mathematically perfected economy™ (MPE™)    1  :   the singular integral solution of  1) inflation and deflation,  2) systemic manipulation of the cost or value of money or property, and  3) inherent, artificial multiplication of debt into terminal systemic failure;    2  :  every prospective debtor's right to issue legitimate promises to pay, free of extrinsic manipulation, adulteration, or exploitation of those promises, or the natural opportunity to make good on them;    3  :  our right to certify, to enforce, and to monetize industry and commerce by this one sustaining and truly economic process.

MORPHALLAXIS, January 14, 1979.

Mathematically Perfected Economy™ FORUMS, DISCUSSION

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 Post subject: Stocks, Flows, and the Revolving Fund
PostPosted: 11 Apr 2010, 12:29 pm 

Joined: 11 Apr 2010, 11:09 am
Posts: 1
The proof against MPE and the "debt virus" can be found in this paper by Steve Keen. The short of it is that MPE examples are incomplete with regard to all flows. While they are correct, they don't model actual economies (approx. Figs. 2-3 in Keen), but rather a straw man economy (equivalent to Fig.1 in Keen's paper).

As "gcopenhaver" wrote in another forum:
No one borrows money just to instantly pay it back [as the MPE Excel worksheets assume]...they use that borrowed money for something and pay it back at some point in the future. On top of that, unless the person borrowing the money already has what they need to pay back (loan+interest) saved up, they are assumed to be productive (producing wealth, such as having a job or owning a business). It is also assumed that anyone lending money has expenses that result in them spending money, which means some of what they're collecting in interest is being traded back into the economy (people get money to save/invest and spend, not to just sit on it for eternity...what would be the point of that?).

In other words, the MPE examples only address an economy where there are no income flows for anyone but the bank, which is hardly an economy at all. In this model, the banks don't spend their income and debtors don't use their loans for production (say to pay wages, which are then also spent alongside the banker's income), i.e. to set up counter-flows. They are correct in saying that a dynamic system with only inflows to the banker (who simply hoards it) will collapse; such a truth is trivial. But economies have complete circuits where money is used for things. These circuits can see amounts of money flow through them in a unit of time that is far greater than the amount of money loaned, as demonstrated quite clearly in the Keen paper. Only by confusing stocks (which must sum to the amount loaned) and flows (which can be greater) is collapse assured. This confusion is the classic cause behind seeing $X loaned and wondering how in the world $X+i can be paid back.

The use of system dynamics and the differential equation approach of Keen is more than sufficient proof and should satisfy the burden that Mike demands. I have built the models from the paper in R code and have confirmed the numbers across various parameter settings, including those from the MPE worksheets. Interest (and profit) can be maintained if all flows are accounted for. This does not guarantee that economies will not have problems (for example, production could fail), nor does it imply interest is necessary (mathematically-speaking since it is difficult to imagine a bank operating with no overhead, e.g. wages to bank workers) but it is far from an inevitable singularity of termination.

I hope this was helpful to everyone. If you have further questions, please ask.

Steve's site is having some issues today so if the link above doesn't work, I can send it to anyone who is interested.

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While 12,000 homes a day continue to go into foreclosure, mathematically perfected economy™ would re-finance a $100,000 home with a hundred-year lifespan at the overall rate of $1,000 per year or $83.33 per month. Without costing us anything, we would immediately become as much as 12 times as liquid on present revenue. Transitioning to MPE™ would apply all payments already made against existent debt toward principal. Many of us would be debt free. There would be no housing crisis, no credit crisis. Unlimited funding would immediately be available to sustain all the industry we are capable of.

There is no other solution. Regulation can only temper an inherently terminal process.

If you are not promoting mathematically perfected economy™, then you condemn us to monetary failure.

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