High Cost Money
Money Markets allocate investment capital by assuming money earns more money with the passing of time. With loans, it is called the discount rate, and it gives money tokens a value. In Money Markets, money has two functions. The first is to return the borrowed amount to the lender and the second is to give the lender a return on investment. For loans, the return on investment is the interest rate. For owners, the investment return is the increase in capital value which comes in the form of dividends or the sale of ownership.
Returns on investment are in the form of money tokens with a value. For individual projects, the growth in money generated is the measure of progress. Society only gives economic value to those things we monetise. However, we use virtual monetization for the things of value that we cannot monetize. We measure economic progress with GDP which is the amount of money moved.
Unfortunately, monetization leads to perverse economic outcomes. Repairing after disasters that destroy value lead to an increase in GDP. Waging wars then rebuilding increases GDP. Rising prices leads to increases in GDP. Goods and Services go to those who have money to spend not to those who need the goods and services. It becomes “economically efficient” to exploit a limited resource as quickly as possible. Money or monetized assets have different values depending on where it resides. Reducing the availability of goods and services through restricting supply increases prices and money and GDP.
We define economic efficiency as the greatest amount of money returned for the least amount of money expended. This definition assumes money is the same as value. Money is an imprecise measure of future value, but it is an accurate measure of cost. We can do better with an alternative definition such as:
An economical efficient investment achieves the greatest accumulated value over time for the least amount of money.
When we use this definition the simplest way to increase economic efficiency is to remove the cost of using money. We do this by providing the same value for a lower price or by more value for the same price. We can lower the price by giving a discount on the goods and services depending on the length of time between receiving the goods and paying for them. If the investor is the same person as the person receiving the goods, the investor still gets a return on their money without the cost of money tokens.
Using this approach increases GDP without increasing the money supply. It does not require everything to be monetised to be valued as we can account for value without monetization. It leads to long term stable investments, distributes value more equitably while still allowing markets to flourish and provide alternatives. It leads to a more even distribution of wealth and provides greater value for lower costs.
It achieves these benefits because it makes the financial system more efficient by removing most of the cost of making and using money tokens. Electronic money tokens cost us nothing to produce but the financial system gives them a value as a hangover from the time when money tokens were a thing of value like gold or silver. Money is created as a promise to repay the same amount at some time in the future. With fiat money, we trust governments to honour their promises because they have the power to tax. With banks we allow them to create money tokens only if the entities for whom they create the new money have assets to sell or the entities can earn money. All this remains the same.
We can reduce the cost of loans or financing by using zero-cost money tokens. We make loans where we only return the tokens we have borrowed — no more and no less. We give a return on borrowed money by giving more goods and services for fewer tokens. Loans with this principle save the cost of interest, dividends or capital gains. The loans still give a return by supplying more goods and services. The value of the extra goods and services can be the same as interest but without the extra cost. It means loans of this type are cheaper by the cost of interest, dividends or capital gains saved while still giving the same value in returns.