The Morality of Making Money

The Morality of Making Money

The money supply in Australia increases by at least 10 billion dollars each month. What does this actually mean? As money can be considered a measure of wealth it means Australia could be considered to have become wealthier by 10 billion dollars. This is new money that does not yet represent assets but promises of assets to come in the future. The Reserve Bank creates some money to loan to the banks who then create some more by loaning out more money than they have on deposits so 10 billion dollars+ is “made” each month. 
Who gets access to this money? By and large it is the people who already have money. That is, we give it to people who already have wealth and we give it for a small fee and we expect them to use the money wisely and to pay it back. We do not give it to people who have no wealth whether or not they are willing to pay the small fee.
This is fundamentally unfair. Surely in a just society we should give new money to people who have little wealth and we should give it for no fee.
We don’t because we are told that the poor will just spend the money on consumption and will not invest the money in ways to increase the total wealth of the country.
What if we could ensure that all the new money we create was given to those who had less wealth and if we could ensure it was invested in ways to increase the wealth of the country and in a way that would stop inflation of the general currency and leave the financial system intact? Wouldn’t this be a more moral way of “making” money?
We can do this and we can start doing it tomorrow. We can start in a small way and experiment to ensure it works as expected but it is worth a try particularly if we use the money to address climate change.
Let us run the experiment in Canberra which has about 1/50th of the population of Australia. If we assume we are going to create 10 billion each month then this would be $200M for Canberra but instead of creating $200M let us create $50M per month as a trial and let us distribute some of the money say $40M to the people in Canberra who consume on a per head basis the least amount of mains electricity. Let us call this money Energy Rewards. Let us now require that money to be INVESTED in ways to reduce greenhouse gas emissions either through reducing energy consumption or investing in ways to generate greenhouse gas free energy.
Let us create some other money and let us call it Water Rewards. Let us require that Water Rewards be invested in ways to reduce water consumption. This will solve the water problem and remove the need for restrictions.
Of course if you can’t be bothered investing your Rewards you can sell them for a discount to someone who can.
To see more about this idea go to
and there are many other items on that are on the same theme.

A Competition for ideas to benefit the world

Google has opened a competition for people to give ideas freely to benefit the world. The competition is at

We have entered the competition and our video can be found at

10. What one sentence best describes your idea? (maximum 150 characters)

Reward individuals for consuming less but require the Rewards to be spent on ways to benefit the whole community while helping the individual.

11. Describe your idea in more depth. (maximum 300 words)
Most economic systems encourage individual consumption at the expense of community investment. They are built around the idea of each individual attempting to gain the maximum benefit for themselves without reference to others. This is contrary to human nature where individuals have an emotional need to share with others. All societies have traditions of altruistic gift giving but our modern economic systems have evolved to discourage cooperation and sharing as part of our everyday transactions.  The idea of Rewards is to enhance and increase the opportunities for people to share by Rewarding people for doing with less and requiring them to spend their Rewards to the benefit of the whole society as well as to their own benefit.
We can use Energy Rewards to reduce greenhouse gas emissions. A community decides how much money it wants to spend on reducing emissions and pays this amount of money in inverse proportion to the amount of household mains electricity used by each person. The less mains electricity a person uses the more Rewards they earn. The Rewards do not earn interest and must be spent in the market place of greenhouse reducing infrastructure. Examples could be the insulation of a house, installing a solar panel, buying new shares in a solar thermal large scale energy plant or new shares in a wind farm. The market place is an electronic market place so we ensure Rewards spending compliance.  Buyers and Sellers are volunteers and if anyone disobeys the rules they are excluded from the marketplace.  A developed country community would be emissions neutral within 20 years if it issued an average of $1500 in Rewards per person per year – and it would produce its energy for half the current cost.

12. What problem or issue does your idea address? (maximum 150 words)
Any economic activity that affects a community can be made more effective if it incorporates a form of Rewards.
13. If your idea were to become a reality, who would benefit the most and how? (maximum 150 words)
All humankind will benefit. We know we can reduce greenhouse emissions to zero within twenty years with an increase in wealth for the whole of society. We know we can truly eliminate poverty throughout the world. The system will benefit any community economic activity as Rewards solves the “Tragedy of the Commons” by directing economic activity to investment not consumption.
14. What are the initial steps required to get this idea off the ground? (maximum 150 words)
The Rewards infrastructure needs to be constructed, implemented, deployed, tested and refined in several communities. We could start with Water Rewards, Car Pooling Rewards and Energy Rewards. The systems should be deployed in communities in different parts of the world at different stages of economic development to prove the universality of the approach. We have designed and partially built a framework to implement Rewards systems. The only criteria for Rewards is that a community has a functioning telephone system that people can use to connect to the Internet – and the political leadership to implement a system.
15. Describe the optimal outcome should your idea be selected and successfully implemented. How would you measure it? (maximum 150 words)
Energy Rewards outcome would be measured by the reduction in Greenhouse gas emissions for a given level of economic activity within an adopting community. Water Rewards would be measured by the removal of water restrictions from a community for no increase in total costs. Car Pooling Rewards would be measured by the increase in the use of public transport and the increase in the average number of people per car trip for no increase in total expenditure. Garbage Rewards would be measured by the reduction in land fill. Fat Rewards would be measured by the drop in childhood obesity.

