Concepts

THE MAJOR PROBLEM OF OUR TIME


One of the most influential economists ever, was John Maynard Keynes. But despite pointing it out in the opening paragraphs of his publication entitled ‘A Tract on Monetary Reform’ (Macmillan) published in 1923, Keynes failed to address one key issue about inflation which is vitally important.
He was more concerned about limiting inflation, which was the major problem of his time, than in removing the very extensive damage which inflation / deflation can cause even at very low levels. This is the major problem of our time.


One of the most influential economists ever, was John Maynard Keynes. But despite pointing it out in the opening paragraphs of his publication entitled ‘A Tract on Monetary Reform’ (Macmillan) published in 1923, Keynes failed to address one key issue about inflation which is vitally important.
He was more concerned about limiting inflation, which was the major problem of his time, than in removing the very extensive damage which inflation / deflation can cause even at very low levels. This is the major problem of our time.


INFLATION IS PRICES RISING
If there is too much money in circulation, or when spending rises beyond the capacity of the nation’s output of goods and services, we get price rises and money falls in value. It buys less.

KEYNES CONCEPT


What Keynes pointed out was that if all prices and all earnings were to rise at the same rate, people would be wholly unaffected. They would have to pay more for everything, but they would have more income with which to pay. The two things would cancel.


THE ‘KFPP’ FLOATING PLATFORM
It would be as if the entire economy had been placed on a floating prices platform as in the picture, It is called Keynes’ Floating Prices Platform, KFPP:

This core part of price rises across the board, creates the rising KFPP Platform. See Figure 1 below. In this sense prices are anything you can buy or pay for. That includes wages – the cost of hiring people, regular payments on loans and assets of every kind. In this sense they are all prices to pay. Because they rise together, they all cancel. Prices rise, incomes / earnings rise. Things cost more but there is more money with which to pay. But there is another real economic part of prices which does not cancel. On top of the platform, that real part decides what is expensive and what is affordable in the usual ways. Business carries on as usual, on the platform, as if money had not changed in value. Inflation is then harmless and can be largely disregarded.

Figure 1 – the KFPP Platform.
Artist Tanya Malan
Figure 1 – the KFPP Platform.
Artist Tanya Malan


INFLATION MOP
But inflation does have one effect: as the platform rises, as all prices increase, the economy needs more money to keep inflating. People need more money with which to pay. Any shortage of new money being created will soon halt the process leading to a need for more money to be created. We can show that there are ways to create and distribute new money in the form of a spending stimulus across all sectors. Borrow and spend is not the only option to avoid a recession.


SIGNIFICANT BENEFITS
If this KFPP platform could be created there would be a huge benefit to people’s confidence. Everything in life regarding money, like savings, investing, and borrowing, would become simpler. Pensions would rise as if retirees were still working. And pension funds and reserves held against possible emergencies or insurance claims would retain their value Mortgage costs would not leap up and down. Property values would be more stable. A lot of costs and huge amounts of social and economic damage would be eliminated almost entirely.

THE KFPP PLATFORM – HOW IT GETS DISTORTED

Figure 2 – The distorted KFPP Platform which we use today
Figure 2 – The distorted KFPP Platform which we use today

TOP LEFT
Currency price changes destroy many an importing or exporting business and many businesses which have invested enormous amounts of capital in foreign direct investments.

TOP RIGHT
Mortgage repayment costs leap around throwing entire family finances in the air, ruining families, and taking their homes. This also messes up the construction sector and ruins many a bank. Commercial loans cost a lot more than necessary and are more risky than necessary. Collateral security is unsafe, and investments in property are unsafe in some cases. Banks are put at risk. Investments are put at risk.

BOTTOM RIGHT
The other side of lending is savings and investments, pensions, and retirement plans. Government borrowing, with interest payments and capital linked to National Average Earnings, NAE, would put them onto the platform. Savings, pensions, and reserves, investing in these index-linked bonds, called Wealth Bonds because they preserve wealth, will retain their core value. Governments may pay 1% interest – only. That is, enough to cover institutional administration costs on pensions and insurances. A huge saving on national debt. Maturity values can be long as well as short as needed. No problem.
At present, all these savings, insurance, investment, and retirement, contracts are currently affected by all the instabilities.

IMAGINE THAT ALL THESE INSTABILITIES COULD BE REMOVED

What a huge change in confidence levels would take place. High levels of confidence going permanently into the future can boost investment and output for any economy – in this case by at least 1% p.a. and forever.

THIS IS WHY WE ARE TEACHING THE SUBJECT


We are asking the major financial institutions in the home country of Zimbabwe, where falling money values have been so painful in the past, and where much of the development work took place, to supply ten members of staff to take the university-linked course in readiness for when the policymakers change the rules, regulations, and taxes in ways that enable them to make these changes.

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