making currency a fully exogenous variable changes all societal outcomes
Including QE (and prescriptive MMT), within the central bank/central government monetary paradigm no fundamental change in practice (or theory) for supplying an economy with money has emerged since money’s ties to metals were severed. A fully exogenous (demographically determined) supply of currency represents such a change.
Monetary integrity follows from closing the monetary loop. The existing economy becomes fully self-regulating with no unemployment, poverty, taxes, or public debt (the last two being contingent on total government spending not exceeding its current per capita level). Sustainability is enhanced. The possible scope of the model ranges from national to global.
Current practice (plus prescriptive MMT)
Currently, supplying the economy with money takes two forms: money as credit, when banks create deposits as a result of issuing loans, and money as currency, when money is created for the central bank to purchase newly issued debt of the central government or, in QE, other assets. That the creation of money in the form of credit is determined by other economic variables is undisputed; the central bank directly determines only the creation of currency.
In making that determination the central bank is influenced by the central government’s fiscal operations, which are influenced by economic considerations, as well as further economic considerations. That the central bank’s determinations regarding the creation of currency are influenced by economic considerations makes that variable less than fully exogenous. (In prescriptive MMT, as a means of achieving particular ends, economic considerations continue to influence the amount of currency to be created.)
Money in either form, once created, remains in the (global) economy forever, permanently increasing the supply of money. To reduce the amount of money in circulation, e.g. to reduce pressures on price inflation, it must be captured by banking systems.
A fully exogenous currency
A fully exogenous supply of currency would be wholly determined by a variable outside the economic system. In this model the supply of currency is determined by demographics. (To be clear, the creation of money as credit continues as at present.)
The supply of currency takes two forms: money supplied to fund government (at all levels, from central to local) and money paid to individuals (the “allotted income”). In both cases it is created as needed.
In this model the amount of money supplied for funding government is determined by the current per capita level of total government spending for the year at the time of the conversion to the model. The money supplied to fund government every subsequent year is that ratio multiplied by the population of the nation. The apportionment of that money and all matters related to taxation/public debt for revenue beyond that amount are TBD for any nation. (Deciding the authority for determining the size of the population is an issue.)
The allotted income
In this model the allotted income is paid to all retired citizens and adult citizens who are unable to work as well as being the minimum pay for any citizen employed in any business or government. It is thereby available for any (adult) citizen. The amount of the income is set at a level above the existing ‘poverty line’. Unemployment and poverty are eliminated for the citizenry. [As the basis of all governmental ‘anti-poverty’ programs/bodies is eliminated, any such existing entity, e.g., in the U.S. the Social Security Administration, could be extracted from government to become a Monetary Agency to administer a nation’s currency; here the administrator of the currency is the central bank.]
Employees in minimum-pay (hourly or weekly) positions are paid the allotted income. Employees earning more than that amount of money continue to receive their pay in full from their employers.
Employers use benefits to compete for minimum-pay employees. The only restriction is that all benefits must be in-kind, not monetary in form (as in allowances, expense accounts, etc.).
Employers are free to designate any position as a minimum-pay position. An individual is free work in that position for that pay plus negotiated benefits or not.
The rate of pay is the same for everyone paid the allotted income. Benefits reflect conditions in particular labor markets.
To eliminate unemployment and poverty completely, government is an employer of last resort. It supplies jobs that pay the allotted income without benefits, jobs that are essentially cost-free.
[Such jobs do not represent competition for employers seeking to fill other minimum-pay positions. Their existence does reinforce the condition that all other minimum-pay positions in the economy will include benefits.]
Closing the monetary loop
In this model two threats to the integrity of the money emerge. One is price inflation. The other is such an accumulation of unspent money that economic meaninglessness would result. Both threats are negated by a fixed mechanism for capturing money.
(Government and not-for-profits are assumed not to be accumulators of money.) Individuals and businesses are allowed to retain an amount of money at a fixed rate based on, for an individual, annualized monthly income and, for a business, a quarter’s annualized earnings. Money on hand beyond that amount at the end of the relevant period is collected for the central bank. (A ‘cashless’ economic system in which all money is always in an account at a bank facilitates closing the monetary loop.)
This paradigm thereby sets a limit on hoarding money. Holding money is a hedge against uncertainty and risk. This paradigm shift all but eliminates both from the economy as a system and established businesses within it. [The collection of money could be structured so as to apply in effect only to (established) businesses.]
That returned money is currency comingled with money as credit. It will re-enter the economy as currency in funding government and paying the allotted income. Any shortfalls of money for those purposes are remedied by creating currency; if the amount of money returned to the central bank is surplus to requirements for those purposes the excess is returned to the ‘thin air’ out of which is was created: it is destroyed.
The amount of money returned to the central bank is wholly determined by the actions of individual entities within the economy. That makes the total supply of money self-regulating, making the economy self-regulating. (The central bank continues to oversee the viability of the banking system.)
Output is governed by demographics. No political incentive exists (such as maximizing employment, income, and — thereby — tax revenue) to maximize output: functionally, output follows given (absent taxes/public debt) government spending; there is no unemployment or poverty at any level of total output.
This model can be implemented in any nation. It could be adopted by a group of nations to share a common currency with a common Monetary Agency (without compromising sovereignty). It could be adopted globally, with a single Monetary Agency. In any case, the allotted income can be expanded to all employees of all businesses with employees and government to eliminate economic exploitation.
This model demonstrates that within the existing central bank/central government paradigm a fully exogenous supply of currency (determined by demographics) is possible. All details (including transitioning to it) are potential subjects of study, research, and discussion.