AMI’s Evaluation of “Modern Monetary Theory” (MMT)

 

by AMI Research, with Steven Walsh; and assistance by Stephen Zarlenga

Modern Monetary Theory (MMT) is a theory developed by a group of economists over the past 25 years or so. In the current crisis it has been receiving some wider attention from the economic community and politicians looking for a new direction.
The American Monetary Institute (AMI) is sometimes asked about MMT and whether it fits in with monetary reform. We assess anything to do with monetary matters carefully.
At the outset AMI enjoys a good, cordial relationship with some of the leading MMT economists, and we certainly wish to build on this relationship. But one thing we can’t compromise on is facts. MMT, like much of modern economic thinking, builds upon some erroneous assumptions and a definition of money that is faulty and works to the extreme detriment of the 99%. In addition MMT has its own specific problems between its claims and the facts which have bearing on the validity of MMT.
Economists too often get the facts wrong
MMT shows a lack of respect for empirical facts. This is a problem with economists’ theories in general, and we find that MMT is no exception. As the monetary historian Alexander del Mar observed over a century ago (and it still holds true today):
“As a rule, political economists … do not take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”
¹To their credit, MMT economists like Professor L. Randall Wray admit to using imaginary history, for example:
“This … summation of the ‘origins’ of money, much of it relying on speculation” is used in “a stylized, hypothetical example of the way in which an economy can be monetized.”²
But by using this imaginary method, important historical facts get missed. For instance, in an overview of the Continental currency of the Revolutionary War, Professor Wray jumps to the MMT theory-fitting conclusion that “Without a sufficient tax liability, the notes depreciated quickly.”³
No mention is made of the massive counterfeiting done by the British. This played the main part in the ultimate depreciation of the currency, as Benjamin Franklin tells us in an article he wrote in 1786, reflecting on his first-hand experience of that time:
“Paper money was in those times our universal currency. But, it being the instrument with which we combated our enemies, they resolved to deprive us of its use by depreciating it; and the most effectual means they could contrive was to counterfeit it. The artists they employed performed so well, that immense quantities of these counterfeits, which issued from the British government in New York, were circulated among the inhabitants of all the States, before the fraud was detected. This operated considerably in depreciating the whole mass, first, by the vast additional quantity, and next by the uncertainty in distinguishing the true from the false; and the depreciation was a loss to all and the ruin of many. It is true our enemies gained a vast deal of our property by the operation; but it did not go into the hands of our particular creditors; so their demands still subsisted, and we were still abused for not paying our debts!”⁴
For its part, the Continental Congress maintained an excellent record: $200 million notes were authorized, and about $200 million were put in circulation at any one time (and about $48 million damaged notes were replaced).⁵
This example highlights the poor methodology which is at the root of MMT’s problems: it’s extremely bad practice of selectively taking pieces of history out of context and then using them as a prop to give their pre-conceived ideas the appearance of legitimacy, when they are in fact baseless.
Not that MMT is alone in doing this, the mainstream high school textbook, Economics: Principals in Action (published by Pearson, 2007, p. 248) written by Arthur O’Sullivan and Steven M. Sheffrin, perpetuates this same misunderstanding of the American Revolution. What is happening here is that these stories put in people’s minds that government is incapable of handling monetary affairs, specifically, the supply of money. History shows that ancient governments, the American colonies and the United States government were quite capable of running their monetary systems in a healthy and fairer way than today’s system.
MMT misuses terms
MMT stretches and twists the meaning of words beyond normal usage; for example, Wray says:
“We say that fiat money is a government liability. For what is the government liable? To accept its money in payment of taxes.”⁶
Normally people think of a liability as being something owed and due. Money need not be something owed and due, it’s what we use to pay something owed and due. To call money a liability ignores the nature and properties of money. It removes the concept of money and substitutes a concept of debt in its place.
MMT mis-defines money as debt
Poor methodology and misuse of terms leads MMT to mis-define money as debt; e.g., Wray says: “Fiat money will be defined as … nothing more than a debt.”⁷
But money and debt are two different things, that’s why we have different words for them. We pay our debts with money.
If money is defined as a debt, it artificially places an unnecessary burden of debt on the whole of society. It turns the positive real net worth of all we produce into a financial negative instead of positive. In effect, it artificially places financial claims on all of our achievements and progress, thus denying us full benefit and enjoyment of all we create.
While most money in the U.S. mis-designed system is really debt, put into circulation by banks when they make loans, it is a huge error to then define the “nature” of money as debt. That mistake would render it impossible to redesign the system in a just and sustainable way.
The AMI considers the concept and definition of money as the most critical factor in determining whether a society’s money system functions in a just and sustainable way.
How money is defined determines who controls the money system, and whoever controls the money system will dominate the whole society. For instance:
• If money is defined as wealth (e.g., commodities like gold and silver by weight), as Adam Smith did, then the wealthy will control not only their own wealth, but the money system and thus the whole society as well.
• If money is defined as credit or debt, as MMT and most economists now do, those who dominate credit (the banks) will control society’s monetary mechanism – and we know from experience they will misuse it to create bubbles, until the whole system crashes.
• If money is defined as an abstract legal power of society, as the Constitution does, then the money system is placed under our constitutional system of checks and balances to work justly and sustainably for the whole society, not for only a privileged part of it.
The AMI uses the following concept of money:
Money’s essence (apart from whatever is used to signify it) is an abstract social power, embodied in law, as an unconditional means of payment.
Some particulars about MMT
Now we’ll look at some of what MMT claims and compare it with the facts. Then we’ll look at where MMT got its ideas from, what that means, and suggest how MMT can fix these errors.
MMT makes these specific claims about the present monetary system:
1. government creates money when it spends, and can create as much as society wants;
2. taxes aren’t used for government spending, and are “literally burned” instead;
3. government bonds aren’t used for government spending either, but to help the Fed;
4. right now, government can create money for full employment and price stability.
MMT confuses its theory for facts
We’ll take some quotes from MMT literature related to these claims and show that there are serious problems with them. We then take some of MMT’s own contradictory quotes which seem to admit this.
1. Does government create money when it spends (as much as we want)? – No
Wray says “Government expenditure will generate coins, notes or bank reserves”⁸ and “Government spending is constrained only by … the public’s desire for money.”⁹
In fact, according to official sources, the creation and issuance of coins, notes and bank reserves is unrelated to government expenditure. All coins and notes are issued to the public through banks, and all bank reserves are originally created by the Fed for banks.¹⁰ Government expenditure merely transfers (previous) bank reserves back to banks.¹¹
Therefore, government spending is constrained by present monetary arrangements, not by the public’s desire for money.
MMT bases this erroneous claim on the assertion that, as Wray says: “Treasury spends before and without regard to either previous receipt of taxes or prior bond sales.”¹²
In fact, Treasury must receive taxes or the proceeds of bond (or other debt) sales into its general (checking) account at the New York Fed before payments can be made from it, as the law prohibits the Fed from making loans or overdrafts to Treasury.¹³ The Fed has to debit Treasury’s account to credit banks’ accounts, otherwise its books wouldn’t balance.
Therefore, Treasury cannot spend without regard to how much is in its account.
2. Is our tax money “literally burned” instead of being spent again? – No
Wray says “tax receipts cannot be spent”¹⁴ as “the money is literally burned, or simply wiped off the liability side of the central bank’s balance sheet.”¹⁵
In fact, Treasury publishes daily statements of its accounts showing that tax funds are transferred to its account at the Fed, and the Fed publishes weekly statements showing these amounts as liabilities on its balance sheet; they are not wiped off.¹¹ As for burning money, that is a federal crime.¹⁶ Currency re-enters circulation until damaged or worn.¹⁷
MMT bases its erroneous claims on the belief that, as Wray says: “Taxes are used to drain excessive disposable income.”¹⁸
In reality we’re in a deep recession (or depression) right now, most people certainly don’t have any excessive disposable income, and yet most people are still being taxed.
3. Is government borrowing presently unnecessary? – No
Wray says “bond sales … cannot finance or fund deficit spending,”¹⁹ but are done “to prevent … a zero per cent bid for reserves, … allowing the [Fed] to hit its target.”²⁰
As above, data published by Treasury and the Fed show the proceeds of bond (and other debt) sales go in and out of Treasury’s account/s at the Fed; they are used.¹¹ And today the effective bid rate for reserves is at the Fed’s target rate of near-zero,²¹ yet Treasury is still selling more bonds.²²
Yet MMT believes that, as Wray says: “Once domestic households and banks are content with their holdings of government bonds and … reserves, then government need not … sell any more bonds.”²³
Today holdings of government debt and bank reserves are much higher than ever before, but Treasury is still selling more bonds.²² Aren’t we “content” with government debt yet?
4. Is government presently able to create money to create full employment? – No
Wray says “Treasury’s ability to issue fiat money”²⁴ means “full employment with price stability … can be achieved, now.”²⁵
But as we’ve seen above, Treasury does not do this at present, banks do, so government is not in a position to create and spend money into the economy to achieve full employment and price stability right now.
MMT lacks any real evidence
We haven’t found any real, officially-confirmed, evidence to support what MMT claims.
All the official sources we’ve checked (and we have!) indicate that the facts are contrary to what MMT claims; under the monetary arrangements that prevail at present.
Of course, Congress can change these arrangements, and fortunately we have legislation introduced into this Congress which restructures our money system so Treasury can create the money supply (as MMT thinks is happening) to enable full employment and price stability to be achieved and sustained.
MMT doubts its own validity
To their credit, MMT economists like Wray question their own assumptions:
“What if we have erred in our understanding of money, and in our analysis of government budgets? In this case, we must take [federal program] costs seriously.”²⁶
In this case, we must ask: What is MMT really doing? We ask because MMT literature sometimes admits something factual, but then reverts straight back to saying things that are completely contradictory to the facts just admitted; e.g., Wray says:
“It is true that the Treasury transfers funds from the private banks to its account at the Fed when it wishes to ‘spend’,” but in the very next paragraph says: “Treasury cannot withdraw taxes from the economy before spending.”²⁷
As we’ve seen above, Treasury’s account is debited when it spends, so it must get funds from the economy (since the Fed can’t lend it funds). The funds transfer back and forth between Treasury and the economy; so it’s pointless saying which direction occurs first.
What else – some other problems with MMT:
5. Combining the Treasury and Fed together as though they’re both “the government”:
In fact, the operational arms of the Fed, the 12 Fed banks, are stock-owned by member banks. It should be clear by now that the Fed exists to help banks, not society.²⁸
6. Saying money has value because of taxes, that’s why people want it, and government decides its value:²⁹
In reality, money has value because of what it can buy, we want it for many things, e.g., to buy food (paying taxes is much lower on the list), and sellers usually decide its “value” as such. What enables that value to be created in the first place is people living together in a supportive legal and social structure creating values for living, such as education, science, medicine, technology, the arts, etc.
7. Ignoring the continuous transfer of wealth from poor to rich due to government debt:
A big part of our taxes go to pay interest on debt, held disproportionately by the top 1%.
8. Ignoring banks’ ability to counteract government’s effect on the economy at any time:
Banks can shrink the economy by shrinking the money supply (e.g., Great Depression) or expand it with bubbles (e.g., housing) regardless of government deficits or surpluses.
9. Ignoring the continuous theft from society due to private money creation:
Society creates all economic value; private money acts as a private tax on that value.
10. Accepting systematic injustice:
Loaning money into circulation widens wealth and income disparities, as those with the most get the most loans and those with the least get the least; e.g., Wray says: “Clearly, large segments of the population are ‘quantity rationed’ … quantity rationing can even be irrational – perhaps discriminatory -” but then says: “We will not dwell on such issues.”³⁰
At AMI we do dwell on such issues, because not doing so is a morally bankrupt position.
MMT goes back and forth in its logic
MMT backtracks on the timing of government spending and tax transfers; e.g., Wray says: “Treasury transfers funds … to its account at the Fed simultaneously as it spends.”³¹ That’s a lot different from “Treasury spends before and without regard to … receipt of taxes”¹⁰ (as quoted above). So MMT admits that Treasury does need funds to spend.
MMT even admits that banks control our money supply; e.g., Wray says: “the supply of bank money depends on the supply of loans which is not under the control of the government.”³²
We need bank money before anyone can get cash, buy government bonds, or pay taxes. Thus banks have total control over our money supply: nobody (including government) can get any money unless a bank decides to make a loan or purchase.
MMT fails to realize that this vast power is in private hands, not in the hands of society through government. We’re supposed to be living in a democracy, not a plutocracy.
MMT also admits the Fed exists to serve the needs of banks, not society; e.g., Wray says: “the [Fed] cannot … refuse to provide reserves … needed by the … private banking system … as all banking systems operate with a fractional reserve system, banks … are automatically loaned reserves.”³³ (emphasis added)
All of this gives a very different impression of the main assertions of MMT.
Where MMT got its mistaken ideas from: The ‘Smoking Gun’ and fatal error
MMT got its mis-definition of money from two articles written by “A. Mitchell Innes”
(actually A. Mitchell-Innes), a top British diplomat to America at the time the Fed was being established. Innes only ever wrote two articles on money (the second was only to drive home the first), and in effect they created a “backstory” for the new Fed system.³⁴ Innes is the rotten apple. Following Innes has led MMT down a hole.
Through the Looking-Glass, and What MMT Found There . . .
Through a maze of inaccuracies and inconsistencies, Innes created a “theory” which says:
“It is the issue of money which is the burden and the taxation which is the blessing.”³⁵
Take a moment to test this theory against your own experience. Have you ever felt this? This is backward thinking. Innes tricked serious people by removing the concept of money and replacing it with debt.³⁶
Substituting debt for money inverts the idea of money. It turns good into bad; and has a domino effect: inverting everything else to give a totally inverted view of the real world.
The inherent problem with MMT: it keeps the present problems in place
Under present arrangements, all money is issued with debt (but it doesn’t have to be). Issuing money with debt places an unnecessary interest burden on our money supply and makes it susceptible to collapse and susceptible to private, often corrupt, interests. These are existential threats to our economy and society that MMT fails to address.
It’s okay, there is a way out: HR 2990
It doesn’t have to be like this. We need a simple system which every normal person can understand. There is already a bill in Congress which gives us a simple system which isn’t prone to endless bubbles and crashes. This bill is HR 2990 and it’s main goals are full employment and price stability, which are the main goals of MMT too. HR 2990 explicitly takes the money power back into Congress, where it belongs, which is where MMT says it belongs too.
HR 2990 enables government to spend money without taxing or borrowing, i.e, the functional approach MMT espouses. HR 2990 requires non-inflationary results and provides funds to improve our infrastructure and education at all levels.
HR 2990 is the missing link that makes what MMT says happens really happen, by treating money as money, not debt.
MMT needs HR 2990 for the things they say they want to become a reality. MMT can then be about calling for more money instead of more debt – a more reasonable position, and a much easier sell politically.
Conclusion
MMT economists are commended for at least looking at money creation, when almost all other economists don’t even consider it, but they look at it in such an inaccurate way that MMT is rendered useless in any practical sense.
This is because MMT has embedded within it a mis-definition of money as debt, meaning the harder we work as a society, the more in debt we get, meaning we have to work even harder, use more resources, get into more debt, and so on, i.e., it’s a self-defeating system.
Thus MMT fails to address the source of economic instability and the driver of the social and environmental degradation we see all around us. It proposes putting an ambulance at the bottom of the cliff whenever there’s a crash, instead of preventing them happening.
This error comes from the mis-definition of money as debt. The mis-definition of money as debt is incompatible with the Chartal (legal) nature of money that MMT espouses, and history shows us that it is also incompatible with MMT’s stated goals of full employment and price stability. Therefore, MMT has to treat money as money: a necessary medium of exchange – without associated debt – if it wants our money system to reflect reality.
Treating money as money is a pre-requisite for any realistic and sustainable solution. Only then can we enjoy the benefits of technology without endless toil and resource use. When economics is founded on reality, not theory, we’ll all be better off.
References:
Bech, Morten L. (2008), “Intraday Liquidity Management: A Tale of Games Banks Play”, Federal Reserve Bank of New York Policy Review, September 2008, New York, NY: Federal Reserve Bank of New York, pp. 7-23.
Coleman, Stacy Panigay (2002), “The Evolution of the Federal Reserve’s Intraday Credit Policies”, Federal Reserve Bulletin, February 2002, Washington, D.C.: Board of Governors of the Federal Reserve System, Division of Reserve Bank Operations and Payment Systems, pp. 67-84.
del Mar, Alexander ([1895] 1978), History of Monetary Systems, Clifton, NY: Augustus M. Kelley.
Febrero, Eladio (2008), “Three difficulties with Neo-Chartalism”[*], XI Jornadas de Economía Crítica, Bilbao, Spain: La Asociación de Economía Crítica; Journal of Post Keynesian Economics, 31 (3), 2009, Armonk, NY: M. E. Sharp, Inc., pp. 523-541.
Federal Reserve Bank of New York, “How Currency Gets into Circulation”, Fedpoint, June 2008 (http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html).
Federal Reserve Bank of New York, “Currency Processing and Destruction”, Fedpoint, October 2011 (http://www.newyorkfed.org/aboutthefed/fedpoint/fed11.html).
Federal Reserve System (2005), The Federal Reserve System: Purposes and Functions, Washington, D.C.: Board of Governors of the Federal Reserve System, Ninth Edition, June 2005.
Federal Reserve System (2011), Federal Reserve Policy on Payment System Risk, As amended effective March, 24, 2011, Washington, D.C.: Federal Reserve System.
Federal Reserve System (2011), “Currency and Coin Services”, Payment Systems, Last update: July 20, 2011 (http://www.federalreserve.gov/paymentsystems/coin_about.htm).
Federal Reserve System (2012), Account Management Guide, March, 2012, Washington, D.C.: Federal Reserve System.
Federal Reserve System, Federal Reserve Statistical Release H.4.1, Release Date: March 15, 2012 (http://www.federalreserve.gov/releases/h41/20120315/).
Federal Reserve System, Federal Reserve Statistical Release H.15, Release Date: March 19, 2012 (http://www.federalreserve.gov/releases/h15/20120319/).
Franklin, Benjamin ([1786] 1987), “The Retort Courteous”, Franklin: Writings, New York, NY: Library of America.
Franklin, William Temple (1819), The posthumous and other writings of Benjamin Franklin, London: A. J. Valpy.
Mitchell-Innes, Alfred [“A. Mitchell Innes”] (1914); “The Credit Theory of Money”, [American] Banking Law Journal, Dec./Jan., 1913/14.
Sparks, Jared (Ed.) ([1836] 1840), The works of Benjamin Franklin, Vol. II, Boston, MA: Whittemore, Niles, and Hall (reprint 1856).
US Mint, 2011 Annual Report, Washington, D.C.: United States Mint.
US Treasury, Daily Treasury Statement, March 19, 2012, Washington, D.C.: Department of the Treasury, Financial Management Service (https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=12031900.pdf).
US Treasury, Treasury Direct, Historical Auction Query, March 1-19, 2012, Washington, D.C.: Department of the Treasury (http://www.treasurydirect.gov/RI/OFAuctions).
Wray, L. Randall (1998), Understanding Modern Money: The Key to Full Employment and Price Stability, Cheltenham, UK: Edward Elgar.
Wray, L. Randall (2003), “Functional Finance and US Government Budget Surpluses in the New Millennium”, Reinventing Functional Finance: Transformational Growth and Full Employment, edited by Edward Nell and Mathew Forstater, Cheltenham, UK: Edward Elgar.
Wray, L. Randall (Ed.) (2004), Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Cheltenham, UK: Edward Elgar.
Zarlenga, Stephen A. (2002), The Lost Science of Money: The Mythology of Money – the Story of Power, Valatie, NY: American Monetary Institute.
Zarlenga, Stephen A. (2006), “Is the Federal Reserve System a Governmental or a Privately controlled organization?”, Valatie, NY: American Monetary Institute.
Zarlenga, Stephen A. (2010), “Brief Comments on Innes’s ‘Credit Theory of Money’”, Valatie, NY: American Monetary Institute.
* MMT forms part of a sub-branch of economic theories called “Neo-Chartalism” which itself forms part of a branch of economic theories called “Post-Keynesian” (after the late economist John Maynard Keynes).
Notes:
1 del Mar, 1895, p. 101; Zarlenga, 2003, p. 4
2 Wray, 1998, p. 54 (paragraphs 1 and 2)
3 Wray, 1998, p. 62
4 Franklin, 1819, p. 488; Sparks, 1840, p. 504; Franklin, 1987, p. 1127; Zarlenga, 2002, p. 380-81
5 Zarlenga, 2002, p. 381-82, and p. 388, note 37
6 Wray, 1998, p. 95, note 6; Wray, 2003, p. 15, note ix (using slightly different words/terms)
7 Wray, 1998, p.12
8Wray, 1998, p. 80; Wray, 2003, p. 6
9 Wray, 1998, p. 87
10 US Mint, 2011 Annual Report, p. 9 http://www.usmint.gov/downloads/about/annual_report/2011AnnualReport.pdf); Federal Reserve Bank of New York, June 2008 (http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html); Federal Reserve System, July 20, 2011 (http://www.federalreserve.gov/paymentsystems/coin_about.htm); Federal Reserve System, 2005, pp. 27-50 (http://www.federalreserve.gov/pf/pdf/pf_complete.pdf); Coleman, 2002 (http://www.federalreserve.gov/pubs/bulletin/2002/0202lead.pdf); Bech, 2008 (http://www.newyorkfed.org/research/epr/08v14n2/0809bech.pdf)
11 US Treasury, Daily Treasury Statement, March 19, 2012 (https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=12031900.pdf); Federal Reserve System, Federal Reserve Statistical Release H.4.1, March 15, 2012 (http://www.federalreserve.gov/releases/h41/20120315/)
12 Wray, 1998, p. 78; Wray, 2003, p. 5
13 Federal Reserve Act, Section 14, Subsection (b) (http://www.federalreserve.gov/aboutthefed/section14.htm) [12 USC 355]
14 Wray, 1998, p. 78
15 Wray, 1998, p. 111
16 18 USC 333
17 Federal Reserve Bank of New York, October 2011 (http://www.newyorkfed.org/aboutthefed/fedpoint/fed11.html)
18 Wray, 2003, p. 9
19 Wray, 1998, p. 85; Wray, 2003, p. 7
20 Wray, 1998, p. 86
21 Federal Reserve System, Federal Reserve Statistical Release H.15, March 19, 2012 (http://www.federalreserve.gov/releases/h15/20120319/)
22 US Treasury, Treasury Direct, Historical Auction Query, March 1-19, 2012 (http://www.treasurydirect.gov/RI/OFAuctions).
23 Wray, 1998, p. 87
24 Wray, 1998, p. 119
25 Wray, 1998, p. 124
26 Wray, 1998, p. 180 (5 pages from the end of the book)
27 Wray, 1998, p. 78 ((new) paragraphs 1 and 2); Wray, 2003, p. 5 ((new) paragraphs 2 and 3)
28 Zarlenga, 2006 (http://www.monetary.org/is-the-federal-reserve-system-a-governmental-or-a-privately-controlled-organization/2008/02)
29 For an academic critique on these points, readers are referred to Febrero (see References).
30 Wray, 1998, p. 110
31 Wray, 1998, p. 116
32 Wray, 1998, p. 110
33 Wray, 1998, p. 105
34 Wray, 2004, p. 11-13
35 Innes, 1914, p. 160
36 Zarlenga, 2010 (http://www.monetary.org/critique-of-innes/2012/06)

