Wednesday, August 08, 2012

The Fundamental and Fatal Flaw of MPE (Mathematically Perfect Economy [tm])

[You are correct that Capitalism is as bad a Communism. We dont need unelected capitalists making all the economic decisions any more than we need the government making all the decisions]

MPE is based on the assumption that you need money circulating that represents total value of all assets in the economy. Loan money to build or purchase 1000 houses is created and then repayed and retired from circulation at the rate of depreciation of the 1000 houses over 50 years. However, all this time (50 years) that currency for the 1000 houses is circulating in the economy (velocity) and going towards the purchase of other things. The consequence of all this circulating currency is that money supply actually exceeds GDP resulting in inflation.

SSS (Safety Society System) is very similar to MPE but its much better thought out and controls for inflation and currency velocity. MPE does not. The issue here is that to control inflation, It is important that there is currency availible on demand to make purchases for ONLY those assets that are on currently for sale. There doesn't need to be cash availible to purchase everything in the economy all the time.

MPE generates and injects cash into the economy to represent all the total value in every real asset in the economy whether its for sale or not.

SSS only generates and injects cash (on demand) into the economy for those assets in the economy that are for sale. In this way, SSS is not inflationary like MPE. MPE ignores velocity.

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