One of the stumbling blocks I’ve been working on is how to scale credit regeneration from very small economies to the very large, without creating situations where credit becomes too easy (and inflationary). I’m always considering what it takes to bootstrap an economy and continuation of an economy. When I say “bootstrapping” I am talking about helping a collection of people going from absolutely nothing to something that facilitates some ability for division of labor and savings amongst other needs. Once the economy is functional you have the next constraint of keeping things in balance. Just because you can easily re-boot a collapsed economy via bootstrapping doesn’t mean you should. It is in the best interest for everyone to avoid the collapse in the first place.
“Credit regeneration” previously was “automatic”–a source of systemic inflation, much like the legacy system of fractional-reserve banking and credit cards without bankruptcy, that creates more and more money without regard to the needs of the market. The solution deciding when to create new money is to tie the creation of new credit to a positive social activity: savings. The paradox of thrift says that if everyone saves their money, the there is less money available in the economy to facilitate transactions. That is, the money in use as the “medium of exchange” begins to dwindle as more and more people save or hoard it for their “store of value.” In the legacy of fractional-reserve banking, the deposited savings are supposed to be loaned out and create “new” money for the economy to use. However, in fractional reserve lending, there is always a cost to the creation of money: the interest. The creation of new money via loans never resolves the issue of where the money to resolve the interest comes from. So in all fractional-reserve lending systems, the amount of interest cascading through the system always eventually overwhelms everyone’s ability to repay the loans. When there is no more available money to pay it back we get the eventual storm of personal bankruptcies, spikes in unemployment and recessions (or depressions).
The ξ method only creates new credit for those who aren’t saving in proportion to the amount saved by those who are saving ξ. When the economy has no one saving, there is no need for new credit—because everyone is able to transact with the existing high-velocity money-supply. New money is introduced to the economy only when there is “proof of savings”—if there is no evidence of savings, there is no reason to create any new money.
What’s the maximum amount of possible new money? Taking a “model economy” of 10,000 individuals: Everyone started with ξ9.2103 in credit [ln(10,000) people]. The period of time for measuring savings is also generated from the size of the economy, in this case its a little over 18-days [ln(10,000^2) days]. In the highly unlikely event that 9,999 people gave all of their credit to one individual who avoided spending any of their own credit for 18-days, 9,999 people would receive ξ9.2103 in new credit. Should the “lucky saver” decide to spend any of their own credit during those 18-days, the 9,999 people would find themselves secondless (think penniless, but with time 😉 ) and the lucky saver would have over ξ92094 to spend.
In reality, it is more likely that several hundred people are “good savers” while the rest are “spenders.” If 1000 savers average ξ30 in savings in 18-days, the 9000 remaining “spenders” will see their credit replenish by ξ3.3333 after 18-days [1,000 savers × ξ30 = ξ30,000; ξ30,000 ⁄ 9000 spenders = ξ3.3333] giving them a new opportunity to spend or invest back into the economy until it reaches an equilibrium: when no new “money” needs to be added to the system.