For every action, there is always an equal and opposite reaction. For every proton in the universe there is an electron, and for every asset there is a liability. It is a fundamental law that everything in the natural and financial world has counterbalance to it. Everything except one: money. There is money and there is debt, but that is just another form of money. Because there is no counterweight to money, we are forced to circulate it through inefficient mechanisms such as taxation and asset purchases and sales to fund government programs and control the rate of inflation. Every dollar earned is then taxed by some amount, collected by a government agency, appropriated by another, spent on the salaries of government employees and contractors, and then taxed again. This is a convoluted and unnecessary process filled with fraud, deathweight loss and toxic incentives.
|Instead of collecting existing money to fund government operations, we propose the government replace taxes with anti-money. Anti-money, much like antimatter would have the effect of destroying any money it comes into contact with. For example, an anti-money bill for 500cr. would be paid with $500, which would then disappear into thin air. Since over 90% of money in circulation is virtual and the vast majority of people don’t pay their taxes with currency, this would be a very quick and easy process.|
|There are two main benefits to abandoning the current tax system in favor of anti-money. The first one being is that it would necessarily make the tax code more streamlined and transparent as there would be fewer steps required in the process. The second benefit is that it would provide an automatic monetary stabilizer for the economy. Assuming that government expenditure stays constant through the business cycle, the amount of anti-money created would fluctuate in a counter cyclical way.|
|When the economy is booming and profits are high and unemployment is low, the amount of anti-money created increases to cool down inflationary pressures. In turn, when the economy is in recession, the quantity of anti-money created decreases, in effect, creating a form of monetary stimulus.Because most money created in modern economies comes from private borrowing and lending, the government normally has limited tools to affect short term changes in the money supply. When the Federal Reserve, for example, tries to inject liquidity in the financial system in order to counter-act deflationary pressures from money being destroyed by defaulting loans, it’s not always clear that the money makes its way into the real economy. As we have observed in the last few years, banks and other financial institutions are sometimes content to sit on excess reserves, in effect negating part of what the Fed is trying to do.A possible alternative to an indirect injection of liquidity in the financial system to avoid a deflationary spiral is anti-money. When there is a smaller amount of money being destroyed by anti-money because fewer people have jobs and fewer businesses make profits, there is an automatic increase in the money supply through government expenditures. This increase in the money supply counter-acts the deflationary forces which arise during a recession, such as decreasing loans, increasing defaults and lower money velocity.|
|Frequently asked questions
1. How would the government borrow within a system using anti-money?
|Instead of issuing bonds, the government would be able to issue anti-money contracts to private and foreign investors. These contracts would stipulate that investors would destroy a nominal amount of money today and receive dollars back in principle and interest in the future. This would reduce the amount of anti-money which needs to be matched by taxpayers while keeping the government budget and inflation rate constant in the short term.
2. Wouldn’t such a system encourage the government to spend too much and create a lot of inflation?
While keeping monetary policy insulated from political motivations has been essential to keeping a strong currency in the past, it does not follow that an anti-money system would necessarily break that relationship.
|The Fed, for instance, could continue to be in charge of creating money for the government, supplying only how much it deems fit to meet the inflation or nominal GDP targets set by Congress. If the government were to demand a budget that were to exceed such targets, the Fed would provide funds only up to the point where it doesn’t infringe on its mandates, asking the government to create more anti-money in the form of loans or taxation to bridge the gap or to explicitly change its targets. In theory, the Fed rejecting a budget proposal on grounds that it would violate its inflationary/NGDP targets is no different than the Supreme Court throwing out a law on the grounds of its Constitutionality.While such a situation could create a potential conflict of interest, it is worth noting that monetary policy has always had such conflicts, starting with the Fed’s dual mandate of full employment and price stability. As the date of this post, the Federal Reserve is the largest single owner of Treasury bills, holding approximately 45% more US debt than 2ndplace China. It is hard to overlook the potential conflicts of interest and political incentives which may arise in such a situation.
3. What if the government wanted to cut its budget or pay down its loans without creating deflation?
If the government were to cut its spending in real or nominal terms, there would many ways to prevent monetary contraction, the easiest of which would be a decrease in the amount of anti-money collected or a sending everyone a tax rebate. On the issue paying back the national debt, assuming that everything else is kept constant, the government would have to create additional anti-money to balance out the newly-created money that’s paid back to its creditors.
4. What would be the rates of anti-money that each individual/corporation would have to pay?
Anti-money is compatible with any model of taxation, may it be flat or progressive, at the individual or corporate level on either income or sales.