Comments (1)

• JIMB

  Essentially demand for money is for transactions (i.e. transaction liquidity is what matters). I note 'money' is the ultimate thing used for indirect trade (electronic and physical cash). All other forms of payment are claims on money (credit) including bank balances.

  If the govt cuts taxes or amends policy and 1000s of new profitable new opportunities become possible - the transactions demand for money will rise. Doesn't the fact that no new money would be forthcoming (thus prices will have to adjust downward) impinge significantly on profits (most especially for former borrowers)?

  Although I don't agree with the bubble blowing supply-siders, I think they have a point: especially with fiscal policy (just how is the billions, if not trillions going to be financed this year?) and regulations yanking the economy one way then the other. Policy changes really matter (obviously).

  In my view, private money would straddle the Austrian and Supply-side views. New money could be backed by new production (or existing goods) when it becomes profitable to manufacture money (i.e. when deflationary forces exist) and when people will accept it - and money would be extinguished when inflationary forces exist.

  The backing for new money would be chosen by private issuers (and rebalanced) to minimize costs to the economy. Competing monies would be a big gain for sustainability, and they would impart a lot of information about credit cycles and structural changes (by their relative prices) which make it better and easier to prosper.

  The remaining issue is what money is used to measure the payment of taxes ... Government money would in essentials become a tax credit, and would reflect policy probabilities and supply / demand characteristics for taxation itself. The central bank could (in this fantasy) then issue or redeem as much as is needed to keep it steady against private money.

  The right number of private monies would then also exist - minimizing costs to regional economies where a change in prices is more expensive than an adjustment in currency value.

  Published: February 28, 2007 4:38 PM