Monday, October 22, 2012

Is Binary Economics Inflationary?

One thing about the monetary reforms proposed under binary economics that troubles thoughtful people is the danger of inflation. Once we know that under binary economics there is a direct link between the money supply and the present value of existing and future marketable goods and services in the economy, however, we realize that the danger of either inflation or deflation is minimized to the point of insignificance.

Inflation is most simply defined as more money chasing fewer goods and services. As long as the government continues to create money in response to political or social needs, there is no way to control inflation except restraining government — and as government gains more power by controlling money, it becomes increasingly difficult to restrain.

Under binary economics the creation of new money would be tied directly to the increase in the present value of existing and future marketable goods and services in the economy by only creating money by discounting and rediscounting bills of exchange that represent the present value of specific marketable goods and services that have already been produced, or that are reasonably expected to be produced in the near future.

The money supply under binary economics would thus increase and decrease directly with the present value of marketable goods and services in the economy. There would thus be neither inflation nor deflation, but just the right amount of money that the economy needs, and it would be stable in value.

In fact, prices would tend to go down, and people would have more money that would be worth more. This is because when financing new capital with discounted and rediscounted bills of exchange, people are very conservative about how much they expect to be able to produce. When they actually start producing marketable goods and services, owners work much harder than other people, and produce much more than is necessary to pay for the capital. This increases supply, and lowers prices without harming profits.

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