How is money created?
On the back of the non-serviced, “red” loans, estimated at around EUR 70 billion, and the plans of the Bank of Greece and the IMF to create a bad bank, a “lean” bank that requires assets, I present to you my article on property and money.
The basic question is, how is money created? The question sounds strange and many may be rushed to answer, “we know, we know”. The mind always goes to evil, to the practices of cheating to enrich, to the shades of various nuances, to the Thohzatzopoulos and others. Greeks and non-Greeks. It’s not my point here, it’s scientific. Whether science fraud has been upgraded, we will concentrate on the framework question:
How is money created?
Ownership and citizens’ right to property has played a key role in creating money for thousands of years. This is the key to answering the question. Let us note that in the countries of so-called communist socialism that collapsed, there was no institutional right to property in the means of production.
Do not rush to stamp me … neo-liberal. I would point out that neither the neoliberal position, that the state is, by definition, not allowed to do business, is standing. What is empirically demonstrated is that monopolies and oligopolies hamper equality. And they create cliques that live at the expense of the whole of society. They reduce prosperity. Economist Steglitz has written an important book on this subject.
Several schools of economic thought and perception have deepened the issue of money-making: the Classical School, the Neoclassical, the College of Keys. The fundamental and institutional role of ownership has not adequately connected the mentioned schools with money.
But there is another theory, the German Heinsohn and Steiger, in which I support the thoughts I present to you. And in my opinion, they accurately address the specific problems of Greece and of Greek citizens losing ownership.
In order for a national bank to be able to “print” money, it must have property that is pledged as collateral. Net equity, including existing debts. Money then has a hit. From there, the creation of money begins. The acquirer owns a piece of the original property. But in order to acquire it, it needs to have property itself, which in turn enters as a pledge. In addition, a type of rent on the loan capital must be agreed, the interest. Interest is among other factors a function of the lender. It also includes the prediction of the possibility that loans will not be repaid.
Beating the property, pledging it, creates money. And money is rising, if everything goes well, or it decreases if the company sinks.
Can anyone get a loan according to this model if it is not owned? Yes, but the ideas and the business plan that have to be convinced to get the loans. With the appropriate interest. Here, the state or the European Union can intervene by giving aid to start a promising new business.
When talking about loans, we can see two main categories. Loans for consumption and loans for business investment. Investments require institutional ownership. I mentioned above that in the countries of existing communism there was no such freedom. As a result, there was no private business activity, except for small, individual crafts or services. There was only a public organization that proved ineffective.
Lenin himself had said: Or we will become more effective than the capitalists, or we will be overwhelmed. He turned out to be a prophet.
Why does the private entrepreneur invest? Why is he risking his property, his ideas? His health? Why is it committed to pay wages, suppliers, interest and repay the loan?
You will tell me, not pay, and when, then, she has “bang” and gets underneath.
But I said, I am not referring to Greek and other distortions. They want outrooting.
The right businessman risks and invests because he has a taste. I do. There are other reasons. If you do not invest in new technologies, create new products and services, improved, competitive, then you will probably lose everything and what it already has. He is forced to move. If his plans are right, he returns interest-bearing loans, increases turnover, pays taxes, generates new money. And recruits staff by reducing unemployment.
Can not the State act as a businessman? Of course he can and does. But when we talk about rationality, efficiency and equality, things change a little. The public enterprise must have equal opportunities with private ones. Not better. Unfair competition is poison.
If there is a perception in a society that the ultimate goal is a place in the public sector, and it turns out that this model certainly delivers money and has various “lucky” and rested, the common mind rejects business action. Money comes in a magical way. Until the construction collapses. And to make fortunes in the hammer.
1. Money is generated by business action that requires institutional ownership and private initiative. The role of the state is at this point prudent and regulatory.
2. Public enterprises also have an obligation to be profitable! And competitive. Where else will they find the money to make investments, to put their own funds? Serving loans? Not of course taxes paid by citizens.
3. Unfair competition from monopolies or oligopolies must be eliminated.
4. The State has an obligation to preserve its property. Make use of it. Do not allow him to steal it and then steal the citizens themselves as … retaliation with Taxis logic, “he can not, you stole me somewhere, I do not believe you … and be impeccable. Rix ‘the …’.
5. A national model based on consumerism and statehood is not standing.
6. Public services must be servants of citizens and businesses that produce money.
7. The correct size of the Greek State, ie the cost of the tolerable public sector that is paid by the whole, is not absolute, it is a mathematical function of the financial soundness of those who produce the money. If need be, it will be further reduced unless there are others outside of Greece who will pay it out of their own pocket.
8. The same will unfortunately happen to pensions because they have no support for capital or public property but are based on the redistributive model of the economy. He suffers.
A radical change of a business model in industry requires around five years.
The radical change of a national social and economic model, around twenty to thirty years. This is the experience from East Germany and from other countries of the former Eastern Eastern Bloc.
The decisive implementation of digital technology in all sectors of the economy and society can reduce the required times for change in both cases.
The thoughts of money, interest and property I have developed here are based on the theory of Gunnar Heinsohn and Otto Steiger Eigentum, Zins und Geld
Metropolis, Marburg 2009