Evolution of Freedom
Part III: Positive Liberty - Chapter 32
Basic Expense
For the basic income to work, we have to come up with a practical way of taking as much money out of the economy every week as we pour in. This will keep the money supply stable and avoid currency-induced inflation. While increased demand and reduced supply can still push up prices, in principle, this should be compensated for by falling prices elsewhere. By putting a hard ceiling on the float of the currency, the money we create retains its purchasing power and value.
If the money we issue is called the basic income, the money we extract should logically be called the basic expense. The basic income is paid for by the basic expense. In terms of thermodynamics, the basic expense represents the entropy that happens when energy is transferred from one entity to another.
There are at least three conceivable ways we could implement the basic expense:
If the money we issue is called the basic income, the money we extract should logically be called the basic expense. The basic income is paid for by the basic expense. In terms of thermodynamics, the basic expense represents the entropy that happens when energy is transferred from one entity to another.
There are at least three conceivable ways we could implement the basic expense:
1) as a transaction fee, which deducts, say, 10 percent at the point of every transaction;
2) as a negative interest rate, or a form of demurrage, which devalues deposits at a steady pace; or
3) as a carbon tax, where the cost of money creation is borne by carbon consumption.
2) as a negative interest rate, or a form of demurrage, which devalues deposits at a steady pace; or
3) as a carbon tax, where the cost of money creation is borne by carbon consumption.
Personally, I prefer the transaction fee model because carbon taxes could serve another important function and because the negative interest rate doesn’t have time to do its job in a week.
When we learn to extract as much money from the economy as we put in, we keep the float of the currency flat. This is best done by standing subscriptions that allow money to flow from one account to another without any delay or friction.
This way, as soon as the UBI is deposited in everybody’s accounts, the money flows through the economy in an instant until the 10 percent transaction fee has completely extracted the UBI from circulation, leaving behind temporary bilateral debts and credits that are eventually settled with goods and services.
As we take out money from one end while pouring in more from the other, we also create an artificial circulation that mimics the circulation we find in nature. Money flows through the subscription-based arteries and slowly dissipates as it is eaten away by the basic expense, only to return to everybody’s accounts as the weekly basic income. This starts the process all over again. This simulates a renewable and circular flow that is analogous to the way the Sun’s energy circulates through the ecosystem until it is lost to heat. Another analogy is the way the heart pumps the same blood around the body over and over again delivering energy and nutrients.
To illustrate how the basic income and basic expense work, let’s first imagine you get to write a personal check but that money is never charged to your account. Instead, that money becomes legal tender, meaning that every recipient of that check can use it like it is money. The person you hand the check to doesn’t have to deposit it in the bank but can use it to pay for goods and services directly. Essentially, you’ve printed your own personal money and, by spending it, put it into circulation.
Now, imagine that every time your check changes hands, a 10 percent slice is cut out of it with scissors. With the first cut, a $100 check turns into a $90 check, then an $81 check followed by a $72.90 check, until, after numerous transactions, it’s worth less than one percent of the original sum. The value of the check slowly decreases as it changes hands. This 10 percent slice is called the basic expense, and it is what ultimately pays for the basic income. The basic income is received in a 100 percent installment, but the basic expense is paid in multiple 10 percent increments.
Let’s then imagine that it is not just you who gets to write a single free check but that everybody gets to write one every week. Without the basic expense, however, the system would quickly be flooded with so many checks that people would value the goods and services more than the checks. As a result, inflation would set in, raising prices. As the law of supply and demand states, money, too, acquires its value from scarcity.
This is why the basic expense plays such a vital part in making it all work. It’s easy to understand that when the old check has been completely cut up, you can write a new check without adding any new money into the system. In fact, the purpose of the basic income and expense system is to produce neutral liquidity that makes goods and services exchange hands. This way, the free money we create is both abundant and scarce at the same time. Everybody gets free money weekly, yet no new money is added to the float. This example shows how the principle of free money works. It is not magic or a hoax, but easily achievable. The free money proposed here is not a check, of course, but an electronic cryptocurrency.