How the Fed Could Fix the Economy... and Why It Hasn't

by Ellen Brown 

   

Posted: 02/25/2013 3:54 pm Huffington Post

 

                                                            

 

Quantitative easing (QE) is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn't been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic balance sheets of banks. A real "helicopter drop" that puts money into the pockets of consumers and businesses has not yet been tried. Why not? Another good question...
When Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was not yet chairman of the Federal Reserve. He said then that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. "The U.S. government has a technology, called a printing press (or, today, its electronic equivalent)," he said, "that allows it to produce as many U.S. dollars as it wishes at essentially no cost." Later in the speech he discussed "a money-financed tax cut," which he said was "essentially equivalent to Milton Friedman's famous 'helicopter drop' of money." Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.
It seemed logical enough. If the money supply were insufficient for the needs of trade, the solution was to add money to it. Most of the circulating money supply consists of "bank credit" created by banks when they make loans. When old loans are paid off faster than new loans are taken out (as is happening today), the money supply shrinks. The purpose of QE is to reverse this contraction.
But if debt deflation is so easy to fix, then why have the Fed's massive attempts to pull this maneuver off failed to revive the economy? And why is Japan still suffering from deflation after 20 years of quantitative easing?
On a technical level, the answer has to do with where the money goes. The widespread belief that QE is flooding the economy with money is a myth. Virtually all of the money it creates simply sits in the reserve accounts of banks.
That is the technical answer, but the motive behind it may be something deeper...
An Asset Swap Is Not a Helicopter Drop
As QE is practiced today, the money created on a computer screen never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there. Except for the small amount of "vault cash" available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank.
According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:

"[B]anks do not lend 'reserves.' [...] Whether commercial banks let the reserves they have acquired through QE sit 'idle' or lend them out in the internet bank market 10,000 times in one day among themselves, the aggregate reserves at the central bank at the end of that day will be the same."

This point is also stressed in Modern Monetary Theory. As explained by Professor Scott Fullwiler:

"Banks can't 'do' anything with all the extra reserve balances. Loans create deposits -- reserve balances don't finance lending or add any "fuel" to the economy. Banks don't lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its... interest rate target."

Reserves are used simply to clear checks between banks. They move from one reserve account to another, but the total money in bank reserve accounts remains unchanged. Banks can lend their reserves to each other, but they cannot lend them to us.
QE as currently practiced is simply an asset swap. The central bank swaps newly-created dollars for toxic assets clogging the balance sheets of commercial banks. This ploy keeps the banks from going bankrupt, but it does nothing for the balance sheets of federal or local governments, consumers, or businesses.
Central Bank Ignorance or Intentional Sabotage? Another Look at the Japanese Experience
That brings us to the motive. Twenty years is a long time to repeat a policy that isn't working.
UK Professor Richard Werner invented the term "quantitative easing" when he was advising the Japanese in the 1990s. He says he had something quite different in mind from the current practice. He intended for QE to increase the credit available to the real economy. Today, he says, "All QE is doing is to help banks increase the liquidity of their portfolios by getting rid of longer-dated slightly less liquid assets and raising cash... Reserve expansion is a standard monetarist policy and required no new label."
Werner contends that the Bank of Japan (BOJ) intentionally sabotaged his proposal, adopting his language but not his policy; and other central banks have taken the same approach since.
In his book Princes of the Yen (2003), Werner maintains that in the 1990s, the BOJ consistently foiled government attempts at creating a recovery. As summarized in a review of the book:

"The post-war disappearance of the military triggered a power struggle between the Ministry of Finance and the Bank of Japan for control over the economy. While the Ministry strove to maintain the controlled economic system that created Japan's post-war economic miracle, the central bank plotted to break free from the Ministry by reverting to the free markets of the 1920s.
[...] They reckoned that the wartime economic system and the vast legal powers of the Ministry of Finance could only be overthrown if there was a large crisis - one that would be blamed on the ministry. While observers assumed that all policy-makers have been trying their best to kick-start Japan's economy over the past decade, the surprising truth is that one key institution did not try hard at all."

Werner contends that the Bank of Japan not only blocked the recovery but actually created the bubble that precipitated the downturn:

"[T]hose central bankers who were in charge of the policies that prolonged the recession were the very same people who were responsible for the creation of the bubble... [They] ordered the banks to expand their lending aggressively during the 1980s. In 1989, [they] suddenly tightened their credit controls, thus bringing down the house of cards that they had built up before...With banks paralyzed by bad debts, the central bank held the key to a recovery: only it could step in and create more credit. It failed to do so, and hence the recession continued for years. Thanks to the long recession, the Ministry of Finance was broken up and lost its powers. The Bank of Japan became independent and its power has now become legal."

In the U.S., too, the central bank holds the key to recovery. Only it can create more credit for the broad economy. But reversing recession has taken a backseat to resuscitating zombie banks, maintaining the feudal dominion of a private financial oligarchy.
In Japan, interestingly, all that may be changing with the election of a new administration. As reported in a January 2013 article in Businessweek:

"Shinzo Abe and the Liberal Democratic Party swept back into power in mid-December by promising a high-octane mix of monetary and fiscal policies to pull Japan out of its two-decade run of economic misery. To get there, Prime Minister Abe is threatening a hostile takeover of the Bank of Japan, the nation's central bank. The terms of surrender may go something like this: Unless the BOJ agrees to a 2 percent inflation target and expands its current government bond-buying operation, the ruling LDP might push a new central bank charter through the Japanese Diet. That charter would greatly diminish the BOJ's independence to set monetary policy and allow the prime minister to sack its governor."

