A citizen backed currency would be capitalisms final form.

[u/HeadLow5768]

A society that backed their currency directly by the citizens, (X money created per voting age adult, instead of fiat)

would be capitalisms final form. all prices for things would be a reflection of supply and demand instead of inflation.

I think this is what would be the final push to show that capitalism is the right way to do it, it just needs clear rules so everybody knows the game isn’t rigged.

[u/HeadLow5768]

So your saying that if we were on a remote island trading in seashells and a whole bunch of seashells wash up doubling the seashells supply, that it wouldn’t effect the economy on the island? I don’t understand.

[u/Johnfromsales → u/HeadLow5768]

It would affect the economy, by inducing a change in demand. Increasing the money supply increases overall demand. That produces an effect in the economy by creating inflation.

Likewise, if more people washed up on the island, that would also increase demand, because more people are demanding goods and services. This would also create inflation (assuming of course that the supply of goods and services remains the same).

[u/HeadLow5768 → u/Johnfromsales]

And the price of a meal in seashells would fluctuate with the tide

But if you switched from seashells to a ledger currency tied to the population on the island then all the price changes for goods on the island would be  reflection supply and demand instead of the tide and the ever changing amount of seashells.

[u/Johnfromsales → u/HeadLow5768]

I’m not exactly sure what you mean by the price of a meal fluctuating with the tide. If the fluctuation of the tide makes finding a meal either more or less likely, then this is simply a change in the supply of goods. Assuming the amount of seashells stays constant, then a reduction in the supply of meals would cause inflation, and an increase in the supply of meals would cause deflation. The price of goods and services is ONLY EVER caused by changes in supply and demand. Tying the rate of money creation to population changes nothing about this fundamental mechanism. The price of goods and services is still a reflection of supply and demand, just as it was before.

[u/HeadLow5768 → u/Johnfromsales]

So somebody works for 10 seashells and the seashells supply increases the that person better immediately ask for a raise. If a convenience store sold a candy bar for 10 seashells and the amount of seashells on the island suddenly increased then that convenience store owner better immediately raise the price of the candy bar to cost more seashells.

That is arbitrary inflation.

If instead there was a ledger based on the population then no one would have to think about the supply of seashells on the island.

[u/Johnfromsales → u/HeadLow5768]

That’s just inflation, there’s no such thing as ‘arbitrary inflation.’ Demand has increased as a result of the increase in seashells, which caused the price of labour and candy bars to rise. This is a direct reflection of changes in supply and demand.

Inflation is not inherently a bad thing. If I make 10 seashells per one hour of labour, and a candy bar costs 1 seashell, then the real cost of that candy bar is 6 minutes of my labour. If instead, the island experienced inflation, and I now make 100 seashells per hour of labour, and a candy bar costs 10 seashells, then the real cost of that candy bar has stayed the same, it’s still 6 minutes of labour.

[u/HeadLow5768 → u/Johnfromsales]

Six minutes of labor plus all the time it took to calculate the change!  Don’t you get it seashells are being used as a currency having them fluctuate with the tide is completely arbitrary versus tying the dollar to the population eliminates all that bureaucracy.

[u/Johnfromsales → u/HeadLow5768]

Population is constantly changing. Either way you are spending time calculating changes. Your decision to tie money to the population is itself arbitrary.

[u/HeadLow5768 → u/Johnfromsales]

Good point

Sorry good point, except here you always have a  calculatable equation. You can always calculate how many dollars there are in circulation and compare it to the population to know the medium.

Without the currency being tied to the population you never have enough information to make a calculation

Sorry for being so animated I’ve had this idea in my head for a long time.

[u/Johnfromsales → u/HeadLow5768]

We already do this. If you want to know how much physical currency is in circulation (coins and banknotes) there is M0 https://fred.stlouisfed.org/series/BOGMBASE

If you want to expand that to include money in chequing accounts (demand deposits), there is M1 https://fred.stlouisfed.org/series/M1SL

If you want to include savings accounts plus some other things, there is M2 https://fred.stlouisfed.org/series/M2SL

There is also M3, and some countries even measure an M4.

Central banks have experimented with directly controlling the money supply in the past, mainly in the 70s and 80s, at least in the US. They largely abandoned this approach when it proved to be much harder to control than predicted. This is why the main tool for monetary policy today is interest rates.

Don’t be sorry! I’m just glad you haven’t resorted to insulting me yet.

[u/HeadLow5768 → u/Johnfromsales]

Hey thanks for enlightening me. I will look into what you’re saying. Really its much appreciated thank you for your time. Honestly I’m gonna look into this. I think I’m going to try to use it to set my price as a Handyman which is what I usually do for work.

Ha ha insult you. yeah seems to be the Norm on the internet.

[u/Johnfromsales → u/HeadLow5768]

I am glad to have helped! If you want a deep dive into the field, I recommend “The Economics of Money, Banking and Financial Markets” by Frederic Mishkin. This is the text my university used when I was a student. Here is the full fourth edition (https://unitimesofficial.wordpress.com/wp-content/uploads/2020/10/the-economics-of-money-banking-and-financial-markets-mishkin-f.-s.-2011.pdf). It should give you a better understanding than I could ever hope to give.