One of my favorite questions to ask business students is why companies require external financial capital (equity or debt). Answers tend to turn quickly towards some need to invest, e.g. in developing software or building a plant. But that doesn’t fully answer the question. Why? Because what if the investment in development can be paid for by customers ahead of time? Well in that case there is no need for external investment. This is of course something we now see in the real world via Kickstarter and other platforms that allow for pre purchase. So the deeper answer as to why companies need to raise capital is when there is a gap between money outflows and money inflows.
The flow of money in the economy is supposed to serve a secondary purpose of powering some aspect of the real economy. This should seem fairly obvious as we cannot get value from money directly (try eating money or making a car out of dollar bills). So like knowledge, money is a kind of commons that we all need access to in order to participate in the economy. The proper management of the money commons is thus important to a well functioning economy. In most advanced economies we see the Central Bank as having this job.
But that is too narrow a view of the money commons. The flows of money are also impacted by all sorts of other government policies, including of course taxes. One idea for making money flow faster through the economy is known as demurrage. Demurrage means the cost of holding money. In most economies until recently due to positive interest rates people were often rewarded for holding on to money. That was not necessarily a problem as long as we had well functioning bank lending and as long as we needed in fact to accumulate more physical capital as the top priority of the economy (having positive interest rates means that money gets allocated to positive return projects).
Now that we have likely reached the beginning of a World After Capital though, the question of demurrage becomes much more important. One way to implement a Basic Income that we need to explore is to do away with fractional reserve banking, issue money directly to people and then have demurrage to encourage the flow of money.
One of the amazing things about the world we live in now is that we do not need to wait for governments to attempt this. Instead, we can design crypto currencies that implement these features. For an example of a coin with demurrage see Freicoin. It will likely take many experiments to get this right because if you go too far, you take away the incentive to invest in infrastructure that comes to some degree from speculation. So it is entirely possible that we need a lot of speculation now to build out the crypto currency infrastructure (in an installment period a la Carlotta Perez) so that we can later have coins with demurrage. I should also point out that holding crypto currencies is costly for the moment (due to the security requirements), so there is some level of demurrage built into even BTC (as anyone who has lost BTC can attest to).
I am excited about the potential for one or more of these experiments to break out and give us a money commons that is not tied to a nation state but rather available to humanity as a whole. That would be an extraordinary building block for the future.
