In the previous posting on this subject, we looked at what can happen if you impose a uniform monetary standard when the price of the standard is not uniform. Of course, before any standard at all is considered, it is essential that the reserve currency be 100% or at least predominantly asset-backed . . . and “asset” does not include debt issued by the issuer of the reserve currency.
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| Bill of Credit as Currency |
Government debt in the form of bills of credit or “anticipation notes” is possibly the absolute worst backing for a reserve currency because government debt of all types has no intrinsic value, and bills of credit “create” money instead of being borrowed from existing savings. The value of government debt relies on the ability of the issuing government to meet its financial obligations. That translates into the government’s ability to tax because government is not a producer of wealth (or shouldn’t be), but an expense.
Today we are looking at a possible solution to the problem we noted in the previous posting on this subject, that of a standard that has a different price in different regions. To summarize, if the local price of the standard differs from the official or fixed price of the standard, every transaction that takes place once the new standard has been fixed results in a loss for either buyers or sellers, and the economic and social effects can be catastrophic.
We have, however, come up with a possible solution, but one that could only work if there has been a successful program of expanded capital ownership (such as the EconomicDemocracy Act), the kilowatt hour has been selected as the standard, and all customers of electricity producers own the producer in direct proportion to their usage of electricity.
If these conditions are met, then we think that the price used to set the standard should be the highest price anywhere in the region where the reserve currency will be used as the official currency. This will mean that the value of the reserve currency is standardized everywhere because the price of the kilowatt hour (Kwhr) has been standardized.
Of course, this
means that in regions where the price of the Kwhr was lower before the price
was fixed electricity consumers will pay higher prices and producers will begin
making greater profits. This should not
matter, however. Why?
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| Bucky and His Ball |
For one thing, we specified that the producers of electricity must be owned by their customers in direct proportion to their usage of electricity and the existing reserve currency must be 100% asset backed. Both conditions will in most cases take decades to achieve. In that time a method of generating electricity may well be implemented resulting in a uniform price of electricity anyway, in which case the problem solves itself.
If the price of electricity continues to vary from region to region, however, using the highest price of the Kwhr as the standard should work. Of course, we issue a caveat at this point. Unlike virtually all other components of the Just Third Way, this has not been proven to work, but it should work.
We think this will work because regardless how much profit the electricity producer realizes from the increase in price, all profit — that is, the residual above the total cost of producing electricity — will be returned to the customer in the form of dividends that under the EDA is regular, taxable income.
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| The should have to justify NOT paying dividends . . . |
This is different from what we said in the previous posting, that the excess should be returned to the customers in the form of rebates or non-taxable dividends, but we realized that would probably not work. A rebate would effectively lower the real price of electricity, while having a special class of non-taxable dividends would create an unnecessary exception to the treatment of dividends as regular taxable income, except when used to make tax-deferred purchases of qualified shares as described in the EDA.
Taxability of dividends should not be a problem. Most personal users of electricity will simply take the increased cost out of one pocket and put it in another and will not be taxed if their income falls below the generous exemption level. For those personal users of electricity who do pay taxes, the effective tax rate and the objective amount paid on the dividends will be negligible. Industrial or commercial users of electricity will not be taxed if they pay out all profits as dividends, including as profits dividends they receive on the shares they own in the electricity producer.
So, setting the standard price of the Kwhr at the highest possible price should work to institute a fixed standard for the reserve currency if the reserve currency is asset backed and all electricity producers are owned by their customers in direct proportion to their usage.
That, we think, effectively deals with the problem of achieving a uniform standard for the reserve currency with respect to the price of the standard, but what about when the value of the standard changes? “Price” is measured value, and in a free market is determined by the implicit or explicit bargaining process between a willing buyer and seller . . . except for the monetary standard which has been fixed by law. Thus, regardless of the actual market value of the standard, the market price of the standard does not change.
So, what changes when the value of the standard changes but the price of the standard remains constant? The answer is “All other prices in the economy.” When the value of the standard changes but the price remains the same, all other prices in the economy, “the price level,” change to compensate for the change in the value of the standard but the price of the standard remains the same.
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| Do economists understand money? |
The only question is how the price level changes when the value of the standard changes, but the price of the standard remains constant — it is, after all, the standard, and if the price of the standard changed, it would no longer be useful as a standard.
This, by the way, is why the Kwhr is probably the optimal standard to use for the currency as the value is unlikely to change for long periods of time. The entire following discussion may, in fact, be moot, but it will be useful in the unlikely event the value — not the price — of electricity changes significantly over a short period of time.
Over the long term, of course, it won’t make any difference if the value of electricity changes, as the price level will adjust itself to the new value almost imperceptibly. A change in the value of electricity will either be offset gradually by more efficient production of other goods and services if the value of electricity decreases, or make everything cheaper (i.e., the money more valuable) over time if the value of electricity increases, all without changing the price of the standard or probably anyone noticing, other than to wonder why they seem to have more money than they used to, or it lasts so much longer than before.
#30#