A Hostile Takeover of the Fed?
To free the central bank from Wall Street capture, Congress or the president could follow the lead of Shinzo Abe and threaten a hostile takeover unless the Fed directs its credit fire hose into the real economy. The unlimited, near-zero-interest credit line made available to banks needs to be made available to federal and local governments.
Webster Tarpley observes that the Fed advanced $27 trillion to financial institutions through the TAF (Term Asset Facility), the TALF (Term Asset-backed Securities Loan Facility), and similar facilities. He proposes an Infrastructure Facility extending credit on the same terms to state and local governments. It might offer to buy $3 trillion in 100-year, zero-coupon bonds, the minimum currently needed to rebuild the nation's infrastructure. The collateral backing these bonds would be sounder than the commercial paper of zombie banks, since it would consist of the roads, bridges, and other tangible infrastructure built with the loans. If the bond issuers defaulted, the Fed would get the infrastructure.
Quantitative easing as practiced today is not designed to serve the real economy. It is designed to serve bankers who create money as debt and rent it out for a fee. The money power needs to be restored to the people and the government, but we need an executive and legislature willing to stand up to the banks. A popular movement could give them the backbone. In the meantime, states could set up their own banks, which could leverage the state's massive capital and revenue base into credit for the local economy.

Negative interest rates idea floated by Bank's Paul Tucker

26 February 2013 Last updated at 16:05  Business/BBC

 

Paul Tucker told MPs he had suggested negative interest rates in an attempt to boost the economy

Bank of England deputy governor Paul Tucker has said negative interest rates should be considered.

A negative interest rate would mean the central bank charges banks to hold their money and could encourage them to lend out more of their funds.

Speaking to MPs on the Treasury Committee, Mr Tucker said: "This would be an extraordinary thing to do and it needs to be thought through carefully."

He said it was one of a number of ideas that he had put up for consideration.

"I hope we will think about whether there are constraints to setting negative interest rates," Mr Tucker told MPs.

Any discussion of negative rates would have to take into account the likely detrimental impact on savers, who have already seen the income from their savings fall since the financial crisis.

With interest rates at a record low, there is little scope for central banks to use conventional means to stimulate the UK's weak economy, which has dipped in and out of recession since the 2008 financial crisis.

“Start Quote

Some of the proposals we heard today, such as moving to negative interest rates, are radical; others are not. They all warrant careful consideration”

Andrew Tyrie MP Chairman, Treasury Select Committee

The Bank has resorted to quantitative easing (QE), pumping billions into the economy.

Minutes of the last meeting of the Bank's policy setting committee showed that the governor, Sir Mervyn King, was outvoted in calling to expand QE from its current level of £375bn.

During that meeting other policy measures discussed included buying assets other than government bonds. It also considered reducing the Bank rate, which is currently 0.5%, and is the rate which directly influences mortgage and loan rates.
More QE?
In addition, the committee looked at reducing the marginal rate of interest on bank reserves held at the Bank to encourage them to lend more. When negative interest rates were introduced in Denmark, it was this rate which was cut below zero.

The Bank of England minutes showed that the committee, "had noted drawbacks with each of these options in the past ; those drawbacks remained".

 

"The committee would nevertheless continue to examine all of the policies potentially available to it."

In his evidence to MPs, Mr Tucker also suggested "possible extensions" to the Funding for Lending scheme that he termed "quite significant, in terms of lending to non-banks and via non-banks".

In its first phase, the Bank's Funding for Lending scheme offers up to £60bn of cheap funds to banks and building societies if they then lend the money to individuals and businesses.

Mr Tucker also suggested that QE - whose merits have been much debated - may soon give a lift to the economy.

"The existing degree of monetary easing from QE is likely to gain more traction on spending than it had last autumn, given reduced tail risks from the international environment," he said, referring to the eurozone debt crisis and the US battles over the "fiscal cliff".

But he added: "I remain open to doing more QE, depending on the outlook for demand and inflation. Nobody on the committee thinks that QE has reached the end of the road and that it is not a useful instrument anymore.

"We stand prepared to do more, if we judge that necessary,"
Untested ideas
Chairman of the Treasury Select Committee, Andrew Tyrie said it had long been concerned about the shortage of lending to the SME sector that was inhibiting economic growth in the UK.

"The MPC is right to be looking at additional tools, or changes to existing tools, that could help," he said.

"Some of the proposals we heard today, such as moving to negative interest rates, are radical; others are not. They all warrant careful consideration," he said in a statement after the hearing.

In 2009, the Swedish central bank, the Riksbank, surprised many when it set a rate of -0.25%. The move below zero for the first time was seen as largely symbolic.

That was on the deposit rate, the rate put on money left by commercial banks at the central bank, which it normally earns interest on.

Banks were, in effect, being charged for keeping money at the central bank rather than lending it out to consumers and businesses to boost consumer spending and growth.

Denmark cut its deposit rate below zero in July last year, and in December, the Swiss bank Credit Suisse imposed negative rates on bank deposits to tame demand for the Swiss franc.



Hugh Pym Chief economics correspondent, BBC News

---

Negative interest rates? Sounds a bizarre notion and the Bank of England deputy governor Paul Tucker acknowledged it would be an "extraordinary" move.
But it is clearly in the Bank's thinking even if not adopted at this stage. The Danish central bank has already gone down this route. The theory is that commercial banks are depositing too much cash in the vaults of the Bank of England.
To encourage them to withdraw the money and lend it elsewhere they would not be paid interest and instead would be charged a fee (negative interest) for holding cash at the Bank of England.
There would not be negative interest on High Street deposits but banks would almost certainly react by cutting savings rates and raising current account charges. The big risk is that any gain in lending by banks would be matched by losses for savers and damage to banks' profits.

P2P Energy Economy

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Contents  [hide]  1 Description 1.1 Title 1.2 Release Notes 1.3 Author 2 User Manual 2.1 Introduction 2.2 The Two Biggest Dogmas 2.3 Fair Exchange (User Manual Section) 2.4 Increased Autonomy Through Increased Interdependence 2.5 An Economy for Human Beings, Not Insects 2.6 Things Cost Less Over Time 2.7 Good Things Come to Those Who Care 2.8 The More You Share, The More You Have 2.9 Using the P2P Trading Application 2.9.1 Security and Trust 2.9.2 Transparency and Visualization 2.9.3 Working With The User Interface 3 Model Development 3.1 Model's Goal 3.2 Model's Context 3.3 Model’s Axioms 3.4 Model’s Propositions 3.5 P2P Programmable Currency 3.5.1 Original Idea 3.5.2 Follow-up and Clarification 3.5.3 Buyer-Seller Affinity Matrix 3.6 Lender and Borrower Credits 3.7 P2P Energy Currency 3.7.1 The Origin of the Idea 3.7.2 Introducing The Idea 3.7.3 P2P Bank 3.7.3.1 Currency Creation 3.7.3.2 'P2P Energy' Management 3.7.3.3 'P2P Lending' Management 3.7.4 Joule Tokens 3.7.5 Joule Token Value Dynamics 3.7.6 Fair Exchange (Model Development Section) 3.7.7 Eliminating Monopolies 3.7.8 Programming Joule Tokens 4 Software Development 4.1 Use Cases (Examples) 4.1.1 Use Case 1-01 5 Model Implementation 5.1 Off-the-Grid Communities 6 Feedback 6.1 Request for Comments 6.2 Readers Comments 7 Collaboration 7.1 How To 8 References 9 Meta 9.1 Change History 9.2 Document Location 9.3 Content License 9.4 Model Development Process 10 Related Links 11 External Links

Description

Title

P2P Energy Economy

Release Notes

3.00.01
This work is being continued on another wiki.
The 3.00.01 release on this wiki has two known issues:
1. Resiliency not efficiency needs to be rewarded.
2. Missing key mechanism: regulating the number of energy producers using quality of service as a threshold and relying on natural human tendency to err to keep the number of energy producers limited while allowing abundance in energy flow and the production of goods and services.
Both of these issues will be addressed in the latest version and the URL will be announced on Evolving Trends
MarcFawzi 17:26, 9 November 2009 (UTC)

Author

Marc Fawzi, Evolving Trends

User Manual

Introduction

The P2P Energy Economy fuses the latest advances in SmartGrid technology, P2P trading and lending, and P2P energy production (from renewables) into an abundance-sustaining economy, including a new kind of currency designed to work with a small but growing category of goods and services that can be produced on abundant basis.
The benefits of the P2P Energy Economy are summarized below:

1. Provide an energy based currency that has a fixed work value and a use value that only increases over time.

2. Enable 'Fair Exchange' (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

3. Direct the flow of money into higher production efficiencies for energy, goods and services.

4. Direct the flow of money towards socially, ecologically and environmentally intelligent producers of goods and services.

5. Enable a model of the economy where in order for peers to grow their revenue they have to share it with others through no-interest lending, i.e. “the more you share, the more you have.”

6. Enable increased autonomy through increased inter-dependence between equally empowered peers.

The following sections articulate the above-mentioned benefits in broader context.

The Two Biggest Dogmas

The two biggest dogmas in current P2P theories that seek to disrupt the status quo are:

1. The generalized exchange of goods and services (aka "non-reciprocal exchange" or "gift economy",) where the giving and getting of goods and services happens at no cost to the recipient and without direct reciprocity between the provider and the recipient, is a good way to run an economy.

2. Self-sufficiency leads to true autonomy.

These two dogmas are countered in the following two sections, which address fair compensation and increased autonomy.
To summarize, for the first dogma, the following counter argument is given:

Getting and giving goods and services for free (as in a gift economy or a generalized exchange) does not lead to a sustainable abundance in those goods and services. The reasons for that are:

1. If a given good or service can be obtained for free then some people may want a very large or endless supply of it without compensating the producers for the cost in work energy it takes to produce those goods and services. For example, if Internet bandwidth was free to all and people had an insatiable appetite for digital content then, at some point, there will be more demand for it than can be produced and delivered without further investments, and if those using the bandwidth do not compensate the producers for it in an equitable manner (i.e. by allowing the producers to recoup the cost in work energy it takes to produce and deliver extra bandwidth to meet increased demand) then the system will not be able to meet that demand. In other words, either the demand for the given good or service happens to be small or it has to be limited, which does not equate to sustainable abundance.

2. If there are more people who are inclined to take more than they give then they will have an unfair allocation of the available resources than people who are inclined to give more than they take, which causes the latter population to suffer and ultimately shrink leading to a dominant majority of people who are inclined to take more than give, which is an unsustainable situation and does not lead to sustainable abundance.

And for the second dogma, the following argument is given:

When it comes to the idea that self-sufficiency leads to autonomy, we can point to the fact that no amount of self-sufficiency can compete with the autonomy achieved by being part of a great inter-dependent whole.

For instance, in the case of North Korea, a fully self-sufficient country that can make nukes from scratch, the fact is that despite having many educated and capable scientists and engineers, a hard working population, and many natural resources (including agricultural resources) they don't have the autonomy (or power) to achieve the standards of living (including nutrition) that would be theirs if they were an part of a greater inter-dependent whole.

So if bloggers and youtubers did not produce their own content and did not re-distribute and remix content from other bloggers and youtubers, the Internet (or Web) as a medium would not have had the autonomy that it has today and the same goes for the bloggers and youtubers, as they would be dependent on the few producers that existed before the Web was born, e.g. TV stations, newspapers, etc.

Having said that, inter-dependence can easily turn into dependence when most producers become consumers and redistributors of a few original producers.

This can happen due to two reasons:

1. The majority of people consume far more than they produce.

2. Certain producers have access to a scarce resource (e.g. insider news in case of bloggers like TechCrunch and access to huge amounts of video content in case of youtubers like CBS and other major TV channels) or a higher place in some established hierarchy (e.g. Washington Post vs. Joe Blogger) use this unfair advantage to buy out the most successful of the small producers (Joe Blogger and Joe Youtuber) in order to reinforce others' dependency on themselves.

One answer that addresses both problems is to assure maximum interdependence in the design of the system, without creating fixed centers of dependency.

The first way "maximum inter-dependence" is assured in the P2P Energy Economy is by having producers trade in goods and services based on the cost in work energy it takes to produce and deliver the given good or service, so that in order for someone to consume, redistribute or remix another producer's goods or services they need to pay for those goods or services in joule tokens at the same amount in work energy it took to produce and deliver those goods or services, which means that they have to produce their own goods and services (or produce surplus energy) that they can trade with other producers at the cost in work energy it takes to produce and deliver the given good or service, e.g. by using joule tokens, which leads to increased inter-dependence between equally empowered peers.

The second way the "maximum inter-dependence" condition is assured in the P2P Energy Economy is by eliminating monopolies.

When it comes to monopolies, they are eliminated in the P2P Energy Economy by the following conditions:

1. All industries must meet the following conditions for sustainable abundance:

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

2. Consumers are automatically and anonymously matched to producers based on the required attributes for the given good or service, the producer's lender credits (see: Lender and Borrower Credits) and the affinity between the consumer's and the producer's social, ecological and environmental values, so producers do not own access to the consumer.

3. Producers are required to share their revenue through lending in order to rank higher as sellers, which assures that in order for a given producer to empower themselves they have to empower everyone.

It's important to note that the way "increased autonomy through increased interdependence" works without creating fixed centers of dependency by constantly breaking and rebuilding the interdependency network. For more on how this is done, please see Increased Autonomy Through Increased Interdependence.

Fair Exchange (User Manual Section)

In today's economy, everything is priced subjectively, i.e. based on subjective value, that's driven in great part by artificial or circumstantial scarcity, using relatively valued currency, where the value of the currency itself is driven in great part by its artificial scarcity. So to start pricing things in terms of the cost of energy it takes to produce and deliver them will require the development of energy costing models for manufactured goods and services but once the energy costing models are developed the process of estimation (through software) can then become a realistic objective.
Technically speaking, in the P2P Energy Economy, tokens of the currency (i.e. money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
Producers who achieve higher efficiency in the production and delivery of a given good or service realize a profit margin due to their reduced cost in work energy.
In addition, producers who use their creativity and invest in R&D to produce an improved version of a given good or service take a risk in doing so and are either rewarded with higher sales, which together with the profit margin from higher efficiency, can lead to substantially higher net profit for the producer, but, if the new version fails to create higher demand, they can end up with a loss.
This means that both efficiency and creativity are encouraged in the P2P Energy Economy (driven in both cases by a positive profit motive that contributes to sustainability and progress) with creativity being a risk/reward game.
In addition to profit achieve through higher efficiency and creative risk taking, all producers (who are human) require a margin of reward regardless of their efficiency of creativity. This is because human beings need to rest and enjoy the fruit of their labor and are not able to convert energy into work product all the time, i.e. some of that energy must be used for enjoyment as well as just idling around.
So a fixed reward margin needs to be added above the median cost in work energy it takes a human producer to produce and deliver a given good or service.
In order to trade in goods and services, including work as a service, at the median cost in work energy it takes to produce and deliver the given good or service plus a fixed reward margin, we have to move away from the existing environment that creates the dynamics for scarcity. In other words, the conditions for sustainable abundance, given below, must be satisfied.

