Money Creation

in money •  8 months ago 

Should banks be allowed to make money?

Some process has to make money in order to keep the money supply from getting too scarce. If the supply is very limited it would become difficult to make transactions for smaller purchases. Suppose for example that a dollar was equivalent to one bitcoin at its present value. A penny would then be so valuable that you could not purchase a cup of coffee without getting some form of change. This would cause a real problem with people counterfeiting the coin because the base metal value would be so much less than the market value.

Why would the money supply dry up?

Lots of reasons. People lose track of it, hiding it in mattresses and that sort of thing. Interest payments on loans. (When banks create loans the principle is created but not the interest on the principle.)

New products are created with near zero marginal cost. For example this blog post. Suppose it got fabulously popular and paid out a thousand dollars in value. (Through cashing out Steem or other token rewards.) There was a low cost in producing or distributing it so all that new value comes mostly from out of thin air. Something produced like this should dry up the money supply and increase the value of the dollar so long as I don’t cash out the value of the post and spend it on something that drains value from the system without the creation of new dollars.

Why is a lot of money being created?

Lots or reasons - why not? It seems like the fox is in charge of the hen house on this one and governments love to spend money without raising taxes. It is actually good for business if there are a lot of poor people that need jobs and what better way to insure that there are many poor people than constantly inflating the money supply? LOL. Actually this reasoning is not very good because the economy would really crash if all the money drained into a few large businesses paying minimal wages because even their best paid employees could not afford to purchase their own products. Plus the resulting inflation makes it very difficult to make any kind of business transactions.

What kind of spending drains value without producing new value?

Suppose I took the hypothetical thousand dollars I earn from this post and pay it to some lucky contractor for a ball-peen hammer. It seems like a good idea, I need a new hammer (not really) and the amount is so low I don’t think I would need to file a 1099-misc form for it, lol. That thousand dollars paid to the contractor would then probably go back into the main street economy and pay for things like a night on the town.

What if I just took the thousand out in cash and burned it up? (Basically the same as stuffing my mattress with cash and never ever using it again.) Maybe that would do some good to improve the value of the dollar for everyone else, however, it is just a drop in the bucket compared with all the new dollars constantly being created by the banking system.

I think spending the money wisely is a better option than burning it up as long as inflation is not getting too high.

If you think about it there are a lot of really silly things to do with the thousand dollars. It is difficult to figure out if anything is really worse than anything else.

Yet with that said, if you spend a thousand dollars on a very rare resource and that spending creates a demand that harvests the last remaining bit of that resource to the point where it can not renew itself, that spending will drain value without the creation of new value. For example, suppose you like pygmy whale blubber for some strange reason. By setting a high price on the blubber you could cause the whales to be hunted into extinction. Such a use of wealth is not in the best interest of anyone, especially if the blubber is just used to light your house at night when we have other more practical ways of producing light.

Spending money going after a dwindling resource that gets more and more expensive to get, makes things increasing inefficient and difficult for many people.

Desperately poor countries might find these scarce resources attractive to harvest as opposed to trying to purchase LED lighting and solar panels from a system that limits the purchasing power of their local money.

Really meaningless work wastes recourses, demoralizes people and makes things much less efficient. It would seem to be better to just pay people some minimal amount rather than paying them to do things that are of no real benefit for society.

In Conclusion

It does appear that we need to create more money and spend it wisely. Historically this money creation has been limited to select groups of people. At this point in time we have a golden opportunity to create new money in a way that could potentially benefit many more people.

Many of our modern problems are the result of a struggle over resources and difficulties that come from the increasing gap between the rich and the poor. Creation of money has never been a problem and has resulted in the decline of purchasing power of money over the years (inflation). Distribution of money and scare resources has always been an issue.

How money is created, spent and saved are important things to consider because it is so important for a peaceful and prosperous future.

This is my opinion and views on the subject and I have no formal training other than an interest in economics and lots of reading and viewing of videos. Please do let me know if you agree, disagree or have other things to add, I’m always trying to learn.

Thanks for reading! I always value your support and comments. The picture was taken by me with my Galaxy S9+ and modified in software. Text and graphics copyright lightsplasher & litesplasher.

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Important topics.... it's good that you write about this stuff.
I've enjoyed creating my own currency, PEACE. It has been pretty interesting from a monetary theory standpoint!

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An interesting topic. There is a delicate balance that needs to be maintained. It makes me think of the housing crisis. Easy money lent without consideration as to if it could be paid back. Banks sold the mortgages securities to other banks. Housing prices soared, and eventually buyers dried up. Leaving major financial institutions in jeopardy of failing. The government bailed them out because they were too big to fail. Greed and unsound business practices ruined the economy.

Lots of people lost their houses during that time. It is hard to see all the unsound business practices. I would love to see people less reliant on businesses for their livelihood and be more able to earn enough independently. It sure seems like it should be getting much easier to make money with all the efficiencies we see from new technologies and automation. It does not feel that way to me though, many of the people I talk to seem to be having more difficulties financially. I'm feeling it a bit with everything slumping in the crypto markets right now, hopefully things will turn around some time.

On the bright side, it is a great time to be earning Steem. Those that continue to post are benefiting and gaining loyal followers. When crypto goes up, we will be rewarded for sticking with it.


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