Non Credit Money

In stagnant society, with no changes in economic rationality, the value of national product (PQ), which represents offer, is equal to demand, which is the product of quantity of money in circulation (M) and velocity of money circulation (V):

PQ = MV

Quantity of money in circulation (M) is equal to:

(P = price level = const.;  Q = quantity of products)

In a dynamic society, where economic rationality increases, there exist an increase in production (dQ) and offer (PO+PdQ) and a decrease in velocity of money circulation (-dV) and demand (MV+MdV), and that requires an additional quantity of money in circulation (dM), in order to preserve the equilibrium of offer and demand:

Required additional quantity of circulation money (dM) is computed by defining coefficient k:

Coefficient  k  represents the rate of increase of  quantity of money in circulation which is needed to obtain an increased production in the circumstances of  retarded velocity of money circulation.

Additional quantity of money in circulation (dM), being a percentage of quantity of money in circulation (kM), must be emitted as non-credit money, i.e. gift , in the form of pensions and children allowances.

Using a portion of this money, the amount being, an increase in production is obtained and this portion ends up as producers profit, while the amount of

, compensates the retarding in velocity of money circulation, and this portion represents consumers surplus, i.e. consumer profit.

The sum of incomes in a society is composed of incomes which are built into expenses, i.e. costs and incomes obtained from the additional quantity of money in circulation, which are then as non-credit money granted to the society, as surplus of utility obtained from the increase in economic rationality.

Sum of costs in a society (NC) is: new national product - profit:

Sum of incomes (NI) is: new national product + consumer surplus:

Today, money is put into circulation in the form of credits.

In credit money system, due to retarding of velocity of money in circulation, a shortage of money is a result, and this shortage causes crises of hyper-production or non-sufficient consumption.

As of mid 20-th century this problem is solved by an endless expansion of credit money and inflation. In the circumstances of credit money inflation at the same time we have a nominal equilibrium of social accounts, which satisfies the dogmas of traditional economic science, and real imbalance (in which the sum of incomes is greater than the sum of costs), which proves the theory of existence of surplus of utility and of non-credit money, because it is really a non-credit money that is emitted, in the form of credits, at least partially.

By establishing a system of emission of non-credit money, the equivalence of nominal and real values is realized, an endless price stability is secured without inflation and deflation, as well as maximum profits and satisfaction of needs of non-productive part of population from non-credit money emission (i.e. without burdening the production). This is a necessary condition of normal reproduction of a society where economic rationality increases. World order should be based upon this foundation.

Milton Friedman has empirically determined that velocity of money  circulation is constantly in retarding, but he has not noticed that the cause to this lies in the increase in rationality of consumption. He proposed that monetary policy should be restricted to pouring money into circulation at a constant annual rate, but he did not notice that this money should be non-credit money.

From the beginning of economic thought, there were two approaches to the principal economic problem - the problem of value of goods.

According to the dominant scientific thinking: on the occasion of exchange, goods and money are being exchanged as equivalents.

According to an alternative commonsense thinking: on the occasion of exchange, one gives less to get more (both seller and buyer realize a profit).

Commenting on the latter type of reasoning, Milton Friedman argues: “The fundamental defect in all such reasoning is the failure to recognize that what is called a profit or an excess of receipts over expenditures is also a cost.”

Friedman’s statement is projected upon supposition that the costs and utilities, incorporated in commodities, are monetary equivalents.

This is the premise upon which today’s dominant monetary theory and the policy of credit money is based. By emitting money in the form of credit, the monetary equivalence between costs and utilities is secured ex ante.

Real equilibrium between costs and utilities can exist only in a stationary society where there are no alterations in the level of economic rationality. Where economic rationality stays constant, the quantity of production, exchange and spending remains always the same, and thus the quantity of money in circulation doesn’t change either. That is, there is no need for an additional quantity of money (dM = 0). One’s cost is always another’s profit, therefore cost and profit are by definition equal, and the above Friedman’s statement holds.

Any alteration in the level of economic rationality alters relations between costs and utilities.

The growth of economic rationality in production includes both the growth of production by constant costs and the constant production by diminishing the costs.

The growth of economic rationality in consumption includes both the growth of utility from the constant quantity of goods and the constant utility from diminishing the quantity of goods.

The quantum of utility which is equivalent to costs I denote as a necessary utility (i.e. necessary for compensating the costs) and the quantum of utility over necessary utility produced by the growth (i.e. created from the growth) of economic rationality I denote as - the surplus of utility.

The total quantity of money in society is composed by the quantity of money in circulation (M1) and the quantity of money out of circulation (M2).
The quantity of money in circulation is:

P = prices level = constant
Q = quantity of products
V = velocity of circulation of money

The quantity of money out of circulation is composed by the quantity of money by the producers (accumulation = A) and the quantity of money by the consumers (saving = S).
The total quantity of money is:

By the constant level of economic rationality, the costs and utilities are equivalent, Q, V, A and S are constant, M is constant, and the value of national product (NP) is:

NP = PQ

If M is the function of Q, V, A and S, as of arguments, and of P as constant, the alteration of arguments, i.e. Q, V, A and S, as independent variables, leads to the growth of M as dependent variable.

Thus, the growth of economic rationality includes:

• dQ = the growth of production by constant costs
• dA = the growth of accumulation through diminishing the costs
• dV = the retarded velocity of circulation of money, by the growth of utility from constant quantity of goods
• dS = the growth of saving through diminishing the purchase of goods
• dM = the growth of quantity of money and it is non-credit money, as an income from the surplus of utility.

