[p2p-research] excellent contribution on flow money by Martien van Steenbergen
Michel Bauwens
michelsub2004 at gmail.com
Wed May 20 09:32:20 CEST 2009
This contribution seems to have been rejected by the mailing list software,
so I'm forwarding, it's an excellent explanation of what is wrong with a
system based on compound interest.
I'm really looking forward to seeing the other side of the story, especially
the results of Ryan's research on the topic,
Michel
---------- Forwarded message ----------
From: Martien van Steenbergen <Martien at aardrock.com>
Date: Wed, May 20, 2009 at 1:50 AM
Subject: Re: [p2p-research] Fwd: [ox-en] No more money trickery propaganda
please
To: Michel Bauwens <michelsub2004 at gmail.com>
Cc: Stefan Merten <smerten at oekonux.de>, p2presearch at listcultures.org
To throw some more oil on the already bright fire...
Compound positive interest is a system wide exponential pump that
increasingly flushes money from the poor to the rich. It compells us to grow
beyond sense. It results in Obsessive Compulsary Growth Disorder, if you
will.
This can be proven by mathematics, simulation and experience (as we all feel
right now).
Don't get me wrong, growth, development, evolving is good. But only
asymptotinc s-curved growth, not only exponential unlimited growth.
If you want to destroy a community, introduce a monetary system where money
can be owned (‘saved’) and with compound positive interest. Introduce it in
such a way, that people are willing and able, eager even, to play this
system. Mankind has succeeded in that.
Our current monetary system is like a cancer with metastasis into the
smallest corners of our system. It cannot be treated. No irradiation, and no
cutting will help. In fact, it will only fuel its self-destruction. Future
monetary crises and crashes will happen more frequent, faster and will be
deeper. The worst has yet to come, Schopenhauer would say.
Compound positive interest also makes each and everyone extremely
short-sighted. The economy at large warps itself into short-term profits and
utter efficiency. Exact the opposite of sustainability, durability and
long-term wealth (in the non-financial meaning).
It's extreme focus on efficiency makes the system as a whole brittle and
oversensitive to small changes. Flourishing systems have their dynamic
balance somewhere in the middle between chaos and order—chaordic—with a
slight preference for the chaotic side. Chaos is creativity searching for
order. Likewise, order (efficiency) is destructivity searching for chaos.
The sweet spot is an area (not a point) in the middle.
This short-sightedness is due to the economist's Net Present
Value<http://en.wikipedia.org/wiki/Net_present_value> calculations.
Suppose you invest €1000 to obtain an annual revenue of €100 during a period
of 15 years, so €1,500 in total you might think.
An economist however will tell you that €100 in a year will be worth €91 now
(with an interest rate of 10%). The €100 in year 2 will be worth €83 now and
in year 3 €75, and so forth. The €100 in year 15 is worth a meager €24 now.
All in all, in 15 years, the total Net Present Value of the revenue will be
€761, resulting in a loss of €239. In other words, not a profitable
investment.
This affects our behaviour to short-term financial gains. Combined with the
interest pump from poor to rich, this leads to an instable and brittle
system.
Enter ‘flow money’ (a.k.a. demurrage of liquidity tax). Technically, flow
money is a negative compound interest. Using exactly the same calculations
and formulas as our economist did in the previous example and an interest of
–10%, the first €100 is worth €111 now, the 2nd €123 and the 15th €486,
adding up to a total of €3,857 and a profit of €2,857! Break even is during
year 7.
Together with the effect that your balance trickles away (into a larger
commons fund), this affects our behaviour in such a way that we will:
1. tend to spend our money sooner rather than later (since our buying
power now is greater than tomorrow), resulting in a lot of employment
opportunities, no more unemployed; and we'll chop the forest later rather
than now, since we don't want the money now as it will seep away;
2. prefer sustainable, durable, resilient an dlong-term projects over
short-term ones; it gives all of us vision; we can see clearly now;
3. closing the gap between the rich and the poor; in fact there are only
wealth people and som very wealthy people; and our planet replenishes itself
too.
If we can also get rid of the capacity to ‘own’ money, and we only use money
for payment and measuring products and services, than no one is poor. Use
money just like we use centimeters. We're never short of centimers (or
inches or lightyears for that matter). Everyone is as wealthy as their
activity in the community, small and large.
Your monetary balance does not matter anymore, since it is of no value to
own money; you can't even own it. What does matter is the number of times
you touched zero when trading (either or not changing sign), since at
precisely that moment you have contributed to the community the exact amount
as the community contributed to you. You are in balance with your
environment (that serves you so good and abundant).