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

For example, if health care (as an industry) was to meet the above conditions for sustainable abundance, a visit to the dentist should not cost more than what it takes in median work energy to produce and deliver it plus a fixed reward margin, which would be a very low price compared to today's prices. But in order for health care to meet the sustainable abundance conditions one of the first things that has to happen is automation (or increased efficiency) not just of IT but of medical procedures. For examples, today, robots are used by surgeons to perform sensitive surgeries to remove tumors with a much greater degree of accuracy than procedures performed by hand. It is very possible to replace the surgeon altogether with robotic surgeon technology that can visualize the tumor in 3D to the finest detail and use a combination of focused radiation beam (or gamma ray laser) to annihilate the tumor in place. It would take a few minutes and a relatively small amount of electricity. The second step in the process of making this type of surgery (as a service) sustainably abundant, the robot technology has to be open sourced and copied at no charge by anyone wishing to manufacture the robot, under a license where the originator only gets to enforce social and moral rights, e.g. attribution, share-alike, etc. Having said that, there will still need to be a human in charge of operating the surgical robot, but that human does not have to be a highly skilled surgeon since the surgical robot will minimize the challenge to a supervisory task requiring only moderate intelligence (or common sense) and some training, which would enable the abundance in surgery capabilities by significantly reducing the degree of specialization required.
So in a world where everyone who wishes to get a given good or service can do so at the median cost in work energy it takes to deliver that good or service plus a fixed reward margin (for the producer), which in many cases represents a very low price compared to today's prices, why not just give everything and get everything for free using "non-reciprocal exchange" (or gifting)?
Getting and giving goods and services for free (as in a gift economy or a generalized exchange) does not lead to a sustainable abundance in those goods and services. The reasons for that are:

1. If a given good or service can be obtained for free then some people may want a very large or endless supply of it without compensating the producers for the cost in work energy it takes to produce those goods and services. For example, if Internet bandwidth was free to all and people had an insatiable appetite for digital content then, at some point, there will be more demand for it than can be produced and delivered without further investments, and if those using the bandwidth do not compensate the producers for it in an equitable manner (i.e. by allowing the producers to recoup the cost in work energy it takes to produce and deliver extra bandwidth to meet increased demand) then the system will not be able to meet that demand. In other words, either the demand for the given good or service happens to be small or it has to be limited, which does not equate to sustainable abundance.

2. If there are more people who are inclined to take more than they give then they will have an unfair allocation of the available resources than people who are inclined to give more than they take, which causes the latter population to suffer and ultimately shrink leading to a dominant majority of people who are inclined to take more than give, which is an unsustainable situation and does not lead to sustainable abundance.

For example, when it comes to digital content, if too many people hog the bandwidth, downloading terabytes of mp3s and software etc at a fixed $40 a month cost (the ISP monthly fee) then the network will meltdown, and it doesn't matter if it's a wireless mesh or the current internet.
In order to perpetuate the production of a given resource, e.g. mp3 downloads, the continuous cost of work energy that has to go into producing and delivering that resource (see: Thermoeconomics) needs to be recouped.
The challenge is figuring out the energy costing models for the types of goods and services that satisfy the aforementioned conditions for sustainable abundance.
We can know how much it takes in energy (calories) per day to keep a 25 year old human being functioning, and we can estimate the other costs of living in terms of the work energy required to maintain living conditions. We can also know the energy use of various processes used in producing and delivering a given good or service. Assuming the given good or service meets the above-mentioned conditions for sustainable abundance, i.e. no dependence on scarcity economics, we can measure the energy it takes to produce and deliver that good or service, and, using historical sales data submitted by all producers of that good or service, we can adjust that eventually to be based on an average volume of production for that good or service (instead of raw estimate) and then calculate the price as the median cost in energy it takes to produce and deliver that good or service, per each instance of that good or service, and add a fixed reward margin.
Such calculation involves building realistic energy costing models (for the various goods and services that are generated by industries that meet the sustainable abundance conditions,) and when it's automated it via cost estimation software (as part of the P2P trading application) it offers us the opportunity to understand the real cost of production to ourselves and the environment.
Since the volume of production affects the cost of energy for producing and delivering a given good or service, the energy costing models used by the estimation software (that is part of the P2P trading application) should assume an average volume of production based on historical sales data from all the producers of the given good or service, as reported by their inventory management system
When it comes to rewarding those who work more efficiently and/or more creatively, the model fully supports that through two different, concurrent paths:

1. Investing work energy in increasing the efficiency of their production processes get to have a profit margin (because their good or service costs less than the median cost in work energy to produce and deliver, so they get to keep the difference.)

2. Investing work energy in improving an existing good or service get to sell more of that good or service if they select the right feature selections (but also get to lose if they select the wrong feature selections, so this second path involves educated risk taking.)

If a given peer spends 500MJ making something that they would like to give to the world then they should be able get that 500MJ back somehow (or they will eventually starve) and the most efficient way is through direct exchange. If they're paid back 600MJ or 350MJ then they will have an idea if they're producing the thing efficiently or inefficiently. In this way, the use of joule tokens promotes (or direct money into) more and more efficiency, not more and more scarcity (as with the existing currency.)
For goods and services that are new (e.g. new inventions, new product categories, etc) the existing scarcity-enforcing currency (e.g. US dollar, euro, yen, etc) will be used until those goods and services become more common (not to be confused with sustainably abundant) at which point the energy cost estimation software will be updated with energy cost models for those goods and services and the producers of those goods and services will be asked to use the software to submit their energy cost estimates using an average volume of production for the given good or service, which is calculated from the historical sales data reported by the inventory management systems of all the producers for that good or service. The price for that good or service is set to the median cost of energy for producing and delivering that good or service calculated from the energy cost estimates submitted by all producers for that good or service.
It's important to note that all transactions in the P2P Energy Economy are done through a P2P trading application which automatically fetches the price of goods and services from the Energy Cost Registry. So the concept of "price" in current economics is replaced by the concept of "median cost of energy it takes to produce and deliver a given product" which decreases over time due to technological progress.
It's an important consideration for producers to make sure that the total cost in work energy for producing and delivering a given good or service is recoup-able in full based on the historical sales data the producer has for the given good or service, as provided by their inventory system, so that they don't suffer losses due to over production, especially since losses, under this model, cannot be recouped from the market(e.g. by dumping excess at lower-than-cost and killing off competition then raising prices to recoup the loss.)
In other words, producing a quantity above predicted short-term demand, as indicated by the producer's predictive inventory system, is a risk the producer must take alone without punishing the consumer or other producers, and they must do so by making sure that their total cost in work energy for producing and delivering a given good or service is recoup-able based on the historical sales data for the given product or service, as reported by their personal inventory management system, which is built into the P2P trading application used for trading.)
Having said that, if a producer was to overlook the historical sales data based on having put more work energy into producing and delivering a new version of a given good or service, i.e. making feature selections, then they should be able to reap the reward if they sell more of the given good or service than they have in the past, or assume the loss if it doesn't.
Since the definition of goods and services under this model requires them to be producible and deliverable on efficient, on-demand basis (i.e. just-in-time inventory must be the norm,) it is unlikely that producers will ever need to over produce. The only actual concern here is that producers must make sure that they can recoup whatever work energy they put into producing and delivering a given good or service. If they don't then they will carry a debt to themselves that they must pay back in work energy.
So while selling more of a given good or service does not imply a profit (since all goods and services are sold at the median cost in work energy it takes to produce and deliver them) selling more of a new, improved version of a given good or service than they've sold of the old version allows the producer to recoup their increased upfront work energy in developing the new version of the good or service. That is because the total cost in work energy of producing and delivering a good or service, which includes upfront costs of the extra work energy for developing a new version, is spread over the entire volume of sales (per a given time period, e.g. the period after which the producer must repay a loan or recoup and reinvest the spent capital.)
The only way for producers to make a profit above the fixed reward margin is by investing in higher efficiency in the production and delivery of a given good or service, i.e. lower their cost in work energy below the median, and taking creative risk (by deciding on new features for their product or service, which may result in higher or lower sales.) This kind of 'progressive profit' does not cause scarcity because it comes from a higher efficiency not a higher price. This model simply eliminates the 'bad' type of profit that's due to a higher priced, based on supply being circumstantially or artificially lower than demand, which enforces the conditions for scarcity.
To expand on the preceding point, we identify three kinds of profits:

a. This kind of profit is made when we have a relatively high efficiency in the production and delivery of a given good or service where the production volume meets the demand at the median cost in work energy it takes to produce the given good or service. This involves producers investing in more efficient production, which is good for the environment and good for society (as it quickens the pace of technological progress, along the efficiency axis, which is required for sustaining abundance) The logic of the P2P Energy Economy treats this type of relative margin difference in "at cost" trading as good profit.

b. This kind of profit is made when the demand is more than the supply (without artificially limiting the supply) and producers can add a given margin above cost (depends on how much larger demand is than supply) to artificially limit demand. The resulting price is called equilibrium price. This type of profit directs money into scarce goods rather than into solving the circumstances that cause their scarcity. In other words, this type of profit is scarcity-enforcing. This type of profit is not possible under the P2P Energy Economy model, simply because the process by which the price is set does not permit it.

c. This kind of profit is made when the demand is more than some artificially limited supply and the monopolist(s) can add an arbitrary margin above equilibrium price (which already artificially limits demands) to further limit demand, create scarcity, and reap obscene profits. This type of profit concentrates money into the hands of those producers who have the financial and ill will to exercise manipulative/controlling power in the market. In other words, this type of profit is not just scarcity-enforcing but also power concentrating. This type of profit is not possible under the P2P Energy Economy model, simply because the process by which the price is set does not permit it.

In addition to profit margin achieved through higher-than-median efficiency in the production and delivery of the given good or service, the producer's creativity in coming up with a new/additional/different feature selection for that good or service is naturally rewarded if it results in higher demand (which when combined with the aforementioned profit results in higher net profit) but if it does not lead to higher demand then the producer must assume the loss (due to the upfront cost in work energy of R&D.)
The model only applies to goods and services generated by industries that meet the aforementioned conditions for sustainable abundance. The main thing the currency developed here achieves is providing a way to trade those goods and services at the cost of energy it takes to produce and deliver them, which enables a fair exchange.

Increased Autonomy Through Increased Interdependence

In the current economy, reliance on one or few major players in each given market has created an unsustainable system. When the top 2 or 3 investment banks in each country failed the entire global financial industry collapsed, which has caused the global economy to falter (search: global economic meltdown 2008.)
In the P2P Energy Economy, increased autonomy is achieved by putting power with the whole rather than with one or few major players.
The current economic meltdown (search: global economic meltdown 2008) is a proof that we have reached or are reaching the limits of sustainability for the current economic paradigm, and that 'peer production' (the production of energy, goods and services by individuals as opposed to utilities and factories,) will make the system dependent on the people as a whole, instead of on one or few major players, which, as we can see, based on the current paradigm, makes the people dependent on the system and renders them helpless in times of instability, thus perpetuating and even deepening their dependence on the system.
One of the key concepts behind the P2P Energy Economy is that it replaces an increased dependence by the users on the system (i.e. on the major players) with an increased inter-dependence between equally empowered peers, which puts the power with the whole and allows both the users and the system to enjoy true autonomy (or power.)
A great example of increased autonomy through increased inter-dependence is the Internet, where increased inter-dependence between content producers, which manifests in the continuous production, re-distribution and remixing of shared content by equally empowered producers (e.g. bloggers, youtubers) has led to increased autonomy for the medium as well as for the producers.
When it comes to the idea that self-sufficiency leads to autonomy, we can point to the fact that no amount of self-sufficiency can compete with the autonomy achieved by being part of a great inter-dependent whole.
For instance, in the case of North Korea, a fully self-sufficient country that can make nukes from scratch, the fact is that despite having many educated and capable scientists and engineers, a hard working population, and many natural resources (including agricultural resources) they don't have the autonomy (or power) to achieve the standards of living (including nutrition) that would be theirs if they were an part of a greater inter-dependent whole.
So if bloggers and youtubers did not produce their own content and did not re-distribute and remix content from other bloggers and youtubers, the Internet (or Web) as a medium would not have had the autonomy that it has today and the same goes for the bloggers and youtubers, as they would be dependent on the few producers that existed before the Web was born, e.g. TV stations, newspapers, etc.
Having said that, inter-dependence can easily turn into dependence when most producers become consumers and redistributors of a few original producers.
This can happen due to two reasons:
1. The majority of people consume far more than they produce.
2. Certain producers have access to a scarce resource (e.g. insider news in case of bloggers like TechCrunch and access to huge amounts of video content in case of youtubers like CBS and other major TV channels) or a higher place in some established hierarchy (e.g. Washington Post vs. Joe Blogger) use this unfair advantage to buy out the most successful of the small producers (Joe Blogger and Joe Youtuber) in order to reinforce others' dependency on themselves.
One answer that addresses both problems is to assure maximum interdependence in the design of the system, without creating fixed centers of dependency.
The first way "maximum inter-dependence" is assured in the P2P Energy Economy is by having producers trade in goods and services based on the cost in work energy it takes to produce and deliver the given good or service, so that in order for someone to consume, redistribute or remix another producer's goods or services they need to pay for those goods or services in joule tokens at the same amount in work energy it took to produce and deliver those goods or services, which means that they have to produce their own goods and services (or produce surplus energy) that they can trade with other producers at the cost in work energy it takes to produce and deliver the given good or service, e.g. by using joule tokens, which leads to increased inter-dependence between equally empowered peers.
The second way the "maximum inter-dependence" condition is assured in the P2P Energy Economy is by eliminating monopolies.
When it comes to monopolies, they are eliminated in the P2P Energy Economy by the following conditions:

1. All industries must meet the following conditions for sustainable abundance:

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

2. Consumers are automatically and anonymously matched to producers based on the required attributes for the given good or service, the producer's lender credits (see: Lender and Borrower Credits) and the affinity between the consumer's and the producer's social, ecological and environmental values.

3. Producers are required to share their revenue through lending in order to rank higher as sellers, which assures that in order for a given producer to empower themselves they have to empower everyone.