The basic expense is what makes our monetary system compatible with the laws of thermodynamics and enables the circular flow of energy/matter we find in nature. We essentially create a stable pool of energy, which is siphoned off with every transaction the way energy is lost to entropy. Since no energy is ever destroyed, we direct this dissipated energy back to its original source in a closed virtual system. This way, we don’t create new energy except once at the start of the system. We can sum up the hypotheses about the properties of the ideal cryptocurrency as follows:
When we learn to extract as much money from the economy as we put in, we keep the float of the currency flat. This is best done by standing subscriptions that allow money to flow from one account to another without any delay or friction.
This way, as soon as the UBI is deposited in everybody’s accounts, the money flows through the economy in an instant until the 10 percent transaction fee has completely extracted the UBI from circulation, leaving behind temporary bilateral debts and credits that are eventually settled with goods and services.
As we take out money from one end while pouring in more from the other, we also create an artificial circulation that mimics the circulation we find in nature. Money flows through the subscription-based arteries and slowly dissipates as it is eaten away by the basic expense, only to return to everybody’s accounts as the weekly basic income. This starts the process all over again. This simulates a renewable and circular flow that is analogous to the way the Sun’s energy circulates through the ecosystem until it is lost to heat. Another analogy is the way the heart pumps the same blood around the body over and over again delivering energy and nutrients.
To illustrate how the basic income and basic expense work, let’s first imagine you get to write a personal check but that money is never charged to your account. Instead, that money becomes legal tender, meaning that every recipient of that check can use it like it is money. The person you hand the check to doesn’t have to deposit it in the bank but can use it to pay for goods and services directly. Essentially, you’ve printed your own personal money and, by spending it, put it into circulation.
Now, imagine that every time your check changes hands, a 10 percent slice is cut out of it with scissors. With the first cut, a $100 check turns into a $90 check, then an $81 check followed by a $72.90 check, until, after numerous transactions, it’s worth less than one percent of the original sum. The value of the check slowly decreases as it changes hands. This 10 percent slice is called the basic expense, and it is what ultimately pays for the basic income. The basic income is received in a 100 percent installment, but the basic expense is paid in multiple 10 percent increments.
Let’s then imagine that it is not just you who gets to write a single free check but that everybody gets to write one every week. Without the basic expense, however, the system would quickly be flooded with so many checks that people would value the goods and services more than the checks. As a result, inflation would set in, raising prices. As the law of supply and demand states, money, too, acquires its value from scarcity.
This is why the basic expense plays such a vital part in making it all work. It’s easy to understand that when the old check has been completely cut up, you can write a new check without adding any new money into the system. In fact, the purpose of the basic income and expense system is to produce neutral liquidity that makes goods and services exchange hands. This way, the free money we create is both abundant and scarce at the same time. Everybody gets free money weekly, yet no new money is added to the float. This example shows how the principle of free money works. It is not magic or a hoax, but easily achievable. The free money proposed here is not a check, of course, but an electronic cryptocurrency.
The basic expense is what makes our monetary system compatible with the laws of thermodynamics and enables the circular flow of energy/matter we find in nature. We essentially create a stable pool of energy, which is siphoned off with every transaction the way energy is lost to entropy. Since no energy is ever destroyed, we direct this dissipated energy back to its original source in a closed virtual system. This way, we don’t create new energy except once at the start of the system. We can sum up the hypotheses about the properties of the ideal cryptocurrency as follows:
17. The money we create should be shared equally with all citizens in the form of a UBI.
18. The total amount of money in the system should remain constant per citizen.
19. The money we create should be regenerative and simulate a circular flow.
20. When money changes hands, part of it should be lost to the simulated entropy we call the basic expense.
21. The money that is lost to entropy should circulate back to its origin to create a closed system circular flow.
18. The total amount of money in the system should remain constant per citizen.
19. The money we create should be regenerative and simulate a circular flow.
20. When money changes hands, part of it should be lost to the simulated entropy we call the basic expense.
21. The money that is lost to entropy should circulate back to its origin to create a closed system circular flow.
What makes a well-functioning market so powerful is its ability to generate collective intelligence. The information provided allows millions of people to coordinate their behavior without a central authority. For the marketplace to confer its full benefit to humankind, it needs to be neutral. A free and fair marketplace is actually a carefully regulated playing field that treats all players impartially. Without this structure, the vital signals it sends will be distorted.
