices would be determined in an infomoney system is addressed by Professor Hörmann only with a vague reference to it being democratic and transparent. I would like to see more detail on this, but do not think such a system beyond the wit of man. And again, the Osbeee system (Open-Source Banking Economy, German-only website) has been set up using Infomoney to test the system by doing it. It is moslty in the doing that we discover solutions, not in the planning or proposing.

What appeals to me about the severance between prices and supply and demand, is that it demotes money from its current position as powerful store of value, and demotes the so-called ‘free market’ as all-knowing judge of societal value (it knows the price of everything but the value of nothing). This means that economic exchange blends with play, passion and fun and is no longer about selfish profit maximisation via material acqusition. Hörmann’s system enshrines in its very structure a commitment to ending the false dichotmoy between work and play, ends the modern notion that life is hard, that suffering must be endured, and sets up a flexible and open socio-economic apparatus in which a ludic revolution becomes sustainable. And it does so while freeing society from its current systemic addiction to infinite economic growth.

As I see it, humanity has clumsily stumbled into a situation where material want is no longer necessary. But, accomplishing this took a long time and has included the profoundly rooted establishment of multiple institutions – now extremely powerful – that cannot relinquish their grip on power, even if their guardians might want to. Because we have all been socialised by this historic process and its attendant justifying myths (paradigms), true (radical) alternatives to it will seem strange to most of us. To those of us who see the potential in radical proposals falls the obligation of doing something about it. It will be by testing and living these proposals that the growing success of The New sends curiosity about and trust in The Radical deeper and deeper into the centre. It also means that when the centre collapses, we have at least the beginnings of what can takes its place.

(Apologies for the fluctuating fonts and font sizes. For some reason, Blogger can't handle some invisible formatting information that I'm unwittingly copying into Blogger's editor.)

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