I loved this comment on the blog this morning from someone called Andy:
Incidentally you could replicate the money system in a classroom where the teacher has the ‘authority’ say to stop the kids going to the school disco unless they pay their taxes and the taxes need to be paid in the teacher’s old business cards. When they ask how they get the business cards, the teacher says he will pay them for various jobs that need doing around the school. You could actually start a monetary economy (or a business card economy) where kids that didn’t want to work could obtain the cards from other kids by trading.
You could even allow them to start their own banks using their own tokens but then you would have to insist that the teacher’s cards get returned to the teacher by the bank when any taxes are paid. So in that scenario with excess cards in issue would the teacher borrowing them back offering an interest rate on the ‘loan’ be considered ‘debt ‘ ? Hours of fun.
Even thinking about it is fun.
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Various examples of the same kind of model – Paul Krugman describes a Washington DC babysitting club in “End this Depression Now!” where tokens (scrip) were exchanged between sets of parents for promises to babysit.
(Sorry for the Amazon link)
http://www.amazon.co.uk/End-This-Depression-Paul-Krugman/dp/0393345084/ref=sr_1_1?ie=UTF8&qid=1443428240&sr=8-1&keywords=paul+krugman
Reading that switched the lightbulb on for me.
It is a good example
To give a fuller picture you’d have to illustrate asset bubbles-maybe pens could only be obtained buy bank loans and certain kids (the ones that evolutionary psychologists like!) would probably get a good buy-to-let bubble going on pens otherwise homework wouldn’t get done and detentions be handed out!
great thought experiment! We need this sort of thing at school level. much better than the terrible economics text books.
I suppose if taxes ‘destroy money’ then you could shred them and the Central bank (teacher) creates more from nothing!
Wow-Richard, this could be come a sort of post financial crash ‘Monopoly’-great marketing potential.
(Simon Q)
Credit where credit due.
I’m sure Andy would be the first to admit, that this is a play on a Warren Mosler ‘business card’ thought experiment (in one of his MMT video presentations).
Yes. Mosler is the source. You could include Bil Mitchell and Neil Wilson though in where this came from.
…and you smuggle the cards out of the class to the school next door, and bingo! you have offshore finance.
How about an improved version of this:
http://www.theguardian.com/business/2008/may/08/bankofenglandgovernor.economics
you could sell it in kit form….perhaps someone will put it together “incorrectly” and discover a whole new economic theory!
🙂
Here is another parable along these lines – Salvation Island
http://viracocha.tripod.com/Salvation.htm
The ‘business card with value’ has been a popular theme of various MMters. I’m not sure who was the first maybe Warren Mosler?
This is my contribution where I offer some advice on how to do the same by setting up a neighbourhood protection racket!
https://petermartin2001.wordpress.com/2014/04/05/want-to-make-your-business-card-worth-something-easy-start-a-protection-racket/
Does the teacher have his/her own printing press? Otherwise we are talking about the introduction of the Gold Standard or something like.
I meant it as a practical.
Each week each kid could keep track of their transactions. Add them all up,eliminating double counting, and you have GDP. Then add up taxes paid and remaining business cards in circulation (savings) and you get the same figure. This is basically how the national accounts are produced.
And yes you have a budget deficit and even national (or teacher) debt.
Oops. Got my accounting identity wrong
GDP = C + G
GDP = C + S + T
Therefore it is Teacer spending G that equates to Taxes paid + Remaning cards in circulation.
Or G -T = S
Teacher defciit = Private savings
What would happen if the teacher printed more cards and spent them in the school’s economy? Would the school become richer?
The cards are issued for work done.
OK in the public sector.
But if the private sector can’t usefully employ the capacity of the workforce then why not ?
And is richness expressed in a teacher’s business cards ?
Or in goods and services, public and private, consumed and enjoyed ?
Andy hasn’t quite got the analogy right. The teacher is offering a benefit in exchange for the business card. ie Its essentially a ticket to the school disco.
We don’t get offered any tickets to football matches for paying our taxes, but we could get jailed, unless of course we were Amazon, if we didn’t pay our taxes!
So a better analogy would be the teacher threatening his/her students with detention unless they each performed an act of community service in the school. They’d earn the business card by doing the work. They’d then pay their ‘tax’ to the teacher who then wouldn’t give them detention!
Wrong, I think
Tax is consensual
You are creating a wholly wrong impression it is not
Possibly. It depends on the nature of the society.
Warren Mosler tells a story of how the early European colonists in Africa gave a value to their tokens/money. They would demand the payment of taxes, ie a hut tax, in their currency of issue. The penalty for non-payment would be having huts burnt down by their soldiers.
I’m not sure if that actually happened or if the taxation was more consensual but it sounds plausible.
I recall seeing Bill Mitchell and you disagreeing on this on a Youtube presentation recently. His thinking was that “democracy is coercive”. I agree – a social consensus on tax expressed through political democracy implies that individual coercion toward compliance is required, because of the quantitative aspect of the recalcitrant’s compliancy.
It’s a capitalist money economy. But money is not eternal and although accounting in some form is compulsory, money need not be capitalised – See Marx’s “Notes On Wagner”, near the end of his life. It’s not a fundamental preference we have actually chosen, because we’ve never been offered alternative practical options. We’re born into it, and coerced in it, and, outside of revolutionary changes we’re limited to a degree of tinkering with the links of our shackles until we can break the chain where it proves weakest. That, I suggest, may involve demonstrating that the creation and manipulation of money is capable in principle and initially in some measure in practice of being put under the democratic control of the mass of humanity for our own benefit and not that of our masters. The world is our heritage, not theirs to do with and coerce us as they please for ever. Taxes are a means to a world in which there aren’t any.
I am with Mosler on this but thought pay your taxes or go to Jail was a bit extreme for a classroom.
If tax is consensual, what happens if I don’t consent to being taxed?
Society consents via the ballot box
And agrees to punish dissenters
As with other crimes
What do the “kids who don’t want to work” have to offer to trade with?
They become the bankers and deal in asset bubbles!
Making widgets.
Doing homework
Providing cheats on computer games
Lunch boxes
Anything you can think of basically
The reality of money boils down to the fact, if not enough money is distributed into the economy, either through wages or other means, and captured by businesses in order to expand, then deflation is likely to occur.
In order for people to sell, other people have to buy, and in order to buy, they have to have a medium of exchange. If there is less and less of this exchange medium, then the economy is less and less able to function.
Inflation has rarely ever been a problem of “too much money chasing too few goods”. It has been usually due to the lack of goods (such as oil back in the 1970s) or high interest rates or bank interest driving up prices.
Lack of money causes nothing but eventual deflation. Plenty of money achieves growth and stability.
And that is the way it has always been.
The game of monopoly shows the basics of fiat money fairly well.
Household budget analogies clearly do not apply to the government sector (rule book+bank) and its means are obviously not its currency. The true nature of surpluses and deficits are fairly easy to see and understand. It is clear what taxes actually fund and some of their actual purposes can be shown. The result of surpluses and deficits on the currency users themselves could also be interesting to look at.
You could introduce special ‘gilded’ money to represent bonds and ‘special’ players that are private banks. You could also introduce more boards with different coloured money which is non-convertible to introduce the external sector – you could show the difference between floating non-convertible, pegged and gold standard models and the effect it would have.
I think people’s understanding can be changed quite quickly with this analogy.