It's important to note that the way "increased autonomy through increased interdependence" works without creating fixed centers (or nodes) of dependency is by constantly breaking and rebuilding the interdependency network.
To explain this point in more detail, the first parameter in the automated, anonymous matching of buyers and sellers is the affinity between the buyer's social, environmental and ecological values and those of the seller and the good or service in question. The second parameter is the affinity between the buyer's specified attributes for the given good or service and those of the available goods or services from all vendors under the same category, which includes the quantity but does not include price since prices for all goods and services in the P2P Energy Economy are based on the median cost in work energy it takes to produce and deliver that good or service plus a fixed reward margin. The third parameter, which is supplied by the system, is the seller's lender credits. The priority of each parameter is fixed by the sequence given here.
Assuming that the buyer keeps his parameters the same (for a given period of time) the only operating variable, when it comes to the final selection, is the seller's lender credits, so the more a seller shares their revenue through zero-interest lending the higher they rank in the pre-final selection and the more revenue they generate, i.e. the more they share, the more they have.
The buyer is given a final match based on picking a random seller from the top 30 sellers from the preceding selection, which is akin to buyers clicking on a link from the first three pages of a Google search result, but without the presence of brands or any marketing messages.
Thus, the P2P Energy Economy enables true autonomy for the individual peer and for the whole economy by continuously breaking and rebuilding the inter-dependency network with each transaction while promoting an increase in the scale of this type of transient interdependence between equally empowered peers.

An Economy for Human Beings, Not Insects

Most insects are designed to be specialized.
Most humans are designed to be generalists.
But in today's economy, most humans are taught to behave exactly like insects.
The economic and globalization theories in use today (which are based in part on Adam Smith's antiquated treatise) encourage specialization.
They say let India be the IT provider and let the USA be the creative force. This pattern of specialization is fractal in that it is reflected in each part within such specialized economies, including the USA, where the majority of organizations are highly matrixed containers (or bee hives) of worker bees, with generalists almost absent from the hierarchy, even at the top.
Generalists find no place in the bee hive unless they demonstrate the particular specialized skill that happens to be needed by the hive, which redefines them as specialists, so while they may continue to think of themselves as generalists, they are rewarded according to a specific set of goals, which continuously move them away from generalization (i.e. specialization in many disciplines) into a confined specialization (specialization in one discipline.)
There is an ideological movement today that promotes the idea of one achieving autonomy by being self sufficient with no critical dependencies, i.e. a true generalist with expertise in all areas required for survival. Yet, as argued in the previous section true autonomy can only be achieved through increased inter-dependence between equally empowered peers (see: Increased Autonomy Through Increased Inter-Dependence.)
Since every peer in the P2P Energy Economy is equally empowered as a producer of energy, goods and service, and since the system promotes maximum inter-dependence, everyone is guaranteed a level of security that is based on their work energy, efficiency and creativity, so no one should need to work _for_ someone else.
This means that peers with energy surplus, goods or services needed for the production of other goods or services by others are encouraged by the design of the P2P Energy Economy to exchange their surplus energy, goods or services, on equitable basis, with peers who need them (so they may get the goods and services they need for themselves and those they need for producing their own goods and services.)
Having said that, the P2P Energy Economy enables true autonomy for the individual peer and for the whole economy by continuously breaking and rebuilding the interdependency network with each transaction (see: Increased Autonomy Through Increased Interdependence) while promoting an increase in the scale of such transient interdependence.
Unlike today's economy, the P2P Energy Economy does not 'pigeon hole' individuals into slots (e.g., doctor, dentist, engineer, scientist, teacher, farmer, poet, musician, etc.) from which they cannot achieve great transformations. It does the opposite by encouraging each peer to have the widest range of specialization, and the widest scale of interdependency, without creating fixed centers dependency, and in doing so it empowers each peer to transform themselves and their environment as only true generalists can.

Things Cost Less Over Time

Given continuous technological progress, work done today should take less energy to do in the future.
While that's true for the current economy, the P2P Energy Economy channels the profit motive (or greed) into achieving higher and higher efficiencies in the use of energy (in producing and delivering products and services,) since that is the only way profit can be achieved in the P2P Energy Economy, so given the currency does not lose its work value in energy more and more can be purchased with less and less currency.

Good Things Come to Those Who Care

In today's economy socially, environmentally and ecologically conscious producers of goods and services are beginning to see increased sales, but only in very limited niches and local markets.
In the P2P Energy Economy consumers identify, as part of each purchase of goods or services, the required attributes (for the given good or service) as well as their social, environmental and ecological values, which allows them to find producers (of the given good or service) who support their values. This means that money flows more in sync with society's values.

The More You Share, The More You Have

In the P2P Energy Economy, in order for producers to grow their revenue they have to share it with others.
The way it works is by rewarding producers who lend money to others (with no interest) with bigger access to the market, such that in order to empower themselves they have to empower others.

Using the P2P Trading Application

Security and Trust

All interactions in the P2P Energy Economy happen through a secure, open source, P2P trading application that includes simple functions, consisting of: a lender screen, a borrower screen, a producer screen with cost estimation (pricing) for goods and services and separate inventory management functions for energy and for goods and services, a consumer screen with a search function, and an economic data screen with visualization tools to show what's going on with the economy in real-time.
In addition, the following differentiates the P2P Energy Economy from other online trading communities:
1) All transactions are done using a virtual currency, which, unlike today's money, is only exchangeable within the P2P trading application
2) The matching of lenders to borrowers and consumers to producers is done in a fair, buyer-criteria-matched and anonymous fashion, in such a way that the gaming of the system, while not impossible, costs more in energy than it generates. This contrasts with the fact that for online trading communities like eBay and Amazon the gain from gaming the system is much more than the cost of doing so.
3) Given that access to the P2P Energy Economy is based on an electronic secure ID card that is matched to the person's actual identity (which remains anonymous except in case of committing fraud under the law governing the community, e.g. not delivering a good or service after receiving payment) the system is able to handle such fraud by, e.g. suing the offender in small claims court, and not leave the consumers exposed to predators and con artists, which may be statistically insignificant pain for eBay and Amazon but extremely giant pain for the consumer who gets ripped off.

Transparency and Visualization

If the current model of the economy proved anything it is that even people who have accumulated billions of dollars in wealth, e.g. Warren Buffet, have no idea which actions to take in which sequence to get the economy back on track, and that's because there isn't any way to view what's going on with the economy in one place. People can only make educated guesses about what happens in the economy, and only after it has happened. In other words, there is no way to tell for sure what's happening in the current economy (due to lack of complete transparency) so there is no way to fix it without costly trial and error.
The P2P Energy Economy not only comes with a tools for selling, buying, lending and borrowing but it also a visualization module that allows each user to see what's all that is happening in the economy at any given moment. And unlike tools for visualizing the stock market, which is highly ineffective since the stock market is as predictable as the roll of a dice, the visualization tools for the P2P Energy Economy provide reliable predictive data for decision making, which can be used with high degree of confidence by the users to collectively control of the economy:

1) Predicted short-term demand for energy by nodes with deficit vs. total available supply of energy from nodes with surplus, per the given time period.

2) Predicted short-term demand for each given good or service vs. the total available supply of that good or service from all producers of that good or service, per the given time period.

3) Predicted short-term demand for capital by peers with deficit vs. the total available supply of capital from peers with surplus, per the given time period.

Working With The User Interface

[The User Manual sections to be filled out after the use cases have been specified including screen mockups of the P2P trading application.]

Model Development

All sections under Model Development are intended for those interested in the design and development of the P2P Energy Economy, not the end user.
For those interested in the model's design and development, a full view of the model can only be obtained by reading both the User Manual sections as well as the Model Development sections.

Model's Goal

Money is one of the fundamental elements of today's society.
Changing what money is and how it works will fundamentally change society itself.
The model described herein is developed in the hope of stimulating people to think different about money, energy and the economy, and to apply the model in their own off-the-grid communities, or join us in our game/simulation project (see: Collaboration.)

Model's Context

This model may be viewed as a design pattern for the emerging P2P economy, and, more specifically, the emerging P2P energy economy.
One of the key enablers of the 'P2P Economy,' as defined by this model, is the requirement that the individuals (or peers) within it are connected to each other via the Internet (or some Internet-like network) and that all transactions within the economy are conducted online through a standard P2P trading application, including mobile phone clients for conducting transactions on the go.
The P2P trading application only allows trading in goods and services that meet the conditions for sustainable abundance defined under this model, i.e.: goods and services (and their ingredients) that can be produced and delivered per the following conditions for sustainable abundance:

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

The 'P2P Energy Economy,' as defined by this model, includes the requirement that enough peers must be able to generate their own energy as well as be able to sell their excess energy to other nodes in the economy (e.g. other peers, charging stations, electric bus/train grid, and neighboring communities) via a decentralized electric grid, aka "SmartGrid" (reference: P2P Energy Production.)
This model is designed for an "off-the-grid" community, not for an arbitrarily large society, where, in the latter, people may or may not be able to generate their own energy (e.g. people living in apartment buildings.)
It's expected that the community mandates certain criteria, e.g. solar, wind, renewable sources, with local storage, and a scalable decentralized electric grid.
Having said that, this model is designed and intended to co-exist with the current economy, while helping society transition to an abundance-sustaining economy and away from the current scarcity-enforcing economy.

Model’s Axioms

The following are the basic facts about this model:
1. The definition of energy under this model is limited to energy that is producible and deliverable on continuous, decentralized, renewable, scalable basis.
2. Enough peers exist who wish to produce energy for themselves and sell the surplus.
3. The supply of energy is matched to the demand for energy at the work-value of energy, in joules, i.e. anyone who needs energy can purchase it at its work value in joules in a fixed 1:1 exchange ratio with the currency.
4. Tokens of the currency (i.e. money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
5. The definition of goods and services under this model is limited to those that are produced by industries that meet the conditions for sustainable abundance, which are, namely:

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

6. The price of a given good or service is the median cost in work energy it takes to produce and deliver that good or service plus a fixed reward margin, where the said cost in work energy is based on the average volume of production calculated from predicted short-term demand reported by the inventory management systems of all producers of that good or service.
7. The use-value of energy (and the use-value of the currency which tokenizes the energy) increases over time due to increase in the efficiency of production processes (for energy, goods and services) which is brought by technological progress.
8. Most peers would be willing to make loans (using money as defined here) in return for credit points that rank them higher as sellers.
9. Most peers agree on what constitutes socially, environmentally and ecologically intelligent judgment, e.g. less toxins in food and water, more clean energy, less waste.
10. Enough peers exist who wish to create and share their creations via equitable trade (at the cost in work energy it takes to produce and deliver the given creation) without a profit motive, i.e. for the love of the craft.

Model’s Propositions

The following are the main propositions of this model:
1. Provide an energy based currency that has a fixed work value and a use value that only increases over time.
2. Enable trading in goods and services, including work itself, at the median cost in work energy it takes to produce and deliver them, such that anyone who wishes to get a given good or service can get it at the cost in work energy it takes to deliver that good or service.
3. Enable trading in goods and services, including work itself, at the median cost in work energy it takes to produce and deliver them, such that anyone who wishes to get a given good or service can get it at the cost in work energy it takes to deliver that good or service.
4. Direct the flow of money into higher production efficiencies for energy, goods and services.
5. Direct the flow of money towards socially, ecologically and environmentally intelligent producers of goods and services.
6. Enable a model of the economy where in order for peers to grow their revenue they have to share it with others, i.e., “the more you share, the more you have.”
7. Enable increased autonomy through increased inter-dependence between equally empowered peers.

P2P Programmable Currency

Original Idea

If we had a networked, programmable currency then I could tell my money to exchange itself only for goods/services that are made by vendors who care about the planet AND who have donated to my chosen candidate for President.
I can be as particular as I want and my money should do the figuring out of whom to pay itself to, based on rules I supply, and based on information it can access about the parties I’m trading with.
Another example for networked, programmable currency is to enforce rules on the spending of a daily/weekly/monthly amount of my own money that I let my kids use (luckily no kids yet) so they don’t buy food that contains unhealthy ingredients.
The new networked, programmable money should abandon the idea of paying interest on borrowed money. There is so much debt in the system that it will take decades to get rid of it and return the economy to normal functioning. The interest on debt is like bad cholesterol. While it fattens the economy, it ultimately clogs the global economic arteries and can lead to economic failure, as it has done (see: global economic meltdown 2008.)
If you lend money to someone you should be able to get your money back and get “Lender Credit” points that would replace today’s “hamster wheel” concept of credit rating, which was designed to encourage people to buy money with money, e.g. buying $1,000 for $1,110, which is punishing to borrower.
Instead of being rated on your timeliness in paying back money borrowed + interest, you should be rated on how much you’ve lent others. This way people can dictate that their money is to be exchanged for goods/services only from providers with N “good will” points or more.
Maybe a good place to try this P2P currency (or “Money 2.0″) would be in an online virtual world?

Follow-up and Clarification

I should add a clarification here that the rules imposed on the exchange of this new currency (as defined in this post) do not last beyond the singular transaction. In other words, if I restrict my money to spend itself on organic food only, the grocery store that sells me the organic food will no longer have those rules imposed on the money I paid to them. They can enforce their own rules on it, whatever they may be, and then use it to buy stuff with, and so on…
As to the 1-dimensional value system that is imposed by the current definition of money, i.e. the numerical (or “price”) value, I think it is only a matter of time before this value system goes from being 1-dimensional to N-dimensional. The reason the value system that is imposed by the current definition of money is limited to just the numerical dimension, i.e. price, is because it is assumed that people do their own research/homework when trading with others and make their decision to trade based on that. What I’m suggesting is for the new currency to have more than just a numerical value for a value system, i.e. other values that are programmed/re-programmed into it by every user of that money, thereby allowing the automation and streamlining of trading decisions.
The key argument here, besides the point about the need to abandon “interest,” is that the value system that is ‘explicit’ in the definition of money is 1-dimensional, i.e. the “price,” or numerical value, and there is no excuse for having this 1-dimensional value system when we have computers, the Internet and the ability to implement an _explicitly_ multidimensional value system as the basis for a new currency for the future P2P economy.

