More money for everyone, a happy world is possible, a different thesis of monetary policy

Note you what happens in December when people receive extra income by year-end bonuses. Most feel happy because they can buy more and also give gifts to their loved ones. But that joy is short-lived, as the money runs out soon.

The questions that arise from the observation of this reality are:

1. Is it possible to extend the joy of people all year through increased revenues?

The answer is very simple:

Yes, it is possible to extend the joy the whole year through increased income of all persons involved in the economic process, entrepreneurs and workers.

2. What steps should be taken to increase revenue?

The increase of income must be the result of public policy decision, i.e. a decision of governments. There would be four ways to do this: a) To increase wages of all workers in the public and private sector, b) Granting loans to unemployed workers with entrepreneurial spirit to create their own businesses, c) Granting soft credits to existing businesses to increase its working capital and, d) Granting loan facilities to the creation of new businesses. As can be seen, the money is key in each of the proposed scenarios.

The wage increase would have an effect on aggregate demand because people consume more and it would encourage entrepreneurs to produce more increasing employment of new workers. It would create, therefore, a situation of expanding production, consumption and employment.

3. Would generate this increase of Income more inflation?

The answer is ambiguous: yes and no, it depends on the impact that rising wages have on business costs, the production behavior, the behavior of the distribution of goods and services and the control that governments can exercise to prevent price gouging by distributors and retailers.

Inflation should be minimal if the impact of wage increases on the cost structure of firms is relatively small, if production responds to incentives generated by the increased income of workers, if the supply chain works properly and the government monitors to prevent speculative actions.

4. Money can do miracles; effects of credit to business-minded workers

Experience in very poor countries confirms that money can do miracles even in nations where living conditions are precarious. A small loan has enabled thousands of people in these countries start a business. The case of the banker to the poor, Muhammad Yunus (Bangladesh) Nobel Peace Prize 2006 is one of the most notable. Yunus gave thousands of microcredit to poor people which changed their lives.

Other international experiences have shown that giving resources for investment and the appropriate education to the poor people is a way to overcome poverty. Microcredit is a great example.

5. How can you increase wages and increase lending if the most important governments of the world are implementing austerity measures to reduce spending?

That's the other logical question that you probably do. Well, let's answer it.

Certainly in countries like the United States and southern Europe the governments of Portugal, Spain, Cyprus and Greece are implementing measures of fiscal restraint. But that policy is a mistake. The International Monetary Fund, itself, has recognized.

The southern European countries mentioned above are suffering the consequences of the austerity policy because they lost their monetary sovereignty when abandoned their national currencies and adopted the euro.  As a consequence, the monetary decisions are now taken by the European Central Bank in Brussels and countries most influential in the community who are Germany and France, which, in turn, are the major exporters in the region. The interests of Germany and France are different from the interests of other members of the Union.

6. Could countries overcome austerity and have more money?

Yes, they can; it's just a matter of political decision. Governments have the power to issue all the money necessary for the proper functioning of their economies. Money is just a medium of exchange, a trust instrument that circulates through the good faith and its acceptance by economic actors. The money does not have enough support in gold or any other value, it is only paper with no intrinsic value and, consequently, governments can issue all the money that require their economies without other limitations than reason and logic.

7. Conclusion

Governments could create the conditions for a better and happier world surpassing the old and false theories about the back of money in precious metals and the monetary causes of inflation by adopting a modern attitude, rational and logical about the issuance of money. The true understanding of that reality would avoid the painful effects of the austerity policies and would open the way for happiness to millions of people worldwide.