Every time you touch zero, your ‘trustwidth’ increases, since you just
proved to balance your consuption woth your contribution. The trustwidth is
parameterized by your turnover until now, a (damping) factor and a
connectivity index (derived from the relative number of others you traded
with; to avoid kartel and free riding). Just like with flow money, your
trustwidth diminishes, decays, over time. So you need to stay active and add
value to your environment to keep up your trustwidth.
The trustwidth (like bandwidth) are the ‘credit’ and ‘debet’ limits for safe
trade. Of course, if you like risk, you can go beyond someone's trustwidth,
but you know that you risk losing your extra investment.
It's just like scaling up micro credit to meso and macro credit. With our
current technology level, it is a relative pievce of cake to implement a
global digital chartal spreadsheet system (which is all we need;
mind-boggling cheaper than all these expensive banks and their emplyoees who
don't even understand their own products anymore).
This (non-monetary) balance is essential on all scales as well. Just as the
individual needs to balance receiving and giving to the community, the
import and export of countries should enjoy a dynamic (chaordic) balance.
Overshooting in either direction destroys your credibility als a good
citizen or global player. Too much import increases your ‘debt’ to other
countries, your promise to do something back. Too much export hoards
employabilty, depriving other countries from adding value and wealth to the
world at large.
The balance and trustwidth are similar to energy economics (a topic on this
list some time ago if I recall correctly).
My quest is to find:
- the extremely elegant formulas that take any financial transaction log
and calculate the trustwidth between which a player can safely trade;
- how to connect two ecowebs that have so far been developing
independantly and suddenly touch;
- design an immune system that keeps the system as a whole healthy, even
when (severely) attacked;
- the distributed, decentralized, peer-to-peer layers of infrastructure
and humanstructure that make it feasable and completely self-everything
(organizing, healing, supporting, etc).
- the way to have a holarchy emerge that use a cascade of flow money for
ever larger commons activities, up to the global level, while embellishing
local wealth and unfolding.
Succes en plezier,
Martien.
P.S. I've been plannig to write this up for a long time; I just now took 30
minutes or so to flow it out of my head into typing; so it's still quite
rough.
On 19 May 2009, at 09:22 , Michel Bauwens wrote:
Stefan,
you persist in wanting me to say that a cushion produces interest, obvious
nonsense
again, I do not want to enter in that game,
obviously, if you had read the sentence as it was intented, in context and
given the long previous arguments, you would have understood that keeping
meant, keeping in the bank, in order to get interest, in other words the
opposite of your nonsensical misinterpretation, which for some mysterious
reason, you want to hold on to, even after repeated denials and explanations
of my part. Assuming that you misread it once, what can be a possible
explanation for holding on to that misinterpration after so many
corrections????
(the reaction of a normal person would have been: "sorry to have
misinterpreted your phrase and having gotten into a irrational fit, I
apologize, now let's move on and learn from each other's arguments")
so let me repeat, perhaps this time in very simple terms, what the essential
argument is, about the role of interest
So, let's assume we have a negative interest rate, as was the case for the
Worgl shilling, in the first renaissance of high middle ages, or in ancient
Egypt.
What happens for example in egypt is that you bring your rice to a depot,
you get some 'vouchers' in return, but they loose some of their value every
year, because of the price of stockage, and also, a certain profit for the
mediator. In the middle ages, if I recall correctly, every four years, you
had to change five coins for four. Same principle.
In this context, hoarding money makes no sense, because it loses value over
time, it 'rots', just like real commodities do. Historically what people
would do is to re-invest in the productive economy, and the high middle ages
are known for their high rate of technical innovation i.e. sometimes called
the 'first industrial revolution', relatively high living standards such as
a five day working week with extra 'blue monday' as day off for the family,
long skeletons in cemeteries indicating good heatlh, etc.., a doubling of
the population in 3 centuries, reclaiming and expansion of large swaths of
formerly unproductive land). This system puts a break in the accumulation
process, because accumulation loses value. The market is kept in check and
does not outgrow the rest of the economy. Since your money is worth more
today than say in ten years, you invest it, and this is in part the
explanation for the crowdfunding of the Gothic cathedrals. This is actually
what good money is intended to do, not to be used in speculative,
non-productive activities, but to be used in the process of production
itself, to enhance the living standards of all.
Now say you replace this system with centralized royal money, with a
positive interest rate. It now becomes interesting to keep your money, to
hoard it, not in a cushion of course, don't be silly, but in the bank; or
better yet, to become a banker yourself and to lend the money out. This way,
without working yourself, you are getting rich while those that work have to
pay a rent to you. This system strenghtens the tendencies for accumulation,
created the conditions for increasingly centralized royal power, and created
the deteriorated social conditions that started in the 14th century.