18. If you’d like to recommend a specific organization, or the ideal
type of organization, to execute your plan, please do so here. (maximum
50 words)

I recommend Edentiti a company I founded to give individuals control over their online information. Rewards requires an implementation organisation that wants to facilitate not control and an organisation that is willing to cooperate and share with others.

Chapter 5 – The Question of Water

The Question of Water

The problem with water restrictions – A system to reduce water demand –
Logistics – Cost savings and calculations

“There are growing pressures upon urban water supplies, boosted by increasing urban populations and the recurrence of droughts. All levels of Government, industry and households have an important role in conserving urban water resources.”

Urban Water Use Factsheet Department of the Environment, Water, Heritage and the Arts
Australian Federal Governments

“In an age when man has forgotten his origins and is blind even to his most essential needs for survival, water along with other resources has become the victim of his indifference”

Rachel Carson

“Recent drought conditions across Australia have significantly depleted water storages in most urban centres. While the recent drought has been abnormally severe, current urban water shortages are indicative of a broader long-term trend of increasing urban water scarcity in Australia. This trend has been driven by a gradual long-term decline in mean inflows into storage, increasing demand because of population growth and minimal additions to supply capacity.”

ABARE report: Urban Water Management: optimal price and
investment policy under climate variabilit,
Neal Hughes, Ahmed Hafi, Tim Goesch and Nathan Brownlowe
August 2008

The problem with water restrictions

The early years of the 2000’s have confirmed that Australians do not like water restrictions as a means of reducing water consumption. Restrictions are fundamentally unfair and are disliked by both the authorities and the population, so why do we continue to use them as our primary means of controlling water use during periods of shortage – especially when the normal economic response to a shortage is to allow price to act as the rationing mechanism? Unfortunately authorities are all too aware that the community also dislikes the price of water increasing over the cost of supply because it is seen as a tax on a community resource .

For pricing to work to reduce consumption, the price of water would have to increase substantially above the cost of delivery before it could achieve the same level of reduction as restrictions. But this raises another question of fairness: Should those who can afford to pay be given greater access to a community resource that is necessary for life and seemingly free? It’s a concern that has made the concept of demand management for water politically difficult to implement.

There are times, however, when authorities do increase the price of water to fund new infrastructure or they put in place differential pricing structures depending on how much water is used per meter. Both of these measures are generally accepted as fair and reasonable.

Applying the concept of Rewards to the question of water use is a way of addressing all the above problems and doing it in the most economically efficient manner possible. It achieves this by using price as a demand management tool, by using money as a Reward to reduce consumption of water and by using a free market in ways to efficiently increase the supply of water.

A system to reduce water demand

Water Rewards can be implemented within any community or catchment in the following way:

  1. When it is decided that Water Restrictions are needed, determine the desired level of consumption rather than introducing arbitrary restrictions. Then set the price of water so that the price works to reduce demand to the level required. This would most likely involve tiered pricing that places an additional cost on any water used in excess of the desired consumption level.
  2. The extra money collected over and above the cost of supply is put into a Water Rewards fund.
  3. Money in the fund is distributed to the population as Rewards in inverse proportion to the amount per head consumed.
  4. Stipulate that Rewards may only be spent in an electronic marketplace on ways of saving water or increasing supply.
  5. Allow Rewards to be traded. This ensures that those who cannot think of ways of investing the Rewards still receive some (discounted) benefit for reducing their water consumption. The market and water authorities also gain through through the expenditure of Rewards on ways to further save water or increase the water supply.


Water Rewards would not have to be set up by the Government and could easily be controlled by a body external to the local Water Authority. It will however require a board to control policy and should involve representatives from the Government, the Opposition, the Water Authority and the community. This organisation could then – in consultation with the Water Authority – set the amount of money to be collected and distributed as Rewards.

This means that the average price of water stays about the same but that the high consumers pay for water at a higher average price.

Exactly how the Rewards are distributed is a decision for the board, but one suggestion is to issue them in inverse proportion to the amount of water consumed per head.

Mindful of the need for fairness, no-one will have join a Water Rewards system unless they choose to. Participants will also need to be aware that once they have signed up to the system, they will incur some reporting obligations including the need to nominate how many people are linked to their particular water meter.

Similarly, merchants will be under no compulsion to accept Water Rewards for payment. Their involvement is purely voluntary and, like the participants, they will incur reporting obligations. The most important of these is the need to specify what products and services they are offering to redeem for Rewards, and their assertions as to how much water these products and services will save or generate.

If either a Rewards holder or a Rewards merchant goes against the rules of the system they will be excluded from participating for a period of time.

