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The Surplus of utility and Non-Credit money

Author: Stojan Nenadović

E-mail: sm.serbon@neobee.net

From the beginning of economic thought, there were two approaches to the principal economic
problem - the problem of value of goods.

According to the dominant scientific thinking: on the occasion of exchange, goods and money
are being exchanged as equivalents.

According to an alternative commonsense thinking: on the occasion of exchange, one gives less
to get more (both seller and buyer realize a profit).

Commenting on the latter type of reasoning, Milton Friedman argues: “The fundamental defect
in all such reasoning is the failure to recognize that what is called a profit or an excess of receipts
over expenditures is also a cost.”

Friedman’s statement is projected upon supposition that the costs and utilities, incorporated in
commodities, are monetary equivalents.

This is the premise upon which today’s dominant monetary theory and the policy of credit
money is based. By emitting money in the form of credit, the monetary equivalence between
costs and utilities is secured ex ante.
Real equilibrium between costs and utilities can exist only in a stationary society where there are
no alterations in the level of economic rationality. Where economic rationality stays constant,
the quantity of production, exchange and spending remains always the same, and thus the
quantity of money in circulation doesn’t change either. That is, there is no need for an
additional quantity of money (dM = 0). One’s cost is always another’s profit, therefore cost
and profit are by definition equal, and the above Friedman’s statement holds.

Any alteration in the level of economic rationality alters relations between costs and utilities.

The growth of economic rationality in production includes both the growth of production by
constant costs and the constant production by diminishing the costs.

The growth of economic rationality in consumption includes both the growth of utility from the
constant quantity of goods and the constant utility from diminishing the quantity of goods.

The quantum of utility which is equivalent to costs I denote as a necessary utility (i.e. necessary
for compensating the costs) and the quantum of utility over necessary utility produced by the
growth (i.e. created from the growth) of economic rationality I denote as - the surplus of utility.

The total quantity of money in society is composed by the quantity of money in circulation (M1)
and the quantity of money out of circulation (M2).
The quantity of money in circulation is:

P = prices level = constant


Q = quantity of products
V = velocity of circulation of money

The quantity of money out of circulation is composed by the quantity of money by the producers
(accumulation = A) and the quantity of money by the consumers (saving = S).
The total quantity of money is:

By the constant level of economic rationality, the costs and utilities are equivalent, Q, V, A and S
are constant, M is constant, and the value of national product (NP) is:

NP = PQ

If M is the function of Q, V, A and S, as of arguments, and of P as constant, the alteration of


arguments, i.e. Q, V, A and S, as independent variables, leads to the growth of M as dependent
variable.
Thus, the growth of economic rationality includes:

• dQ = the growth of production by constant costs


• dA = the growth of accumulation through diminishing the costs
• dV = the retarded velocity of circulation of money, by the growth of utility from
constant quantity of goods
• dS = the growth of saving through diminishing the purchase of goods
• dM = the growth of quantity of money and it is non-credit money, as an income from the
surplus of utility.

This money, respectively income, results not from costs, i.e. it is not derived from necessary
utility but from the growth of economic rationality, respectively from the surplus of utility as its
measure.

The growth of national product (NP) is for PdQ.

New national product (NNP) is:

NNP = PQ + PdQ
The national monetary income is composed by the incomes which result both from the national
costs (i.e. necessary utility) and from the national surplus of utility, i.e. from the national
emission of non-credit money.

The national surplus of utility is composed by the national producer’s and consumer’s surplus.

is the surplus of utility which is produced by


producers = producer’s surplus

is the surplus of utility which is produced by


consumers = consumer’s surplus

In the monetary value of new national product, the monetary incomes from national producer’s
surplus end as a profit, while, the monetary incomes from national consumer’s surplus
compensate the costs, through purchasing the products which cannot be sold, since the incomes,
earned from costs, have in part ended in saving, in part are being spent, but more slowly, or for
the payments which are being not incorporated in the value of national product (thus the period
of realization of national product is being prolonged, what as retarding of money circulation
velocity is being denoted).
National costs (NC) are new national product minus profit:

National income (NI) is new national product plus consumer’s surplus:

In equation P as the level of prices is constant.

In reality, prices get up if the emission of non-credit money is greater than the real surplus of
utility. If the emission of non-credit money is lesser than the real surplus of utility, either prices
depreciate or stock grows.
If the emission of non-credit money is equivalent to the real surplus of utility, the prices must be
constant (stable).

Growth of economic rationality leads to diminishing costs and augmenting supply and to
augmenting utilities and diminishing demand.
An excess of offer over demand is the material substratum of the surplus of utility, caused by the
growth of economic rationality, which can be realized only through emitting the necessary
quantity of non-credit money which is being distributed (as a donation) to producers that have
needs for the surplus of unsold production’s factors, and to consumers that have needs for the
surplus of unsold objects of consumption.

The real growth of economic rationality which is being demonstrated through diminishing the
costs of production (real dA) and consumption (real dS) is being realized both through keeping
the money on special accounts of accumulation (dA) and saving (dS) in banks and through
investing the savings, as an accumulation credit (dAC) and as a saving credit (dSC), in
expanding of production and consumption, if it brings the interest (i.e. the greater amount of non-
credit money than is the amount which would have emitted if there is no credit).

real dA + real dS = dA + dS + dAC + dSC

The growth of production (PdQ and the growth of goods in stock (PdR) unsold through retarding
the money circulation velocity are together the total quantity of unsold products:

Unsold = PdQ + PdR ; PdR=-M1dV

The new velocity of circulation of money is:


If because of diminishing the economic rationality it is necessary to diminish the quantity of
money in circulation, the state must impose the taxes after which the expenditures follow not. If
counter to corresponding emission of non-credit money, the prices of some products are rising
and of other are depreciating and even products cannot be sold, it is necessary to change the
production structure.

Through trade, production is being directed to the minimum of costs and consumption is being
directed to the maximum of utilities and in this way the maximum of the surplus of utility is
being realized.

Through national trade the national surplus of utility is being realized and through world trade
the world surplus of utility is being realized, both by aid of the emission of (national and world)
non-credit money.
An income from the surplus of utility, i.e. the non-credit money is being paid from the account of
emission bank (national or world), directly to the beneficiaries of non-credit money, by decree of
national parliament (by national non-credit money) and by decree of the assembly of states-
members in according to scientific knowledge (by world non-credit money).
Since without emitting non-credit money from the surplus of utility, there is no development in
modern society, today, really, exists simultaneously nominal credit and real non-credit money,
respectively, nominal equilibrium (according to theoretical dogmas) and real non-equilibrium of
national accounts which is being realized, spontaneously and chaotically, through inflation of
credit money, budget deficit, national and foreign debt, non-synchronism of takings and
expenditures in terms of inflation, and other chaotic economic processes.
There is no solution for national and world economic crisis and the problem of national and
world debt, without inaugurating both national and world system of emission of (national and
world) non-credit money which can ensure a stable and rapid development, by full employment
and social equity, of the world in whole and of all nations particularly.