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Comment by rubyskills | Hacker News Reader

Great question!

As it applies to new real estate specifically, you have a lot of materials, labor taxes etc to deal with. These are the most common sorts of business debts that I've been exposed to.

For existing real estate, I see value of things going up in value largely due to population increase in a certain area combined with the fed printing money (which it claims to do so constantly because the population will always be increasing?). I also see values wildly inflated due to foreign investment. A big issue in general is also due to the banking sector. I think the US government allows banks to go a little crazy with lending to everyone on anything without recourse. That being said, I personally benefit from the system allowing me to borrow money so cheaply.

Sorry if this post was a bit disorganized. I have a lot of thoughts on it and it is a great thought experiment. :)

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Good answer! Now imagine if there was a society where money supply did not increase because of more loans, but by something more of a function of labor.

What do you think would happen to the prices of materials, labor etc? Do you think tying money supply as a function of labor would make cost of necessities close to the median?

I think you may be referring to the Labor Theory of Value (LTV)? Certainly, early versions of currencies were created to streamline the bartering process between different kinds of labor and store that value for future purposes. I'm not sure what attempting to remove debt from a market would look like in the modem world as I only have the current context to compare to (for better or worse). What do you propose as an alternative?

I don't have any alternatives without rough edges. THat's for overpaid economists to figure out ;)

However, I'm thinking more along the lines of production. So if an individual/company produces more units of something, the FED could print that much money and put it into their accounts directly.

With expanding society, more money will be brought into circulation.

With lesser production, lesser money will be matched and produced by the FED.

The consequence of this would be that there is incentive to produce more with less. There will be more value for physical labor and that the rich would suffer as much as the poor. Hoarding money at the top will just result in lesser and lesser money being produced for the rich to earn.

Now you could go and take a loan if you wanted to. But not from a bank. Take it from any other party. It's between the two of you and you both go bust if the loan fails.

There are caveats here but what it removes is the creation of money by debt. Thus, to be richer as a civilization, we don't need more debt as a society. We need to produce more goods and services that are actually desired by others.

So basically make corporations banks and eliminate banking as as a function?

How does the FED determine the value to give each corporation relative to other services provided to the market?

It's an interesting idea if that's what you're thinking, though I foresee a lot more government overhead.

Correct me if I'm misinterpeting. I think I might be.

No. More like a FED sponsored 401k match for wages. If a company thinks it can earn more by producing more goods, it will hire more people and give them wages. The FED will match it, effectively bringing money into circulation.

As company gets more and more efficient, they wouldn't need employees. But this would cause lesser money to be brought into circulation, thus eating up the companies earnings itself.

If the company wants more debt, they can go borrow from others (rich institutions, individuals etc) but this activity will not create new money. Thus, total money in circulation remains the same.

If an individual wants to buy a house, the house price will effectively be closer to the median affordable income of population. Thus, it will incentivize individual to produce more goods and services to reach median income at least. The only way to become richer is to produce more.The rich can try to buy more houses but it wouldn't be possible as much since leverage and speculation is much harder.

You have essentially described a world with extremely high interest rates.

We have empirical data on what happens in such worlds: economies tumble into recession and there is mass unemployment.

So a world with lesser speculation? Economies that move steady in the first place so that recessions aren't these massive downturns causing so much grief?

No, not like that at all.

An economy where new business formation is radically more difficult so the economy is far slower to adapt so there is mass unemployment and human misery.

Go talk to someone who actually runs a real business. Especially a business with capital costs. Ask them if they could run it without access to credit. The answer is no.

Why would business formation be so difficult if the cost of production will be so low (because there is close to zero speculation?)

Why would capital requirements for capital intensive businesses be so high when the equipment they are trying to buy will be cheap?

If they need to buy lots and lots of equipment right now, they could issue a bond, investors looking to make a dime will lend. Since inflation is low because of no speculation, interest rates would be low as well.

The one big caveat I see is slow growth but that's exactly what I'm looking for. Slow sustainable growth directly proportional to labor.

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