But the systemic effects of compound interest are wider than that. If you
lend out that money, and I have to pay your back approximately double in
twenty years, which is about the going rate for buying a house now (or at
least it was when I bought mine), even with inflation, you are going to need
substantially more money than you have now. The result is that it destroys
any possibility for a balanced growth economy, since that extra money has
only two possible sources:
- either you get it from people who have it in a static economy, in which
case you create absolute poverty
or:
- you create a growth economy, i.e. capitalism, in which noboby can stand
still, and so, you get the extra money from the ever-growing pie.
Please, PLEASE, do not start now talking again about your cushion, and read
again the section about keeping, without taking it out of context,
Michel
On Mon, May 18, 2009 at 5:19 PM, Stefan Merten <smerten at oekonux.de> wrote:
> Hi Michel!
>
> Now I am really upset!
>
> 2 days ago Michel Bauwens wrote:
> > read the sentence again, use your brain,
>
> I find it ludicrous that *you* ask *me* to use my brain. Obviously you
> stated nonsense and now *I* shall use my brain? COME ON!!!
>
> > and use the full context of the
> > dialogue to understand that interests makes it indeed interesting to keep
> > your money in the bank.
>
> If you give money to the bank then you do **NOT** keep it. This very
> sentence you wrote just makes no sense. It's nonsense again. And it's
> propaganda again because it is only said this way to invoke a feeling
> of injustice in simple-minded people. It hides facts to make a certain
> ideology look more logical and "just". It may not be your intention -
> and frankly I hope it is not your intention. But it is the intention
> of those you have this propaganda from.
>
> If you give your money to the bank in fact you may get your money back
> *under certain conditions* being part of a contract. If you are in bad
> luck you may even not get it back at all, however - as people learned
> during the latest financial crisis once again.
>
> If I *keep* my money there is no such risk. I just keep it.
>
> It is very easy to see that there is a major difference here. In fact
> it is the difference between a pre-capitalist fortune keeper - who
> really keeps her fortune - and a capitalist - who applies her fortune
> by giving it to others to make profit.
>
> > Explain to me how you would get interest under your
> > cushion, I would be very very curious.
>
> Sorry, it was *your* claim that keeping money raises interest. If this
> would be true then I can keep it under my cushion with the same
> effect. I'm just taking your statements serious.
>
> Taking statements serious is a simple necessity in a scientific
> approach. To think about what a statement actually means is a very
> simple test of an assumption against reality. It is basic scientific
> work - by which you are obviously shocked.
>
> > I'm trying to put the conflict behind,
>
> I have no conflict with you. To me all this feels very much like
> shadow boxing on your side.
>
> > but if you descend to such levels of
> > ridiculousness, it makes it very difficult.
>
> I'm really sorry Michel, but that it all but ridiculous. The question
> whether you can keep your money or need to give it to someone else -
> usually mediated by a bank but also in the form of shares - to get
> interest is the all-or-nothing question here.
>
> > Please, let's put that behind
> > thus.
>
> You are free to correct your statements so they make sense and - at
> best - match the observable reality. It would be far better than to
> leave the community just because someone says you are preaching
> nonsense.
>
> Frankly I'm curious how long it will take that you at least agree that
> you can *not keep* your money and get interest for it. In science that
> would be simply to recognize the observable reality and modify your
> basic assumption according to it. As you wrote above you are still not
> ready to modify your basic assumption - though you are now replacing
> your basic assumption with sentences which are inherently
> contradictory.
>
> With a scientific approach the next step would be to question what
> happens with the money you just gave to others. That would be the
> research step. And it would be easy because it is well-known that
> banks give money to capitalists in the form of credit. In turn the
> capitalists then apply it to labor force and machinery to produce
> products they can sell for a higher price than they had themselves for
> the input. The logical conclusion is that interest is a share of the
> profit of a capitalist. The amount of interest is directly coupled to
> the amount of expected profit and the risk involved to actually make
> this profit [1]_. In other words: What you are trying to accomplish
> with your [named above] stuff is what actually happens in capitalism
> all the time. It's in fact the very core of capitalism.
>
> .. [1] Of course in a fully expanded exchange system at the end of its
> life cycle like contemporary capitalism it is a bit more
> difficult. It's a interesting task to research that. But the
> general principle stays.
>
> I, Christian and others explained all that over and over again and it
> is really not hard to understand. In fact it needs no theory at all.
> It's all observable reality. But you constantly ignore this. Feel
> free. But don't be shocked if others call this nonsense or - when
> combined with an attempt to evoke certain feelings in simple-minded
> persons - even propaganda.
>
>
> Grüße
>
> Stefan
>
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http://www.dpu.ac.th/dpuic/info/Research.html -
http://www.asianforesightinstitute.org/index.php/eng/The-AFI
Volunteering at the P2P Foundation:
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Monitor updates at http://del.icio.us/mbauwens
The work of the P2P Foundation is supported by SHIFTN,
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