My Home The Economy

I share a flat with Vicky. Because I’m anally retentive I like to keep it REAL CLEAN.

I decide to implement a mini economy the main aim of which is to move Vicky’s lazy arse off the sofa to do some chores. The idea is that I issue tokens in return for work. I open a little tuck shop with various goodies which can be paid for in tokens. Just to make sure Vicky will actually want to earn the tokens I enforce a tax. She has to pay me a certain amount of tokens every week or I boot her out of the flat. OK, now there’s a built in demand for my tokens because of the tax. Of course Vicky can’t actually pay that tax until I spend them into the household economy first as I’m the only one who can produce them so I must start creating jobs and projects in order to initiate payments into the system.

The tokens appear in THREE forms. The FIRST is on a spreadsheet on my PC. Vicky has access to her balance on her PC. If I add tokens to her column on the spreadsheet they appear, as if by magic, on her balance. So if I pay her +10 tokens those are marked up in her account and marked down in mine. This is just simple accounting. In order to mark up her account I have to mark mine down. I run a DEFICIT. Of course I’m the monopoly issuer of the tokens so that deficit is meaningless to me. I actually have no more or no less tokens. Yes it says -10 tokens on my side of the balance sheet but this is not debt, I don’t owe anyone because of the minus sign, it is just a fact of accounting that where there is a credit there must be a corresponding debit. In fact for every minus on my side there must be a plus on Vicky’s side. My deficit will always equal her surplus. In other words when I run a deficit Vicky is getting richer. I can essentially mark up her account and mark mine down to infinity and I’ll have no more and no less tokens. Vicky, on the other hand, could end up having so many tokens that she no longer bothers to do chores and just mooches on the sofa all day and can still afford the tax. INFLATION problem. I need to spend just enough tokens for Vicky to be able to buy stuff at the tuck shop, pay the tax and be able to save a few tokens as well without negatively impacting the demand for more tokens.

The SECOND form my tokens can take is as physical tokens. My default is to issue them electronically using the spreadsheet but sometimes Vicky will want them this way. Let’s say another flatmate, Bob, moves in. Vicky and Bob might prefer to lend each other these rather than logging into their PCs every time they want to move tokens. Essentially these are just another version Vicky’s balance that she can access on her computer in physical form.

The THIRD and final form is as a BOND. For simplicity let’s just view the bond as a way in which Vicky can save her tokens and earn interest on them.

There it is. My economy in a nutshell. Look familiar? Well it should because that is pretty much the set-up here and in the States both of which have sovereign fiat currencies. This is the beauty of a currency that is both fiat and sovereign, it is not constrained by taxation or bond sales in order to spend.

In my mini household economy I can afford anything as long as it is denominated in my tokens just as the government is in the UK. Both economies are functionally identical. Neither are revenue constrained, in other words taxes and bond sales have nothing to do with how much money the currency issuer has at their disposable.

The idea that I could become insolvent in regards to my own currency is not only illogical but totally laughable. As should be obvious I can mark up numbers in Vicky’s account without limit. That doesn’t mean I should. There are real constraints based on the real resources available. But I can afford any and all of those resources if I choose to buy them. I can never run out of my own tokens.

And so it is with UK and US economies. “Living within our means” is an absurdity in the context of a currency you can issue without limit. In fact, at best it is economic illiteracy, at worst it is outright deception.