Manhattan, 2040: Alice wants to open an antiques store. Chelsea seems like a good location. She has to find 150 square meters to move the items that she has collected over the years, and to go on a tour of flea markets in Eastern Europe, her area of expertise. She needs to finance the imports. The problem? She doesn’t have enough money to get started.
She goes into her interface in the Federal Reserve and chooses the “print money for personal and economic growth” option. She answers a series of questions that appear on the screen, defining her business sector, presenting projected costs, and building a draft business plan.
From here, the central bank will make calculations based on all of her personal and financial details (she owns a small apartment and is financially stable). Statistical analyses of her financial history show that she is reliable and careful. Data on the risks tied to Alice’s business idea will be integrated with data on the needs of the economy and its potential areas of growth, along with other information the bank has.
If an investment is approved, the bank will credit Alice’s personal account with dollar signs. She will be able to transfer the money by swiping screens, printing checks, or printing bills with her own personal printer.
Commercial banks don’t exist anymore. They are only unnecessary mediators. It is the central bank that identifies the need for a loan, generates the money, and transfers it to the client. In fact, the management of all investments and credit pass to the central bank. The bank controls the entire economy. It sees everything. It understands everything. It calculates Alice’s chances of success and allocates credit efficiently and at low risk.
You don’t need connections or favors from your bank manager. And if your request for a loan is refused, then the bank probably has good reason. Its complicated calculations indicated that your business idea could not be profitable any time soon. Alice would have wasted her time in a frustrating, hopeless battle. In fact, the bank did Alice a favor.
Everything Is Transparent And Permission Is Granted
There are three stages in our story: Alice submits her application, the bank calculates her chances of success, and the bank transmits money signs straight to Alice.
What we have here is a combination of a new digital reality – the gathering of big data – with a controversial monetary theory. That theory is the endogenous (internal) theory of money.
Let’s begin with big data. Three years ago, IBM’s research labs conducted a fascinating experiment. Combining data on Facebook posts about the flu with available data, they built a statistical model predicting the spread of flu in a certain season. When they compared the graph of their results to data from the Centers for Disease Control and Prevention, they found a surprising correlation.
In our story, the Federal Reserve would do something similar with data on tourist spend, trends and fashions, adding Alice’s personal data into the mix. Giant algorithms would calculate all this in order to estimate Alice’s chances of success.
If the central computer arrives at the conclusion that the loan is worth the risk then it would generate the money.
Money As A Social Road Sign
According to the endogenous (internal) concept of money, banks generate currency in an artificial way, ex nihilo, in order to enable economic growth. As per this understanding, money would not have existed before requests for credit. Money is created in accordance with demands for it, and the central bank can’t really control what happens with it.
Growth, as economists like Professor L.P. Rochon from the University of Sudbury, Canada, would say, is made possible by this generation of currency. And where does the central bank get the money? It lent the money to itself, meaning that it transferred numbers in its balance from one place to another.
The central bank then marks a transfer of a million dollars (for instance) in the balance, and transfers those shekels to the computers of the commercial bank. The bank then transfers the money to the customer, who buys equipment, pays wages, sells and makes profit, and pays the bank back with the money they earn.
When the bank pays the central bank back it deletes the loan that it “took from itself.” Money, according to Rochon, is first and foremost a tool for social organization. And if this is the case, why shouldn’t everyone of us have access to this tool?
What A World, What A World
It is hard to talk about freedom in a society where my future steps are predicted according to fingerprints on social media, my groups of friends, what is happening around me and my history, and where all this is predicted before I even decide what step to take.
Even though I still have the ability to choose as an individual and I am free to act, everything is subject to oversight. If there is no real freedom, what is the significance of the idea of a free market in a story such as Alice’s? Very little, apparently.
Alice lives in an economic system that is different from the capitalist and communist systems that we know. On the one hand, it is a totally controlled market. All the commercial activities take place through central coordination, checks and calculation. But unlike the Soviet market, which suffered from inadequate allocations of credit, the computer makes decisions based on the optimal situation of (almost) full economic information.
Central management in a system like this, however, is not the most important thing. Also unlike the Soviet market, there is no place here for passive workers or managers, and there is still room – and need – for entrepreneurship and creativity.
On the other hand, a market like this is not a free market in the Western sense of the term. In this system, the central bank would be able to strictly plan and manage the initiatives of every citizen, and to have (almost) total control of the economy. Every credit application would be subject to computerized checks according to parameters set by the central bank.
And still, there would be more room for private initiatives and creativity than today. Further, unlike a planned Soviet economy, there would be no human interference in the private sphere. There would be no personal preferences, no nepotism or favoritism, and no limits to creativity. But the central computer will understand that an economy needs creativity and innovation.
Unlike our bank, the algorithm will know that there is room to allocate credit in a system of risk-taking where new, and even strange, things are produced. Even a fringe artist or a poet would be able to ask for financing. The central bank will know that without art there can be no human society.
And privacy? This has been disappearing for a long time now. Haven’t you noticed?