things [i.e., currencies] have any value is because we’ve all decided
they should. And because we’ve decided that, they do. Money is
about the exchanges and the transactions that we have with each
other. Money isn’t anything objective. It’s about a collective story
that we tell each other about value—a collective fiction.”[ 6]
One way this fictional aspect comes through is when we consider
how money is created. For fiat systems, this is almost intuitively
obvious—it is created out of thin air. This was evident during
the financial crisis when the U.S. Federal Reserve (Fed) engaged
in buying non-Treasury assets as part of the quantitative easing
programs. Stephanie Kelton, professor of economics at University
of Missouri, explains that the Federal Reserve “can acquire an
asset simply by crediting a bank account. In other words, the
bank pays by creating money. As Alan Greenspan explained, the
Fed has an unlimited capacity to spend in U.S. dollars. It can pay
trillions of dollars with a single keystroke.”[ 7]
The “fractional banking” system, in which a small percentage
of a commercial bank’s deposits are required to be held as reserves
and the rest available for lending, allows the commercial banking
system to “create money.” This process brings into play a powerful
multiplier, which ripples through the economy. As an example,
with a 10 percent reserve requirement by the Fed, a new deposit
of $10 could result in a multiplier of around 9—that is, $90 is
injected into the economy. Simplistically, interest aside, “money
equals debt”; if all debt is paid off, money disappears. And were
this to ever happen, the economy could come back a full circle
to the barter system.
Perhaps the most interesting fictional aspect of money comes
through in the idea of “helicopter money,” a term derived from a
paper by Milton Friedman. Conceptually, this idea refers to the
handout of “free” money directly by the central bank (
caricatur-ized as money dropped from the sky by helicopter). It would be a
last-resort stimulus when an economy is not responding to other
expansionary measures. This is not a fringe economic concept;
it has been discussed by leading monetary authorities, including
Ben Bernanke, former chairman of the Federal Reserve Board.
And in the case of Japan, where the economy has been sluggish
and not responding to traditional stimuli, the helicopter money
option has been suggested. There is a lot of hesitancy to using
this tool, however, as there are risks—such as hyperinflation from
inadvertently over-stimulating; central banks are not entirely
comfortable in taking the lead on this approach.
There are also local (complementary) currencies operating
side-by-side with a national currency, and often convertible to
it. An example is the BerkShares,[ 9] a currency that is used in the
Berkshires region in Massachusetts. Such currencies strengthen
local economies by enabling consumers, farmers, businesses,
employees, and local banks to interact through them.
The next generation of currencies, so-called cyber- or cryp-
to-currencies, have started taking their place in our future. These
currencies work globally and are transferrable directly from one
individual to another, bypassing the banking institution. For the
most well-known of these at least, bitcoin, there is nothing tangible
backing it. Bitcoins can be “mined” by anyone by solving complex
mathematical problems. The bitcoin system has a maximum limit
of 21 million coins, which can be divided to eight decimal places.
Once the limit is reached, expected around 2140, no further coins
can be added.[ 10] Bitcoins can be converted to most if not all of
the major currencies. There are over 700 crypto-currencies in
existence, and many will not survive.
Money originated from the need to expedite trading; and that is
its primary purpose—a medium of exchange. Money’s interchange
in an economy occurs through an economic exchange; through
daily usage in this manner over centuries, we have become condi-
tioned to look to labor as a means to obtain money for our needs.
Our mental paradigm automatically connects the two—so much
so that decoupling money and labor would be troublesome and
run into strong resistance.
Because fiat money allows indefinite exchangeability (planned
erosion by central banks or currency failure aside), it also serves
as a catalyst, when spiced with human curiosity can power up
our ingenuity to solve even the most intractable of problems. At
the individual level, we have mostly forgotten that the true value
derives from our collective ingenuity.
It wouldn’t be unusual in the future to hear new ideas on the
permanency of exchangeability in fiat money. This discussion on
money may be helpful in the discussion of UBI.
The Basics of UBI
As mentioned above, “pure UBI” would include:
1. Regular payments of unconditional, tax-free money to all citizens,
probably indexed to inflation, for basic needs of food, clothing,
2. Income above the UBI level would be subject to taxation, with tax
brackets fine-tuned to retain work incentive and other objectives.
3. UBI would replace all other safety net programs such as unemployment, food stamps, child/earned income tax credit, etc.,
other than government-provided health care options for poor
and senior citizens. Social Security, work pensions, etc. can be
treated as income for tax purposes.
What are the perceived pros and cons of such a program? Pros
1. Sense of financial security across the nation.
2. Freedom for would-be entrepreneurs and others to pursue their
passions in vocation choices (or retire) instead of being stuck in
jobs they are not suited for. The June 2014 report of the Conference
Money essentially is an abstract idea predicated
on trust, without which it does not work. When it
does work, it is indeed a very powerful idea.