Buyer-Seller Affinity Matrix

The Affinity Matrix allows the explicit definition of a multidimensional value system, or set of criteria that represent the buyer’s social, ecological and economic values as applicable to the seller and the given good or service (or the "thing.")
The use of the Affinity Matrix by buyers of goods and services should direct the flow of money to socially, ecologically and environmentally intelligent producers of goods and services. This affinity matrix does this by adding value dimensions for the thing itself and the seller so that people move from being price-conscious to being socially, ecologically, and environmentally conscious.
The purpose of the affinity matrix is to direct money from the buyer (of a given product) to sellers with whom he/she has the largest affinity. As a buyer, you’d declare your social, ecological, environmental and economic values which get matched against the seller’s values, in all those dimensions, but you’d also need to declare the thing’s (good or service) values (or attributes,) e.g. if the thing is “cucumbers” then you may specify ‘Organic.’
To do this, money that's allocated to the purchase of some product, e.g. 5 joule tokens to spend this month on cucumbers, has to carry some transient (transactional) information (or transaction metadata.) Making this transaction metadata explicit and multidimensional (i.e. seller’s values, thing’s values, transaction’s values) allows people to make intelligent decisions as to whom to buy from based on their affinity to the buyer in those value dimensions.
The Affinity Matrix requires that existence of standards for transparency (on the part of producers) that are followed by all producers. For example, all packaged foods sold in the US must carry a label indicating all ingredients. Organic producers have a certifying organization that certifies their farming processes, and so on. The more such standards exist and the more they're followed (e.g. by law) then more realistic this idea becomes.
The Affinity Matrix applies only to goods and services that are traded using the currency defined under this model, i.e virtual joule tokens.
The definition of goods and services under this model do not include money, i.e. do not include peer loans, because the specification of a price by the buyer (i.e. what they're willing to pay) would, in the case of money, be equivalent to buying money with money and that would be equal to ‘interest.’ Another reason that the affinity concept should not be applied to money is to avoid putting any constraint (selection criteria) on borrowers by lenders (or vice versa) and to guarantee that everyone can borrow up to the limit corresponding to their Borrower Credit rating (see: Lender and Borrower Credits)
The definition of goods and services under this model does not include electricity because electricity needs to flow from nodes with surplus to nodes with deficit without any other criteria, so that no node is constrained by lack of sufficient electrical power.
When it comes to 'circumstantially scarce' things as a category, the Affinity Matrix does not apply because the buyer criteria when it comes to scarce things involve competition with others for limited resources, which often trumps all or most of the buyer's social, ecological and environmental values (as they apply to the seller, thing, and transaction.) However, this excluded category keeps shrinking as we find ways to remove the circumstances for scarcity for an increasing number of things.

Lender and Borrower Credits

In addition to the circulation of money through its exchange for energy, goods and services, the circulation of money through Lending and Borrowing is needed to keep money flowing from peers with surplus to peers with deficit.
The problem with “interest” being the incentive for lending today is that it’s used to derive more money for the lender, which has nothing wrong with it, but it comes at the expense of the borrower, which is problematic at best.
In other words, “interest” rewards lenders and punishes borrowers. What we need is a replacement of interest as an incentive for lender. Something that would reward lender without punishing the borrower.
Lender Credits, as defined here, are credit points that are given to peers (with accounting maintained by P2P Bank) who lend money to other peers, based on how much they've lent to others.
These Lender Credits can be used when Lender becomes a producer or seller of goods and services. In this case, his/her credit points will be used to rank them as sellers, so when people search for a certain product (imagine a P2P community search engine) they will show up higher in the search results the more credit points they have. This means that instead of interest, i.e. time value of money, we move to a peer production value of money, or in other words, the value of what can be produced with N tokens of currency and M degrees of access to the P2P goods and services market. So lending, under this model, allows the lender to accumulate credit points that give him/her a larger access to the market. A key consideration for the lender is to balance how much he/she lends vs how much they invest in the production of new goods and services. Gaining the largest possible access to market, through accumulation of credit points, is of little use if lender does not invest in increased production of goods and services. This is no different than the balance needed today between investing in production vs marketing.
Borrower Credits, as defined here, are credit points that are given to peers (with accounting maintained by P2P Bank) based on their Lender Credits as adjusted downward in proportion to the amount of money they've borrowed that they've yet to pay and the number of active suspensions. Borrower Credits are used to determine how much money a borrower can borrow. When a borrower fails to pay back a loan (given in virtual joule tokens) their borrower credits become suspended until they have paid back the loan. The suspension last only until the borrower pays back the defaulting loan.
Lender and Borrower Credits, as a model, achieve a few important things:

1. Allows lenders to be rewarded without using interest

2. Motivates lenders to become producers of goods and services (i.e. to become more than just a lender, which is consistent with the vision of a P2P economy where everyone is both consumer and producer)

3. Allows lenders to build borrower credit (for borrowing) by lending others

The model for Lending and Borrower Credits, as an incentive for lending, is based on the assumption that in the P2P economy everyone is a producer/seller and a consumer/buyer of goods and services, aka prosumer, and everyone trades using a P2P trading application that uses a search engine that works with Lending Credits the same way Google works with advertiser dollar-amount bids on keywords. The idea is to give lenders a number of credit points (based on how they've lent) that rank them higher as sellers (similar to advertiser ranking in Google search) which increases their revenue as sellers, which in turn provides an incentive for lending, and so on. The number of credit points a lenders gets is based on how much they’ve loaned.
Since lender credit points can only be obtained via the act of lending, this model should encourage people to keep lending in order to increase their borrower credit to borrow more in order to invest in producing more good and services, which gives them more money to lend, which in turn allows them to increase their lender credit rating, which increases their rank as sellers, which allows them to make more money, and so on.
If a given peer defaults on payments beyond the grace period for the loan, they will have their borrower credits suspended and they won't be able to borrow again until they have paid the defaulting loan. The obvious way out for peers is to conserve their own use of energy and sell the rest to make money which they can use to pay back the defaulted loan, invest in new energy generation capacity, make more goods and services to sell, and/or lend more to sell more. This model does not prevent someone with no common sense from getting in a hole but it does provide an easy way out, unlike the current model, and that's because people can make money from their energy generation, and given there is an upward trend for energy usage (as population and land mass grows), peers will always be able to make money from energy production. The subtle part about this is that money is energy under this model, so as long as people can generate energy they should never starve, no matter how badly they behave with respect to this model. In other words, this model is resilient with respect to bad behavior, and not intolerant.
Since borrowing is the most leveraged means for growing a peer's production of goods and services, which in turn generate more money for the peer that can be lent to others to increase the peer's borrowing capacity, and so on, and given that loans are interest free, it's not expected that peers would stop borrowing.
If a borrower is eligible for an amount to borrow, per their borrower credit, but no lenders (collectively) exist to lend the money, which is only likely to happen if the amount the borrower wants to borrow is larger than the amount available (collectively) from all available lenders. In that case, the borrower would have to lower the amount they want to borrow.

P2P Energy Currency

The Origin of the Idea

A very interesting idea suggested by Michel Bauwens of P2P Foundation is to connect the P2P currency to P2P energy (reference: P2P Energy Production) in an implicit fashion.
However, without an explicit connection between energy and the currency it wouldn't be possible to trade in goods and services at the median cost in work energy it takes to produce and deliver them, which is key to assuring fair compensation and equitable exchange, which are key to sustainable abundance.
Therefore, the currency developed in this model has an explicit connection to energy.

Introducing The Idea

There is an existing movement towards a SmartGrid-powered economy (reference: P2P Energy Production) that allows individuals to produce electricity to power their homes and peer production of goods and services and then send the extra capacity to the grid for others to use, and get compensated for the energy they send into the grid.
The idea for P2P energy production will take some time to mature but there are already localized implementation of SmartGrid that allow businesses to play the role of a small electric utility.
Taking the Smart Grid further, we say that since solar, wind and bio-fuel energy is abundant then why not use this abundant resource (that anyone can produce) to create a type of currency where the tokens of the currency (i.e. the money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.

P2P Bank

P2P Bank is an open, automated, system for orchestrating energy and capital flows between peers.
P2P Bank is implemented as an open, virtually centralized, physically decentralized set of processes that is embedded into the architecture of the P2P trading application(see: Model's Context.)

Currency Creation

At the start of the economy (as a process,) P2P Bank makes a general request for energy inventory replenishment from _all_ peers, e.g. 1 trillion Joules (or whatever appropriate starting level for the given community/economy), and accepts a given quantity of energy from each peer, on first come first taken basis, based on a supplier scheduling algorithm that takes into account multiple factors such as: peer reliability (historical ability to fulfill replenishment request) and other factors (TBD) in diversity maximizing way to avoid creating unsustainable dependence on certain peers or certain categories of peers. Note that, as a result of this many-to-many mapping process, the producers and consumers are never known to each other, which adds to the security of the system without sacrificing transparency since all the demand/supply data related to energy is available to all.
Given that peers produce their own energy, the most likely reason they'd need more energy is to invest it in producing goods and services.
P2P Bank builds an initial short term-inventory of energy by paying the peers using newly created tokens that are equal in work-value to the amount of energy (in joules) to be stored in this short-term inventory. These "virtual joule tokens" (or joule tokens for short) have a fixed, work value (in joules) where the use-value of energy (what a given number of joules can produce in energy, goods and services per the given production technology) depends on the efficiency of the production technology. Since supply of energy never exceeds demand for energy (where the work-value of energy is its price in joule tokens) anyone who needs energy can get it at its work value in Joules.
P2P Bank sells the energy in this short term inventory to peers with energy deficit who pay using joule tokens, which is the currency (money) in this model.
After the initial inventory build-up, P2P Bank will make periodic requests for replenishment based on a predictive demand/supply matching algorithm (see: P2P Energy Management), which requires a start-up/warm-up period during which historical inventory data is captured to enable dynamic inventory replenishment, P2P Bank will accept a total quantity of energy that is matched to predicted short-term demand. The peers fulfill the replenishment request on first come first taken basis. The quantity accepted from each peer is based on a supplier scheduling algorithm that takes into account multiple factors such as: peer reliability (historical ability to fulfill replenishment requests) and other factors (TBD) in such a way as to avoid creating unsustainable dependence on certain individual peers or certain types of peers.
P2P Bank create new joule tokens whenever it needs to pay for inventory but does not have any existing tokens. In other words, tokens of the currency (i.e. money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
It's important to note that the tokens (currency) are not created from potential energy stored for use at some undetermined point in future but from the active short-term inventory that's closely matched to demand, i.e. immediately usable energy. So when the tokens are created they hold the work value of already spent energy rather than a potential value (of stored energy,) which is a subjective and based on the probability that the energy will get used.
It's also important to note that, under this model, there is not need to reduce the tokens (currency) in circulation because the material basis for the economy is not the potential energy available to the economy, which can be more abundant than all possible use in the short term, leading to overflow of currency in circulation beyond what's usable in the short term, but the land mass (mass = utilization density * volume) encompassed by the economy, which grows as the population grows, both of which in turn require more energy and hence the ever increasing need for currency.
A key aspect of this model is that, while each joule token created can be exchanged at any time in 1:1 ratio for electric energy (1 joule in work value of spent energy tokenized by the token for each 1 joule of electric energy), P2P Bank does not store the equivalent in joules of electric energy for the joule tokens it creates. That's because, under this model, energy is abundant on sustainable basis, i.e. anyone who wishes to purchase energy at its work value (i.e. in 1:1 ratio with the joule token currency) can do so.
The problem of minimizing demand/supply mismatches between peers in a P2P network, whether it's demand/supply for energy or lending capital, is that we end up with a nonconvex continuous optimization problem. Several numerical/heuristic approaches exist, including particle swarm optimization (incl. thermodynamic variant.) However, they are not designed for real-time optimization because the search space is usually huge and there are many local optima (suboptimal solutions) which cannot be known beforehand, which makes it unlikely to find the global optimum in real-time regardless of number of initial guesses and speed (assuming finite speed computation.)
To simplify the problem of minimizing supply/demand mismatches in a P2P network, P2P Bank (which is a virtually centralized, physically distributed process) is created in order to serialize all inputs and outputs so that all rain drops gather in one spot (P2P Bank inventory acts as a funnel) as opposed to rain drops gathering in many different spots depending on where each rain drop falls (i.e. all initial guesses for the optimization algorithm lead to the same globally optimal solution.) In other words, the problem is converted to a convex optimization problem.
The other reason for having P2P Bank (besides providing virtually centralized inventory management for energy and lending capital) as a major component of this otherwise fully decentralized peer production model, besides the fact that it's needed for [open, verifiable] currency creation and [open, verifiable] lender and borrower credit accounting, is to make sure that every peer that needs energy or lending capital can get it at the work value of energy or the currency, respectively, which is a fixed value, specified for both using the same unit (the joule.)

'P2P Energy' Management

Abundance without sustainability leads to scarcity.
Abundance in energy can only come from having many equally empowered peers producing electricity not from one or few major suppliers.
Sustainable abundance in energy requires close matching of demand and supply at the work value of energy (not at the so-called "equilibrium price," which artificially limits demand to meet circumstantially limited supply, and not at a price above this so-called equilibrium price, where supply is artificially limited, and not at zero price, which is not sustainable, but at the actual work value of energy in joules which are exchangeable at 1:1 ratio with the "joule token" currency used here.) This implies that anyone who wishes to get any amount of energy can do so at the actual work value of that energy in joule tokens.
Below is a simple predictive algorithm for matching demand and supply:

1. P2P Bank takes historical inventory utilization data (during the start-up period) and calculate a Gaussian distribution with a Mean and Covariance and provide an inventory level prediction at a set time in the future.

2. P2P Bank compares the inventory level prediction to a first P2P Bank-set low inventory threshold.

3. P2P Bank compares the inventory level prediction to a second P2P Bank-set high inventory threshold.

4. P2P Bank requests energy replenishment from peers if the predicted level is below the low inventory threshold, or cancel existing requests if the predicted level is above the high inventory threshold. P2P Bank manages the response to its replenishment request by accepting a given quantity of energy from each peer, on first come first taken basis, based on a supplier scheduling algorithm that takes into account multiple factors such as: peer reliability (historical ability to fulfill replenishment request) and other factors (TBD) in diversity maximizing way to avoid creating unsustainable dependence on certain peers or certain categories of peers. Note that, as a result of this many-to-many mapping process, the producers and consumers are never known to each other, which adds to the security of the system without sacrificing transparency since all the demand/supply data related to energy is available to all.

5. P2P Bank records time dependent data related to inventory consumption and replenishment.

6. P2P Bank calculates time dependent cumulative-forecast consumption, cumulative-forecast replenishment, cumulative actual consumption, and cumulative actual replenishment.

7. P2P Bank uses the new data to update the Gaussian distribution, Mean and Covariance, and calculate a new predicted inventory level for the next time period.

It's important to note that the P2P Bank inventory is virtually centralized (as an algorithm) and physically decentralized.
It's also important to note that peers have their own short-term storage as part of their P2P energy generation setup. This way they can store surplus energy (e.g. generated when the sun is out or when there is wind power) and use it when the source of energy (sun, wind) is no longer there. However, the locally stored energy only serves the peers' day-to-day energy needs and is not sufficient for powering the production of goods and services on mass basis, be them physical or virtual (think of the energy need for powering a bunch of always-on blade servers or CNC machines, etc) so, in order to scale up peer production of goods and services, peers would have to purchase energy from P2P Bank and/or invest in their energy generation infrastructure then offload surplus energy (in times of low peer industrial activity) to P2P Bank.

