Chapter 45 - The Business Card Story

This is a beautiful story that I read in a fascinating 'real economics' book by Warren Mosler a while ago. It is the story of a family and it goes like this:

The father of a family gives his children a business card each time they do a good deed or do some work around the house. They occasionally do odd jobs but there is no great keenness to do so. The business cards effectively have no value and have been thrown in a drawer. The father gives an edict that they must give him a number of business cards, weekly, as rent and some business cards for meals. The business cards immediately have value and are much sought after. The young are keen to carry out chores to earn business cards.

The effect of the family taxation was to give business cards a high-value and to make the inmates productive. This lesson should not be lost on nations:

Taxation creates a demand for legal tender.

The parents can spend moderately more business cards than they are taxing without causing the devaluation of the business cards. Devaluation would occur if they started to give two cards per chore.

The parents must never spend less than they are taxing. Austerity economics is idiotic.

The family money has no value to the creator. The business cards only have value to the citizen. This is missing from the definition of money in economics.

The volume of business cards in circulation needs to match the immediate demand for business cards. This volume is likely to increase towards taxation time. So provision has to be made to spend extra business cards into society at times of high demand.

If one child works unusually hard and hoards business cards, then the parents must increase the availability of business cards so that the other children have enough business cards to pay their weekly taxes. The hoarding of money creates a problem in a money system. The hoarding of money should be curtailed. Taxation of Hoarded Money is appropriate. In society, this would be a combination of a wealth tax, death taxes, inheritance taxes and a Demurrage tax on money holdings. The Demurrage tax could be as high as 1% per month, paid monthly or 3% quarterly. It could be on unused balance or balances above $1000.

As the business cards have value, it is likely that the children will use the cards for inter-child business and transactions. These transactions should not have a heavy tax. These transactions are entirely consistent with healthy inter-person trade and should not be taxed. In society, we are taxing inter-person transactions excessively. Income tax should be closer to zero than current figures. Sales tax should be reduced for most items except plastic bags and chewing gum. My use of the expression 'plastic bags and chewing gum' implies that tax should remain on items of litter and public nuisance.

A situation will develop where one child with many cards lends cards to another child. Effectively, one child has gained a partial monopoly over money and is taking advantage of the situation by seeking rent for use of the monopolized money. The loan may be for the purposes of paying tax or used on indulgences. If business cards are in short supply, the lender will have a high-interest rate similar to a 'payday loan'. To reduce the need for the children to borrow, the parents need to ensure that there is adequate spending of money into society. Unearned income should be taxed at a high rate and the lender should not be given a tax-free environment as is currently the case.

Monopolies of resources should be avoided. In the family, it is unlikely that a child would monopolise the use of bedrooms. In society this does happen as those with greater access to money purchase land, putting its use out of reach of others. The land monopoliser then charges rent for the use of land that naturally occurs. Land was provided freely for all living creatures, including humans. No human should be excluded from land by those with greater access to money or credit. Monopolization of land should be avoided using the methodology of Henry George. In the family situation, the bedrooms are owned by the family and are effectively rented out by the family to the individual with the proceeds going to upkeep of public family facilities. This is a good example for society. Land should be owned by the state and is rented to the inhabitants on and as-needs basis at an acceptable rent.

If one child works hard and has more cards than she can spend, she will hoard cards. This is one of the characteristics of money that is problematic. Besides removing significant numbers of cards from circulation, consider what happens if she decides to clear her hoard over a short period of time. Significant problems will occur if Hoarded Money is released rapidly.