Category Archives: Money dynamics

In the pre­vi­ous post, I out­lined my basic mod­el of a pure cred­it econ­o­my, in which a sin­gle ini­tial loan allowed a con­ti­nous flow of eco­nom­ic activ­i­ty (at a con­stant lev­el) over time. The basic flowtable of that sys­tem was:

This is an unplanned post that part­ly pre-empts what I’ll be writ­ing in the Feb­ru­ary Debt­watch Report, where I will explain in full my the­o­ry of mon­ey cre­ation in a pure cred­it econ­o­my. So this is some­what out of sequence, and will undoubt­ed­ly be bad­ly explained com­pared to what I put togeth­er for Feb­ru­ary. 

I will also have to fin­ish this in a lat­er post–probably in the first cou­ple of days of the New Year–because Syd­ney’s fire­works beck­on, and we have to be on board the cruis­er we’re watch­ing them from at 7pm.  But what is here is part of a long-promised expla­na­tion of my mod­el of mon­ey cre­ation. In a cou­ple of days I’ll pub­lish the punch line, which is a new­ly devel­oped mod­el of a Ponzi Scheme.

Most con­ven­tion­al and uncon­ven­tion­al com­men­ta­tors on mon­ey believe that mon­ey is destroyed when debt is repaid. I disagree–but explain­ing why takes some time. I received an email this morn­ing from a Eco­log­i­cal Eco­nom­ics dis­cus­sion list in the USA on this issue, and wrote the fol­low­ing expla­na­tion of my posi­tion. I thought that read­ers of this blog might find it instruc­tive.

On the mon­ey issue, this is one where I beg to dif­fer both with the response Josh put for­ward, and most of my fel­low econ­o­mists as well–non-orthodox and non-ortho­dox. I think it’s wrong to say that mon­ey is destroyed when debt is repaid–but to explain why, I need to both put for­ward a dynam­ic mod­el, and find an appro­pri­ate anal­o­gy.