'P2P Lending' Management

As with the use of virtually centralized, predictive inventory management system for P2P Energy Management a similar virtually centralized predictive inventory system is needed for P2P lending management to match supply and demand for lending capital at the fixed work value of the currency (the joule tokens.)
P2P Bank maintains a predictive inventory for 'lending capital' by which the supply of 'lending capital' is matched to demand using the same exact process by which the supply of surplus P2P energy is matched to demand.
As with P2P Energy Management, the many-to-many mapping process means that lenders and borrowers are never known to each other, which adds to the security of the system without sacrificing transparency since all the demand/supply data related to lending capital is available to all.

Joule Tokens

Humans, computers, cars, factories, homes, roads and everything that performs 'work' or that is used to perform work have a continuous cost of energy (see: Thermoeconomics.)
Any work done by human beings, animals, insects and machines and any work done the planet itself requires energy. The planet gets its energy primarily from the sun and has built all its creative and transformative work processes to take advantage of the sun, wind, water, chemistry of the earth (and whatever might have fallen on it from outer space) and uses the earth's electromagnetic field, which is generated by the planet's rotation, to protect the life it creates from being destroyed.
If the planet can create all known life from the sun, wind, water and its chemistry then we can use the same to create what we need, and that's what we have been doing, and we just need to start doing it on sustainable, abundant basis.
But even if we were to get our energy from super-efficient fusion reator we will still need energy to maintain (in the short-term) and upgrade (in the long term) the reactor or else it will fall behind our demand for energy or simply fails. While the energy to maintain the reactor can come from the super-efficient reactor itself, we still need to move that energy from the reactor to the farmer who makes the food for the scientists who then perform the maintenance and upgrades for the reactor. In this simple scenario, we need to move the energy to the scientist who then needs to move some of it to the farmer who gives it back to the scientist in the form of food so that the scientist can have the energy to perform the maintenance and upgrades on the reactor.
It’s the equitable and efficient flow of energy that has to be ensured between all nodes within the economy.
In this model, tokens of the currency (i.e. money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
The idea behind using such tokens as the currency, where the absolute work value of each token is created from the increase in energy flows, is to enable the flow of the currency in one direction and the flow of goods and services in the opposite direction, in such a way that the energy used in producing and delivering those goods and services is recouped in an equitable and efficient manner, which cannot be done using the existing currency (e.g. US dollar, euro, yen, etc) because the existing currency does not have an absolute work value and its use value is determined by many factors.
The case for using renewable, clean energy, e.g. fusion, solar, wind, bio-fuel, as opposed to fission reactors or coal etc is two fold:

1. Renewable energy is abundant which means that it can be accessed and harnessed by everyone. Having said this, it’s important to note that sustainable abundance comes from a regulated whole not unregulated individuals (see: P2P Energy Management.)

2. Minimal cost to environment.

When it comes to the choice of energy units, the Joule is an international unit that measures the work value of energy.
One joule is the amount of energy required to perform the following actions:

   * The work done by a force of one newton traveling through a distance of one meter;
   * The work required to move an electric charge of one coulomb through an electrical 
     potential difference of one volt; or one coulomb volt, with the symbol C·V;
   * The work done to produce power of one watt continuously for one second; or one watt 
     second (compare kilowatt hour), with the symbol W·s. Thus a kilowatt hour is 3,600,000 
     joules or 3.6 megajoules;
   * The kinetic energy of a 2 kg mass moving at a velocity of 1 m/s. The energy is linear 
     in the mass but quadratic in the velocity, being given by E = ½mv²;

1 joule is approximately equal to:

   * 6.2415 ×1018 eV (electronvolts)
   * 0.2390 cal (calorie) (small calories, lower case c)
   * 2.3901 ×10−4 kilocalorie, Calories (food energy, upper case C)
   * 9.4782 ×10−4 BTU (British thermal unit)
   * 0.7376 ft·lbf (foot-pound force)
   * 23.7 ft·pdl (foot poundals)
   * 2.7778 ×10−7 kilowatt hour
   * 2.7778 ×10−4 watt hour
   * 9.8692 ×10−3 litre-atmosphere

Example of units defined in terms of their joule equivalent:

   * 1 thermochemical calorie = 4.184 J
   * 1 International Table calorie = 4.1868 J
   * 1 watt hour = 3600 J
   * 1 kilowatt hour = 3.6 ×106 J (or 3.6 MJ)
   * 1 ton TNT exploding = 4.184 GJ

What is tokenized (converted to tokens) by the currency defined under this model (in units of say 10,000 joules) is the increase (or delta) in the flow of electric energy from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
It's important to note that while goods and services are priced at the [median] cost in work energy it takes to produce and deliver them (as opposed to the energy they carry,) the currency under this model is numerated at the work value in joules of the energy it carries and that's because currency is not exchanged at the cost it takes to make it but the value it represents, which, in this case, is the absolute work value in joules of the energy that it tokenizes.
[needed: a diagram showing how tokens are created and how they gain their value]
When it comes to 'circumstantially scarce' things, e.g. land, gold, real estate, etc, the virtual joule token, as a currency, does not apply because scarce things involve competition for limited resources, which means that scarce things are priced based on the fact that demand is much higher than supply, i.e. their value is driven, in a great part, by their scarcity, which makes them compatible with the existing currency, where the work value of the currency is relative and derived, in great part, from its scarcity, and incompatible with the currency defined under this model, where the work value of the currency is measurable, in a fixed way, in joules in virtual tokens that can be used to buy those goods and services that can be produced and delivered on continuous, decentralized, renewable, scalable basis at the median cost in work energy used to produce and deliver them.
The good news is that our human ingenuity combined with the pressures of a growing population are pushing us to eliminate the circumstances of scarcity in many areas. A good first example is scarcity in content, including software, music, videos, news and information in general, which has been eliminated by the Internet, but such abundance still needs to be made sustainable, by enabling content creators to recoup their spent energy (the energy used in making and delivering their good or service) thus eliminating the 'starving artist' syndrome, where artists give so much energy because they want to create but do not receive much energy in return. A second example is scarcity in energy, which is being eliminated by the emergence of renewable energy as a primary source of energy, and where the sustainable abundance of energy can be enabled by this model.

Joule Token Value Dynamics

Let's say that each joule token is created for each 10,000 joules increase (or delta) in electric energy flow from nodes with electric energy surplus to nodes with electric energy deficit.
Let's say the economy uses 10^24 joules a year.
In 20 years this 1 joule token will still have 10,000 joules, which is the work value of the token. Let's say the economy has grown substantially, and despite energy use becoming, e.g. 10X, more efficient in those 20 years, the economy uses more energy, e.g. 10^26, i.e. 100X more. That does not mean that 1 joule token is now worth 100X less in energy, i.e. 500 joules. It will still worth be worth 10,000 joules in work value. It also does not mean that 1 joule token is worth 100X less relative to the price of goods and services (i.e. the token's use value) because the joule token continues to carry 10,000 joules (i.e. same value in energy) while the price of goods and services, which under the model is based on the cost of energy to produce and deliver the good or service, decreases at the same ratio as the increase in the efficiency of energy use, i.e. by 10X (due to progress in production technology for goods and services) so 1 joule token will be able to buy 10X more in goods and services in 20 years, not 100X less, i.e. its use value increases.

Fair Exchange (Model Development Section)

In today's economy, everything is priced subjectively, i.e. based on subjective value, that's driven in great part by artificial or circumstantial scarcity, using relatively valued currency, where the value of the currency itself is driven in great part by its artificial scarcity. So to start pricing things in terms of the cost of energy it takes to produce and deliver them will require the development of energy costing models for manufactured goods and services but once the energy costing models are developed the process of estimation (through software) can then become a realistic objective.
Technically speaking, in the P2P Energy Economy, tokens of the currency (i.e. money) are created in proportion to the increase in the amount of electric energy flow from nodes with energy surplus to nodes with energy deficit, including households, charging stations, electric vehicle grid, and neighboring communities, which is then converted by those nodes into new work energy, which gives the tokens a real and absolute work value (in joules) in spent energy, which enables its use in trading the goods and services defined under this economy, at the cost of energy it takes to produce and deliver them.
Producers who achieve higher efficiency in the production and delivery of a given good or service realize a profit margin due to their reduced cost in work energy.
In addition, producers who use their creativity and invest in R&D to produce an improved version of a given good or service take a risk in doing so and are either rewarded with higher sales, which together with the profit margin from higher efficiency, can lead to substantially higher net profit for the producer, but, if the new version fails to create higher demand, they can end up with a loss.
This means that both efficiency and creativity are encouraged in the P2P Energy Economy (driven in both cases by a positive profit motive that contributes to sustainability and progress) with creativity being a risk/reward game.
In addition to profit achieve through higher efficiency and creative risk taking, all producers (who are human) require a margin of reward regardless of their efficiency of creativity. This is because human beings need to rest and enjoy the fruit of their labor and are not able to convert energy into work product all the time, i.e. some of that energy must be used for enjoyment as well as just idling around.
So a fixed reward margin needs to be added above the median cost in work energy it takes a human producer to produce and deliver a given good or service.
In order to trade in goods and services, including work as a service, at the median cost in work energy it takes to produce and deliver the given good or service plus a fixed reward margin, we have to move away from the existing dynamics of scarcity and the existing resistance to evolution. In other words, the conditions for sustainable abundance and evolution, given below, must be satisfied.

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

For example, if health care (as an industry) was to meet the above conditions for sustainable abundance, a visit to the dentist should not cost more than what it takes in median work energy to produce and deliver it plus a fixed reward margin, which would be a very low price compared to today's prices. But in order for health care to meet the sustainable abundance conditions one of the first things that has to happen is automation (or increased efficiency) not just of IT but of medical procedures. For examples, today, robots are used by surgeons to perform sensitive surgeries to remove tumors with a much greater degree of accuracy than procedures performed by hand. It is very possible to replace the surgeon altogether with robotic surgeon technology that can visualize the tumor in 3D to the finest detail and use a combination of focused radiation beam (or gamma ray laser) to annihilate the tumor in place. It would take a few minutes and a relatively small amount of electricity. The second step in the process of making this type of surgery (as a service) sustainably abundant, the robot technology has to be open sourced and copied at no charge by anyone wishing to manufacture the robot, under a license where the originator only gets to enforce social and moral rights, e.g. attribution, share-alike, etc. Having said that, there will still need to be a human in charge of operating the surgical robot, but that human does not have to be a highly skilled surgeon since the surgical robot will minimize the challenge to a supervisory task requiring only moderate intelligence (or common sense) and some training, which would enable the abundance in surgery capabilities by significantly reducing the degree of specialization required.
So in a world where everyone who wishes to get a given good or service can do so at the median cost in work energy it takes to deliver that good or service plus a fixed reward margin (for the producer), which in many cases represents a very low price compared to today's prices, why not just give everything and get everything for free using "non-reciprocal exchange" (or gifting)?
Getting and giving goods and services for free (as in a gift economy or a generalized exchange) does not lead to a sustainable abundance in those goods and services. The reasons for that are:

1. If a given good or service can be obtained for free then some people may want a very large or endless supply of it without compensating the producers for the cost in work energy it takes to produce those goods and services. For example, if Internet bandwidth was free to all and people had an insatiable appetite for digital content then, at some point, there will be more demand for it than can be produced and delivered without further investments, and if those using the bandwidth do not compensate the producers for it in an equitable manner (i.e. by allowing the producers to recoup the cost in work energy it takes to produce and deliver extra bandwidth to meet increased demand) then the system will not be able to meet that demand. In other words, either the demand for the given good or service happens to be small or it has to be limited, which does not equate to sustainable abundance.

2. If there are more people who are inclined to take more than they give then they will have an unfair allocation of the available resources than people who are inclined to give more than they take, which causes the latter population to suffer and ultimately shrink leading to a dominant majority of people who are inclined to take more than give, which is an unsustainable situation and does not lead to sustainable abundance.

For example, when it comes to digital content, if too many people hog the bandwidth, downloading terabytes of mp3s and software etc at a fixed $40 a month cost (the ISP monthly fee) then the network will meltdown, and it doesn't matter if it's a wireless mesh or the current internet.
In order to perpetuate the production of a given resource, e.g. mp3 downloads, the continuous cost of work energy that has to go into producing and delivering that resource (see: Thermoeconomics) needs to be recouped.
The challenge is figuring out the energy costing models for the types of goods and services that satisfy the aforementioned conditions for sustainable abundance.
We can know how much it takes in energy (calories) per day to keep a 25 year old human being functioning, and we can estimate the other costs of living in terms of the work energy required to maintain living conditions. We can also know the energy use of various processes used in producing and delivering a given good or service. Assuming the given good or service meets the above-mentioned conditions for sustainable abundance, i.e. no dependence on scarcity economics, we can measure the energy it takes to produce and deliver that good or service, and, using historical sales data submitted by all producers of that good or service, we can adjust that eventually to be based on an average volume of production for that good or service (instead of raw estimate) and then calculate the price as the median cost in energy it takes to produce and deliver that good or service, per each instance of that good or service, and add a fixed reward margin.
Such calculation involves building realistic energy costing models (for the various goods and services that are generated by industries that meet the sustainable abundance conditions,) and when it's automated it via cost estimation software (as part of the P2P trading application) it offers us the opportunity to understand the real cost of production to ourselves and the environment.
Since the volume of production affects the cost of energy for producing and delivering a given good or service, the energy costing models used by the estimation software (that is part of the P2P trading application) should assume an average volume of production based on historical sales data from all the producers of the given good or service, as reported by their inventory management system
When it comes to rewarding those who work more efficiently and/or more creatively, the model fully supports that through two different, concurrent paths:

1. Investing work energy in increasing the efficiency of their production processes get to have a profit margin (because their good or service costs less than the median cost in work energy to produce and deliver, so they get to keep the difference.)

2. Investing work energy in improving an existing good or service get to sell more of that good or service if they select the right feature selections (but also get to lose if they select the wrong feature selections, so this second path involves educated risk taking.)

