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6. The supply of money

How much money is actually needed?

This question is, of course, partly impossible to answer. But on the other hand, it’s not: every person should have enough money to be able to fulfill his or her needs. If, from this point of view, there wouldn’t be enough money, then more money must come in. And if, from this same point of view, there would be too much money, then this surplus money should be made ‘harmless’.


Making money harmless is basically the same as what was said about ‘gift money’ in blog 5: “The three qualities of money”. Gift money is the money that we spend on all sectors in society that do not belong to the real economy. Those sectors - like education, science, art, religion, justice, health care - are absolutely necessary. But these are sectors where no specific economic value is created and that depend on gift money to survive; money that is made harmless by spending it without receiving an economic value in return.


We have seen that the value of money is based on the productivity of the economy: the economy creates value in the form of products. To express that value, money is needed. In a way one could say that, parallel to the creation of value in the economy, money can also be created - the amount of money that expresses the value of the economic production. There is a relationship between economic productivity and the amount of money.


But ... all that is produced in the economy is consumed, and thus loses its value. A liter of milk is consumed within, say ten days. Clothes might be worn for a few years but will then be worn out. A car can perhaps be used for ten, fifteen years but by then it will definitely have lost its value. And this is the case with everything that is produced in the economy: it will lose its value or it will be consumed.


What does that mean for the value of money? The value of the economic production - of which money is an expression - always ends up being zero while, on the other hand, money keeps its value and the amount of money keeps increasing. To have money retain its value, money should be given an expiration date. If that date has passed, that money loses its value. This way, we can create a balance between the value of economic production and the amount of money.


John Hogervorst

April 2014

John  |  2014 04 23  |  Permalink  |  Share


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