Market economies need low-cost ways to allocate investment funds, make payments, and handle credit. The financial system, with three different methods for achieving these three functions, is expensive to operate. However, the payments system, on its own, is low-cost and ubiquitous. Modern internet technology can incorporate investment and credit systems as part of the payments system and reduce the costs of operating a market economy. It can do it incrementally, one loan at a time, leaving the rest of the investment and credit systems intact. Doing so offers market participants an alternative to the high-cost investment and credit markets that are collectively called money markets.
With money markets, money itself becomes a commodity and has a fixed value. Returns on investment are by increasing the money returned where all money has the same value. One alternative is to change the value of money within a closed group of market participants. Investments increase the value of money and credit reduces the value. Money increases in value by giving a discount and decreases with a surcharge on the price of goods or service. We can achieve this within closed markets such as the customers of a company, members of a family, members of a cooperative, beneficiaries of a trust, or citizens in a country.
Hence, money markets are unnecessary if investors, buyers and creditors are all part of a single entity. If we don’t use money markets to transfer money, we remove the cost of operating the money markets, including the cost of interest. If the cost of moving money within a closed group is less than the cost of transferring money using a money market, the closed group will create the same value of goods and services for a lower cost than using money markets.
Prepower cooperative rooftop investments show that investing in small closed groups reduces the cost of investing compared to traditional debt. Cooperatives of cooperatives scale the transfer of money. The information structures created from the bottom up resemble natural living systems and have the characteristic of life and evolution.
Changing the way we move money creates a low-cost, adaptable financial system. Reducing the amount of money needed to produce things of value reduces the resources required to make the same goods and services and reduces the consumption of the natural world.
Governments and Money Markets
Governments encourage money markets as they use them to control economies and as a way to tax citizens to pay for government services. The reasons for their widespread use is that they exist, they operate globally, and they work. COVID19 and the GFC has shown governments can, and always have, used other ways to distribute new money than through money markets.
Governments can achieve greater control of economies by decreasing their reliance on money markets and move more of the economy to closed, self-contained markets of goods and services. Governments can spend money into existence in areas of the economy that need encouragement and remove money from the economy by taxing activities that harm or do not need encouragement.
Governments are doing this by supplying spending money directly to individuals and businesses. For the long term they can provide refundable money for investment to other civil society communities that invest. Communities can be any group of citizens such as local governments, cooperatives, local corporations, local businesses and superannuation funds.
Money markets increase the volume of money where the issuer of the money, normally governments, promise that the extra money retains its value. It inevitably results in extraordinary levels of debt that governments try to handle by lending near-zero interest money, setting targets for inflation to reduce the value of money, and allowing asset inflation to absorb excess money. These efforts result in a stagnate economy that interferes with the operation of the markets for goods and services.