2. What is Money?  Medium of exchange  Store of value  Unit of account  End in itself?  Island of Yap and Fort Knox

3. Money as a medium of exchange IOU is destroyed or used again

4. Modern Money

5. Headlines  Fund to Let Investors Bet on Price of Bitcoins  it is mostly the domain of speculators, some of whom are drawn to its potential as an alternative to national currencies  the price doubled and then collapsed over a few weeks  SecondMarket is taking advantage of relaxed regulations that went into effect just this week letting financial firms publicly market their private funds  Majority of Americans Doubt Benefits of Fed Stimulus  the Fed’s efforts have provided much greater direct benefits to wealthier Americans. The stimulus campaign has helped to fuel the rise in stock prices, and the wealthiest 10 percent of Americans own about 90 percent of the stocks.

6. Current System: Vertical money

7. Current System: Horizontal Money  What if there’s a great lending opportunity, and bank has already lent 19$?  Where do i (interest) and p (profit) come from?  More loans or more vertical money required. ECONOMIC GROWTH (physics and ecology)  What if p<i?  Procyclical monetary system (positive feedback loops)  Inherently unstable

8. Current System: Asset Inflation  HEADLINE: Despite Drop in Commodity Prices, Farmland Values Rise  Rising asset prices  Procyclical monetary system (positive feedback loops)  Inherently unstable

9. Speculation on a full planet  Essential resources and inelastic demand  Food, energy, water, land  Growing scarcity and inelastic supply  Food, energy, water, land  Stocks (not scarce, but inelastic supply)  Increasing concentration of wealth, hence pool of speculative capital  Speculation drives up short term financial returns on investment, reproduction rates of natural resources can rarely compete

10. Total US debt

11. Growth and Inequality or Collapse  Debt is 360% of GDP and growing faster than GDP  Interest on total debt is likely to be 15% of GDP. Direct transfer to lenders

12. Goals for the Needed Monetary System  Ecological sustainability  Steady state throughput  Just distribution  Fair distribution of wealth/assets provided by nature or by society as a whole (e.g. unearned income), within and between generations Fair return to labor and earned assets  Efficient allocation  Max QOL/sustainable throughput

13. Sustainable System: Vertical money, 100% fractional reserve, green taxes

14. Characteristics of desired system:  Money Creation  Spent on public goods  Easy to target unemployment, misery, poverty  Central bank purchases state/municipal bonds  Decentralizes money creation, fiscal policies  Loaned into existence  Can be deposited in banks that service community, available for banks to lend  Money destruction  Auctioned Environmental Allowances set according to ecological constraints  Tax unearned income  May need net creation to cover currently unpriced transactions, or net destruction as we reduce throughput

15. Characteristics of desired system:  Countercyclical (negative feedback loops)  Society as a whole benefits from seigniorage  Not dependent on growth

16. Rethinking taxation  Not required for government revenue  Required to:  reduce resource use  back dollar  achieve desirable income distribution  adjust aggregate demand, reduce money supply

17. Fiscal Policy  Expenditures  Government can target money to address unemployment, misery, poverty; provide public goods; restore natural capital  Taxation  Tax rent, natural resource extraction, waste emissions  Dramatic income tax increases, asymptotically approaching 100%  How much residual is enough for rich?  $5,000,000=99.9% tax rate  $1,000,000= 99.98% rate  Relative wealth

18. Marginal tax rates and income share for top 0.1%