Ease – of enrolment, managing water savings, redeeming Rewards and managing overall involvement in the system – will be critical to attracting participants and to the overall success of the system. Therefore, enrolment must be kept simple such as via a phone call requiring the supply of a small amount of data about the household receiving Rewards.

Ideally Rewards recipients should be able to “set and forget” their Rewards accounts. Having enrolled, the consumer should experience little change other than to receive an account of Rewards that can be spent on anything in the Water Rewards electronic marketplace. It’s not greatly different to the idea of saving up breakfast cereal coupons or frequent flyer rewards to redeem them against a preferred item from a periodic catalogue. It’s just that with Rewards, the goods and services benefit both the consumer and the community.

Cost and Savings Calculations

The price elasticity of water varies from country to country and from state to state. According to the Grafton and Kombas 2007 estimate, price elasticity within the Sydney catchment is generally estimated at around 30 percent. This means that if the price of water is increased by 100 percent, demand will drop by 30 percent.

Projects approved in recent Commonwealth government community water grants also show that for every $10 spent on water saving and water recycling infrastructure we typically save or increase supply by 1 kilolitre per year.

Each Water Rewards system will have its own requirements, but for the sake of example, let’s assume that we are setting up a system in a community that needs to achieve a 20 percent reduction in water consumption within six years. Our starting point is the current average price of water, which is $1.50 per kilolitre. The next thing we need to identify is how much do we need to increase the price of water to achieve our targeted reduction?

According to the elasticity estimate, a 15 percent increase in the price of water will achieve a 4.5% reduction. The money distributed as rewards is likely to cause a reduction of 15% and the money invested in water harvesting, recycling and reuse will save another 11% within six years. The advantage of the scheme is that the price can be increased and decreased according to anticipated demand and supply.

Each $1 Reward will deliver a return of 15 cents per year forever. This means that Rewards will be traded at close to par value. It also means that while community members will have to cope with an initial 15 percent price increase for their water, the result will be an effective net cost reduction due to the ongoing return stemming from the investment of the Rewards.

It also means that many people will invest more money than they receive in Rewards as it gives them a way to get a good return on investment.

How can this be?

What happens with Water Rewards is that the monopoly on water supply by a single authority is broken and the profits from supplying new water and saving water will accrue to individuals who spend Water Rewards, as opposed to profits automatically going to the government and the Water Authority. Of course this also means it is difficult to get such a scheme introduced because the Water Authority and the government are the controllers of the community resource and believe they have an automatic right to the profits – which can then be spent on other goods and services instead of the supply of water.

And the cost to operate such a system? Modern technology makes Water Rewards very affordable. Why else would so many companies model marketing campaigns on similar schemes? Our recommendation is to take a lesson from the credit card companies and recoup the costs of the system from the merchants who wish to offer their water saving goods and services goods to Rewards holders.

Water Rewards is an eminently achievable system but breaking the government/authority expectation of revenue will be difficult. We are confident however that as the problem of urban water management grows under the combined impact of global warming and population pressure, Water Rewards will make headway as a fair and politically acceptable solution that delivers measurable results for the community. 

Letter to the Editor CT 8th October

David Alexander in CT 6th October discusses how the Reserve Bank controls inflation and the money supply by increasing and decreasing interest rates. Most people wonder how increasing the price of something reduces inflation? The reason is that increasing rates reduces the attractiveness of borrowing money to invest. However in uncertain times where banks are loathe to lend then the Reserve Bank drops interest rates to encourage lending but at the risk of increasing inflation. As we have seen the blunt instrument of a rate rise or fall is very much a hit and miss affair. A much more certain way to increase investment while still controlling inflation is to issue some money at zero interest but require it to be loaned to people who must spend the money in the market place of infrastructure to reduce greenhouse emissions. This money will turn into a productive asset whose output has a guaranteed demand, will turn a profit because of the low interest rate and hence cannot increase inflation. This is much much simpler and cheaper than setting up an emissions trading system to encourage investment in renewables and it can be done tomorrow. A few calculations show that this method can give us zero emissions within ten years with no price increases in energy while keeping inflation low.

Letter to Editor CT 5th October

Bruce Peterson (CT 4th October) is right in his analysis of the
reasons why the world is facing a financial crisis. Too many loans
have been given for price inflated houses. Australia is in a similar
situation as the USA but we have been shielded by the China boom and
by the fact that mortgagees in the USA can walk away from their houses
and leave the house as payment for the bank. If the same rules applied
in Australia then many people with large mortgages, little equity in
their houses and with high interest rates would desert their houses.
Australians cannot do this as their debts follow them and so we have
not had a rapid deflation in house values. However, we still suffer
from over inflated house values and sooner or later the value of
houses has to come down – probably through inflation of the currency.
A solution to the problem is for the Reserve Bank to issue special low
interest money to banks to be loaned to build real assets. For example
the low interest money has to be spent on building a new house or it
has to be spent on building renewable energy infrastructure. This
would avert an Australian financial meltdown, make houses affordable,
remove the need to introduce an emissions trading scheme, and reduce
inflation. It is really very simple and is a great opportunity for
political parties to unite on a common cause.