This money, respectively income, results not from costs, i.e. it is not derived from necessary utility but from the growth of economic rationality, respectively from the surplus of utility as its measure.

The growth of national product (NP) is for PdQ.

New national product (NNP) is:

NNP = PQ + PdQ
The national monetary income is composed by the incomes which result both from the national costs (i.e. necessary utility) and from the national surplus of utility, i.e. from the national emission of non-credit money.

The national surplus of utility is composed by the national producer’s and consumer’s surplus.

is the surplus of utility which is produced by
producers = producer’s surplus

is the surplus of utility which is produced by
consumers = consumer’s surplus

In the monetary value of new national product, the monetary incomes from national producer’s surplus end as a profit, while, the monetary incomes from national consumer’s surplus compensate the costs, through purchasing the products which cannot be sold, since the incomes, earned from costs, have in part ended in saving, in part are being spent, but more slowly, or for the payments which are being not incorporated in the value of national product (thus the period of realization of national product is being prolonged, what as retarding of money circulation velocity is being denoted).

National costs (NC) are new national product minus profit:

National income (NI) is new national product plus consumer’s surplus:

In equation P as the level of prices is constant.

In reality, prices get up if the emission of non-credit money is greater than the real surplus of utility. If the emission of non-credit money is lesser than the real surplus of utility, either prices depreciate or stock grows.
If the emission of non-credit money is equivalent to the real surplus of utility, the prices must be constant (stable).

Growth of economic rationality leads to diminishing costs and augmenting supply and to augmenting utilities and diminishing demand.
An excess of offer over demand is the material substratum of the surplus of utility, caused by the growth of economic rationality, which can be realized only through emitting the necessary quantity of non-credit money which is being distributed (as a donation) to producers that have needs for the surplus of unsold production’s factors, and to consumers that have needs for the surplus of unsold objects of consumption.

The real growth of economic rationality which is being demonstrated through diminishing the costs of production (real dA) and consumption (real dS) is being realized both through keeping the money on special accounts of accumulation (dA) and saving (dS) in banks and through investing the savings, as an accumulation credit (dAC) and as a saving credit (dSC), in expanding of production and consumption, if it brings the interest (i.e. the greater amount of non-credit money than is the amount which would have emitted if there is no credit).

real dA + real dS = dA + dS + dAC + dSC

The growth of production (PdQ and the growth of goods in stock (PdR) unsold through retarding the money circulation velocity are together the total quantity of unsold products:

Unsold = PdQ + PdR ; PdR=-M1dV

The new velocity of circulation of money is:

If because of diminishing the economic rationality it is necessary to diminish the quantity of money in circulation, the state must impose the taxes after which the expenditures follow not. If counter to corresponding emission of non-credit money, the prices of some products are rising and of other are depreciating and even products cannot be sold, it is necessary to change the production structure.

Through trade, production is being directed to the minimum of costs and consumption is being directed to the maximum of utilities and in this way the maximum of the surplus of utility is being realized.

Through national trade the national surplus of utility is being realized and through world trade the world surplus of utility is being realized, both by aid of the emission of (national and world) non-credit money.
An income from the surplus of utility, i.e. the non-credit money is being paid from the account of emission bank (national or world), directly to the beneficiaries of non-credit money, by decree of national parliament (by national non-credit money) and by decree of the assembly of states-members in according to scientific knowledge (by world non-credit money).
Since without emitting non-credit money from the surplus of utility, there is no development in modern society, today, really, exists simultaneously nominal credit and real non-credit money, respectively, nominal equilibrium (according to theoretical dogmas) and real non-equilibrium of national accounts which is being realized, spontaneously and chaotically, through inflation of credit money, budget deficit, national and foreign debt, non-synchronism of takings and expenditures in terms of inflation, and other chaotic economic processes.
There is no solution for national and world economic crisis and the problem of national and world debt, without inaugurating both national and world system of emission of (national and world) non-credit money which can ensure a stable and rapid development, by full employment and social equity, of the world in whole and of all nations particularly.

Today money is put into circulation in the form of credits.

Such credit money is always in short supply.

An increase in money supply is necessary both because of increase in production and for making up for the money lost due to slowing down of velocity of money circulation.

The required additional quantity of money in circulation is definitive (final), because it is intended to stay in circulation permanently. It cannot be credit money, which is in circulation temporarily, because credits must be returned.

If the rate of increase in quantity of credit money in circulation is such that it creates such an inflation where the rate of increase in quantity of credit money in circulation is greater than the price increase rate, then the difference in these rates is really a non-credit money, which functions as the required additional quantity of money in circulation.

If all the necessary additional quantity of circulation money were immediately emitted as non-credit money, i.e. gift, inflation would disappear.

Movement for non-credit money proposes that the National Parliament issues a Money Law, containing the following:

1. Banks can allow credits only up to the amount of collected savings.
2. The creation of new money by allowing credits above the amount of collected savings is prohibited.
3. Required additional quantity of money in circulation, which is printed in the Money Printing Institution, is deposited to the account of the Pension Fund.
4. Money is put into circulation by paying pensions from the account of the Pension Fund.

Such a mode of money emission secures endless price stability, without inflation and deflation.

Contributions for pensions are thus cancelled and economy is less burdened.

By selling goods to pension beneficiaries, producers secure profits, as pure accumulation for production increase (without having to take credits).