How to launder money, part III

How to launder money, part III
Photo by Scott Graham / Unsplash

The previous part ended on accounting for the choice of 15% transaction cost. Any number could, in fact, be selected - but the psychological factor is important, and '15' has an almost virgin-like aura, the 1 and the 5 are good together - nothing like all the drama of the 3, the 6, and the 9, the scary 7 or the dubious 2, nor the pompitious all consuming '8'. I forgot the 4 - 'cause, well, you just do 😟

The fine print

Barter is not solved - is it!?

The short answer to that question is: No! People will barter like they do today. If my neighbour is willing to do my lawn and in exchange have me do their dishes, nothing in this universe will be able to control that!

A somewhat longer at it: Barter is a deliberate decision based upon the perceived degree to which one feels getting robbed. A 25% VAT on top of a hourly price of perhaps 50$ will leave most feeling getting robbed pretty good. 15% is still not free beer but certainly a considerable less grivious experience – and with hourly charges perhaps even sliding ever so little, hopefully even less so!

But bartering will never cease to exist – the incentives are just too big. Reducing the risks and friction pertaining to the money transactions, however, will bring down the size of bartering measurable.

GNP will suffer and make us all a lot poorer!

Well - this is where things start getting really complicated!

Gross National Product - Gross National Income as it's in fashion to label it now - is the market value of all the goods and services produced in one year by labor and property supplied by the citizens of a country. Quite a mouthful, right? But rest not - it get's a lot worse - 'cause GDP is favored by many in measuring the real economic habetus of a country; and then there is Gross Value Added. Interested, read on here, or have a tast of the issues surrounding all the calculations and forecasts, like this article explaining divergences between GDP and GVA in the worlds largest population, India.

In Utopia lives only 2 people. One is a farmer growing potatoes and the other is a student learning to be - a farmer perhaps. The farmer hands the student 100$ every month for the student to be able to pay for the potatoes they need to survive. That's a GDP of 100$. Now the farmer increases the price to 110$ – and has to hand the student 10$ more. GDP just rose by 10% ?!? No one grew any more potatoes and neither of the citizens got any richer nor more full!

So - like Utopia - reducing taxes will lower the GDP but this will possibly strengthen the country's ability to compete in markets internationally and leave no one any poorer nor less full (as long as transfer incomes - the 110$ for the student - are equal to the current spending, ie if the above 'story' was reversed and the farmer lowering the price = less tax and thus handing the student 100$ instead of 110$ allowing the student to buy potatoes like before)!

Side effects may be less inflation but that might be offset by increased purchasing power by consumers and, yeah the list goes on!

Allowances and gifts

If 15% transaction costs are added to all money transactions – what will happen to allowances and gifts?

That's perhaps the single most challenging issue, and one that I have no really good answer to!

If my daughter works her butt off scrubbing our kitchen floor and I agree to raise her "pocket money" from nil to 10$ a week, I need to accept that I am in fact paying 11.50 for the floor scrubbing. Furthermore she will have to come to terms with not getting her full measure of sweets at the candy store – because she cannot afford the entire bag of sweets at 10$ but only 8.695$'s worth of candy.

In the bigger picture (for the greater good) I do, however, consider this a minor snag in the design! Leaving back-doors open certainly will corrupt the system and render it useless in a very short time – so it's either all or nothing, as I see it.

Foreign trade will be endlessly more difficult!

Not by any measure, no!

Let's start with sales. Company A wins a big tender for erecting playgrounds in 10 german cities. The german "LΓ€nder Amt" is provided with an IBAN number (the way most money is wired from buyer to seller, today) pointing to Company A's escrow account in the Nationalbanken, and when Company A wishes to transfer the payment to their digital company wallet, the 15% transaction cost will be added.

Procurement works in exactly the same way. Company B buys sugar cane from Cuba and transfers an agreed upon money sum to their escrow account in the Nationalbanken. The Nationalbanken dutifully informs the cuban seller of the money sum being present and ready and now the seller can see to the cane getting shipped to Denmark with no worries about whether Company B has any intentions to fault the payment.

In fact foreign trade will benefit immensely from this scent-added-to-money disruption for one by making it ridiculously easy to enter into contracts with foreign buyers/sellers. Every transaction is now supervised and backed by the Kingdom of Denmark thus cutting out all the 'middle-men' in the process!

Banks will not like it!

No, no more than newspapers liked the advent of the Internet and social media! They are free to lend money but I understand that the consequences will be a 'harsher environment' to operate in. C'est la vie

This will get bogged in bureaucrazy!

Bureaucracy is a german invention - or rather, Max Weber is considered to be one of the first to popularize the term! An efficient organization processing administrative tasks and the procedures they follow when decision-making – an office analogy to the manufacturing assembly line.

Bureaucracy by itself is merely an efficient way of organizing the completion of work tasks, and with a proper mission and just set of rules to run this bureau there is absolutely no reason why stinking money should become bureaucrazy!

I acknowledge the dangers facing this Gordian Knot cutter, like politicians realizing how easy it will be to turn the transaction cost nob versus asking their public service spenders to revisit the budgets or telling their voters to lower their expectations as to what returns they can expect from the public sector.

What is next?

I have a post in the making detailing the implementation - stick around for that