People Are Too Obsessed with Money
There’s nothing wrong with money, but it’s what you can buy with it that matters, more than how much of it you have.
People want more money. It’s not just people working at fast food joints, wanting increases in minimum wage, or politicians who promote minimum wage hikes, as if they’re the solution to poverty, but a lot of cryptoasset projects focus too heavily on getting “more money.” It doesn’t seem like this idea should be a problem. After all, more money means you can buy more things, right? Wrong. Money is simply an intermediary in the exchange process. It’s an IOU.
Of course, how a person spends their money is important, and how much people want or should focus on material goods vs experience is a complicated issue, but when it comes down to wanting money, what matters isn’t how much money a person has, but rather what they can buy with the amount of money that they have. That idea should be obvious from the examples of hyper inflation in the Weimar Republic and in Zimbabwe. People had a ton of money. And yet they needed wheelbarrows full of it to buy simple loaves of bread.
I only briefly touched on purchasing power in my discussion of blockchain based universal basic income. Proof of stake based systems, which distribute their inflation based on the amount of the asset already held by the individual, increases the supply, but does not alter the overall purchasing power of the individual. Distributing the asset eventually, on the other hand, takes purchasing power away from some and gives it to others.
This system can actually work, but it’s very tricky. Generally, it cannot be given for “nothing.” In order for individuals to not lose purchasing power, as the amount of an asset is reduced, the purchasing power of one unit of the asset has to increase. Unfortunately, all else being equal, the greater the supply of the asset, the lower the purchasing power it holds. Demand has to increase much more in order to compensate. This demand comes from increased economic activity and the greater ability for an economy to obtain new energy from the outside environment.
It is true that those with very little purchasing power tends to have a very hard time, and even small increases in purchasing power can have a significant impact on their ability to engage in the economy. The purchasing power to eat a healthy diet reduces health costs, thus reducing wasted energy in that regard. It also allows for better education which allows the person to be more productive. Therefore distributions can result in an increase in economic growth and purchasing power necessary to offset the inflation pressure. However, this distribution has to be carefully balanced.
Another example of uneven distribution which can result in zero net effects on purchasing power is a distribution to the infrastructure as a whole, to improve the quality of the infrastructure and increase adoption. As adoption increases, demand for the underlying currency will increase. This increase in demand will result in an increase in purchasing power, all else being equal.
Blockchain based solutions to universal basic income often fail to take into account how increases in the monetary supply can effect purchasing power. There are indeed benefits of increasing the purchasing power of the lower classes. Such increases can vastly improve economic efficiency. But “more money” is not the same thing as greater purchasing power. Parameters such as the rate of economic growth and demand for money need to be considered.
This article was originally posted on publish0x