The world’s monetary system is an amazing invention and it has enabled society to develop and advance. It has done this by creating a system that turns natural and human resources into things of value to society. The monetary system drives the consumption of resources because it creates money that is then invested in ways to turn raw materials into things of value.
This system works well when there are abundant raw materials but it fails when there are limited raw materials.
The monetary system needs to be adjusted so that it expands value while at the same time using fewer raw materials. We need a system where consumption of consumables can expand but consumption of raw materials will drop. We need a system where we do more with less.
The secret to such a system lies with our monetary system as it is the enabler of investment.
The current monetary system expands the money supply by monetizing assets. That is, money increases when credit is granted. Loans of money are granted if someone has an asset of some sort that can be sold if the money is not repaid. The monetizing of assets is meant to control the amount of money that is created. Loans are meant to be used to create new assets so that the loan can be repaid.
The reason the monetary system is failing us is that the money supply has increased way beyond the value of productive assets created with the new money. We have many times more money than we have productive assets. This excess of money is accommodated in various ways. In a period of expansion it happens by monetizing many raw resources not currently in use. This is the labour of the population, water, land and all the naturally occurring minerals, plants and animals. What happens is these natural resources are monetized through the use of loans.
We also create non productive asset value through asset bubbles. We create assets that are derivatives of other assets. Monetizing non productive assets is the main way the money supply is increased.
The excess money is also accommodated by the system slowing down the rate at which money circulates. This has the effect of moving money from those who use money for trade to those who already have assets because new money is only given to those who already possess assets.
Other excess money is absorbed by making each unit of money lower in value.
We need to change our monetary system so that the money supply more closely matches the productive assets in existence. We also need to change our monetary system so that an increase in the money supply increases productive assets while consuming fewer naturally occurring resources.
We can do this by making any increase in money supply, that consumes less resources, less expensive than increasing the money supply that turns finite resources into money. Such a monetary engine can drive society towards sustainability with increased consumption of goods and services of value. Such a system will increase the rate of circulation of money and with it the spreading of assets throughout society and such a system can stop inflation of the money supply.
These objectives can be achieved by increasing the money supply by investing in productive assets that reduces the consumption of natural resources to achieve the same consumable output. We can do this by issuing interest free loans to those in society who agree to invest money in such assets.
The current system increases the money supply by the difference between loans granted and loans repaid. Money created this way earns interest the moment it is created. It is thus more expensive than interest free money.
By having an adequate supply of money created with interest free loans we will reduce the amount of money created by monetizing natural resources and with it the exploitation of natural resources. Of more importance to the excess of money supply it makes it unprofitable for creators of derivatives to increase the money supply. Derivatives can still operate using existing money tokens but they will find it less attractive to create expensive new money.