If a given peer spends 500MJ making something that they would like to give to the world then they should be able get that 500MJ back somehow (or they will eventually starve) and the most efficient way is through direct exchange. If they're paid back 600MJ or 350MJ then they will have an idea if they're producing the thing efficiently or inefficiently. In this way, the use of joule tokens promotes (or direct money into) more and more efficiency, not more and more scarcity (as with the existing currency.)
For goods and services that are new (e.g. new inventions, new product categories, etc) the existing scarcity-enforcing currency (e.g. US dollar, euro, yen, etc) will be used until those goods and services become more common (not to be confused with sustainably abundant) at which point the energy cost estimation software will be updated with energy cost models for those goods and services and the producers of those goods and services will be asked to use the software to submit their energy cost estimates using an average volume of production for the given good or service, which is calculated from the historical sales data reported by the inventory management systems of all the producers for that good or service. The price for that good or service is set to the median cost of energy for producing and delivering that good or service calculated from the energy cost estimates submitted by all producers for that good or service.
It's important to note that all transactions in the P2P Energy Economy are done through a P2P trading application which automatically fetches the price of goods and services from the Energy Cost Registry. So the concept of "price" in current economics is replaced by the concept of "median cost of energy it takes to produce and deliver a given product" which decreases over time due to technological progress.
It's an important consideration for producers to make sure that the total cost in work energy for producing and delivering a given good or service is recoup-able in full based on the historical sales data the producer has for the given good or service, as provided by their inventory system, so that they don't suffer losses due to over production, especially since losses, under this model, cannot be recouped from the market(e.g. by dumping excess at lower-than-cost and killing off competition then raising prices to recoup the loss.)
In other words, producing a quantity above predicted short-term demand, as indicated by the producer's predictive inventory system, is a risk the producer must take alone without punishing the consumer or other producers, and they must do so by making sure that their total cost in work energy for producing and delivering a given good or service is recoup-able based on the historical sales data for the given product or service, as reported by their personal inventory management system, which is built into the P2P trading application used for trading.)
Having said that, if a producer was to overlook the historical sales data based on having put more work energy into producing and delivering a new version of a given good or service, i.e. making feature selections, then they should be able to reap the reward if they sell more of the given good or service than they have in the past, or assume the loss if it doesn't.
Since the definition of goods and services under this model requires them to be producible and deliverable on efficient, on-demand basis (i.e. just-in-time inventory must be the norm,) it is unlikely that producers will ever need to over produce. The only actual concern here is that producers must make sure that they can recoup whatever work energy they put into producing and delivering a given good or service. If they don't then they will carry a debt to themselves that they must pay back in work energy.
So while selling more of a given good or service does not imply a profit (since all goods and services are sold at the median cost in work energy it takes to produce and deliver them) selling more of a new, improved version of a given good or service than they've sold of the old version allows the producer to recoup their increased upfront work energy in developing the new version of the good or service. That is because the total cost in work energy of producing and delivering a good or service, which includes upfront costs of the extra work energy for developing a new version, is spread over the entire volume of sales (per a given time period, e.g. the period after which the producer must repay a loan or recoup and reinvest the spent capital.)
The only way for producers to make a profit above the fixed reward margin is by investing in higher efficiency in the production and delivery of a given good or service, i.e. lower their cost in work energy below the median, and taking creative risk (by deciding on new features for their product or service, which may result in higher or lower sales.) This kind of 'progressive profit' does not cause scarcity because it comes from a higher efficiency not a higher price. This model simply eliminates the 'bad' type of profit that's due to a higher priced, based on supply being circumstantially or artificially lower than demand, which enforces the conditions for scarcity.
To expand on the preceding point, we identify three kinds of profits:

a. This kind of profit is made when we have a relatively high efficiency in the production and delivery of a given good or service where the production volume meets the demand at the median cost in work energy it takes to produce the given good or service. This involves producers investing in more efficient production, which is good for the environment and good for society (as it quickens the pace of technological progress, along the efficiency axis, which is required for sustaining abundance) The logic of the P2P Energy Economy treats this type of relative margin difference in "at cost" trading as good profit.

b. This kind of profit is made when the demand is more than the supply (without artificially limiting the supply) and producers can add a given margin above cost (depends on how much larger demand is than supply) to artificially limit demand. The resulting price is called equilibrium price. This type of profit directs money into scarce goods rather than into solving the circumstances that cause their scarcity. In other words, this type of profit is scarcity-enforcing. This type of profit is not possible under the P2P Energy Economy model, simply because the process by which the price is set does not permit it.

c. This kind of profit is made when the demand is more than some artificially limited supply and the monopolist(s) can add an arbitrary margin above equilibrium price (which already artificially limits demands) to further limit demand, create scarcity, and reap obscene profits. This type of profit concentrates money into the hands of those producers who have the financial and ill will to exercise manipulative/controlling power in the market. In other words, this type of profit is not just scarcity-enforcing but also power concentrating. This type of profit is not possible under the P2P Energy Economy model, simply because the process by which the price is set does not permit it.

In addition to profit margin achieved through higher-than-median efficiency in the production and delivery of the given good or service, the producer's creativity in coming up with a new/additional/different feature selection for that good or service is naturally rewarded if it results in higher demand (which when combined with the aforementioned profit results in higher net profit) but if it does not lead to higher demand then the producer must assume the loss (due to the upfront cost in work energy of R&D.)
The model only applies to goods and services generated by industries that meet the aforementioned conditions for sustainable abundance. The main thing the currency developed here achieves is providing a way to trade those goods and services at the cost of energy it takes to produce and deliver them, which enables a fair exchange.

Eliminating Monopolies

You may have noticed from going through the model description so far that it requires the use of a virtually centralized inventory management system for P2P energy transactions and a peer-owned inventory management system for P2P transactions in goods and services.
The centralized inventory management for P2P energy transactions is more efficient in matching supply to demand and does not allow for any peer to sell significantly more energy than others. This is important since energy is the basis for currency. Letting monopolistic behavior emerge there makes the whole system unsustainable.
The decentralized inventory management for P2P transactions in goods and services allows peers to take the risk of investing in better versions of existing goods and services and sell more than the old version of those goods and services.
Both the centralized and decentralized inventory management systems, for energy and goods and services, respectively, allow producers to invest in more efficient production, which gives them higher margins of profit relative to those who don't and this is a good thing since more efficient production of energy, goods and services is needed for them to be abundant.
The freedom the decentralized inventory gives the peers, as far as taking risk in investing in new versions of existing products and services and selling more as a result has an interesting consequence: there is nothing that can be done from the moral perspective to prevent peers who have the most innovative good or service in a given category (and who have social, ecological and environmental values that are in sync with society's values from getting the largest market share and who shares their revenue with all via lending) from becoming a monopoly, e.g. the Google monopoly.
However, unlike the current economy, in the P2P Energy Economy, monopolies are eliminated due to the following conditions:

1. All industries must meet the following conditions for sustainable abundance:

a. Efficient, On-demand Production (which permits predictive inventory management so producers don't have to over produce, which causes waste and inefficiency and is therefore unsustainable, or under produce which causes shortages and high prices, which is also unsustainable)

b. Decentralized, Inter-dependent Production (which assures there's no dependence on a few suppliers)

c. Renewable Production (which assures there's no dependence on scarce resources)

d. Scalable Production (which assures that volume is not limited by the production process)

e. Open Source License (which assures that the good or service can be produced by anyone, while enforcing social and moral rights of the originator, not their right to a monopoly.)

f. Open Production System:

1. The production system must be able to renew (not just reuse) its resources (both labor and materials) so as not to create long-lasting centers of power and dependency within its resource hierarchy.

2. The production system must be part of a greater whole, i.e. it must achieve maximum autonomy through maximum inter-dependence, and all such greater wholes must themselves constitute open production systems, i.e. they must be able to renew their resources (both labor and material)

3. The production system must retain some mystery in some sense in order for it to compete against other instances of itself or other production organizations/processes/systems that exist in the same market. That is because the market can only support a finite number of producers so competition will happen naturally as a way of limiting the number of producers. Therefore, those organizations that are completely open (ones that do not retain any mystery) will be copied and out done and thus eliminated from the gene pool.

4. The production system must be open to change in its design not just open to renewal of its resource hierarchy. The design must evolve and an evolutionary trial-and-error process must be embraced, including acceptance of the risk for catastrophic or fatal errors, i.e. error that leads to the death of the system.

g. Non-Scarce Qualities (which assures the absence of any scarce qualities that would justify paying more than the cost of work energy it takes to produce and deliver the given good or service)

h. Non-Scarce Dependencies (which assures that there are no dependencies in the cost-of-work-energy calculation on any goods or services that do not meet the above conditions.)

i. Open Education (which assures that all peers have access to education at the cost in work energy it takes to produce and deliver that education.)

j. Fair Exchange (which assures that producers recoup the cost in work energy it takes them to produce and deliver a given good or service plus a fixed reward margin.)

(When the above conditions for sustainable abundance are met, everyone who wants to get any number of instances of a given good or service should be able to do so at the [median] cost in work energy it takes to produce and deliver that good or service + a fixed reward margin X the number of instances.)

2. Consumers are automatically and anonymously matched to producers based on the required attributes for the given good or service, the producer's lender credits (see: Lender and Borrower Credits) and the affinity between the consumer's and the producer's social, ecological and environmental values, , so producers do not own access to the consumer.

3. Producers are required to share their revenue through lending in order to rank higher as sellers, which assures that in order for a given producer to empower themselves they have to empower everyone.

Programming Joule Tokens

The idea behind combining the Affinity Matrix with virtual joule tokens is to define and use money as a tokenizer of energy flows (i.e. the increase or delta in electric energy flows from nodes with electric energy surplus to nodes with electric energy deficit) and a container of the transient information (or metadata) that may be programmed into money at the transaction level (i.e. the criteria for exchanging the energy for the given good or service, as applied to the seller and the good or service.)
The buyer’s multidimensional value system, which can be applied by the buyer (as a selection criteria) to the seller and the good or service, is programmable into the money (i.e. into the collection of joule tokens) for each transaction. This way, the buyer’s multidimensional value system becomes represented as explicit information that is carried by the currency tokens for the given transaction. This information (the transient metadata not the work value of the token in joules) goes to blank state after money has been transferred from the buyer to the seller, which allows for the programming and transmission of new information by the seller.
It is possible to give each token a unique ID and storing the transient metadata from each transaction involving a given token in an open, redundant data store, where the buyer and seller remain anonymous, to track the use of that token. If all that metadata is viewed as a collection a picture starts to emerge as to the flow of money in the economy. Users of the P2P Energy Economy can see how social, ecological and environmental criteria influence on the flow of money and, as a result, take social action where needed.
It's important to note, from a technical perspective, that such historical data is not in the tokens but in a separate, open, redundant data store. Having said that, it's also important to restate that the transient metadata relating to each transaction is stored in the tokens themselves but erased after the given transaction is fulfilled. The reason for that is to enable physical programmable tokens at some point without changing the way tokens are defined abstractly in the system.

Software Development

Use Cases (Examples)

The high-level difference in how the model works vs the current economic model, which we shall demonstrated in use cases/examples, is highlighted by the following propositions (provable within the model's logic), which are each unique to joule tokens, as a complementary currency, and cannot be attained as readily using the existing monetary system:

1. Provide an energy based currency that has a fixed work value and a use value that only increases over time.

2. Enable trading in goods and services, including work itself, at the median cost in work energy it takes to produce and deliver them, such that anyone who wishes to get a given good or service can get it at the cost in work energy it takes to deliver that good or service.

3. Enable fair compensation for producers at the median cost in work energy that goes into making and delivering the given good or service and based on their efficiency and creativity, not based on their place in the hierarchy or their access to a scarce resource.

4. Direct the flow of money into higher production efficiencies for energy, goods and services.

5. Direct the flow of money towards socially, ecologically and environmentally intelligent producers of goods and services.

6. Enable a model of the economy where in order for peers to grow their revenue they have to share it with others, i.e., “the more you share, the more you have.”

7. Enable increased autonomy through increased inter-dependence between equally empowered peers.

Let's start with our examples...

Use Case 1-01

A person (let's call him Tom) who puts 10M joules into producing some product (let's call it XYZ) will get that energy back not from the person who buys the product (let's call him John), who actually pays Tom 1,000 virtual joule tokens for the product (where each virtual joule token is 10,000 joules,) but from the person who makes the food that Tom consumes and/or from the person who provides entertainment that makes life livable for Tom and from all other producers of goods and services that enables (or helps to enable) sustainable production of XYZ by Tom, and whom Tom pays with the money he gets from selling XYZ.
In this sense, the tit for tat exchange between Tom and John of product XYZ for 1,000 joule tokens is done in the context of supporting a generalized exchange of energy for goods and services (using tokens) between each peer and the community as a whole.
You may then wonder what's the difference between this model and the existing model, given the latter does the same?
The price of product XYZ does not depend on the features or benefits of XYZ. What matters is that Tom made it and wants to give it to the world without starving himself. That's why artists give away music, or why software developers make free and open source software. It's the creative impulse that exists within all of us. What this model allows that the current does not is for John to give back Tom the average energy Tom put into producing and delivering the product to John. This means that Tom does not make a profit, but he will not starve due to giving things without recouping his spent energy.
Having said that, Tom needs more than food and shelter to keep going (i.e. humans have more needs than just subsistence.) A big need for Tom is to be rewarded for his individual work and creativity. This can be done justly if Tom puts energy in improving the efficiency of his production (of XYZ) or by selecting features in XYZ (through a creative choice making process) that creates more appeal (and hence more sales) for XYZ.
In the existing system, it's practically impossible to calculate a fixed cost because the existing currency (e.g. US dollar, euro, yen, etc) itself is relative to demand and supply (of the currency itself) and, since it's not backed by anything (e.g. gold,) it constantly changes in value due to changes in trade deficit, rate of inflation, national debt, and the speculation on value of the currency based on all these factors.
[This use case is to be detailed further. See sections "User Manual->Fair Compensation" and "Model Development->Trading at Cost with Joule Tokens" for a more complete explanation of trading at cost with joule tokens.]

Model Implementation

Off-the-Grid Communities

An "Off-the-grid community" is a community where members generate their own electricity without using the public electric grid infrastructure.
The assumption here is that the technology for p2p (or house 2 house) electric energy generation and distribution (reference: P2P Energy Production) exists in the desired form, e.g. the existence of an electric energy generation and distribution grid where there is no central electric utility, i.e. all energy is generated by peers, and where peers are able to store energy on short term basis for the dynamic short-term inventory maintained in a virtually centralized manner by P2P Bank (see: P2P Energy Bank; see: P2P Energy Management)
It seems that such storage technology is currently under development (see: EESU supercapacitor patent.)
The second assumption is that there is willingness to use a P2P trading application for the community (including mobile phone browsers) to conduct all transactions for the category of goods and services covered under this model.
So if the preceding assumptions become valid at some point in the future or if they're valid now then this model can be applied to such a community.
People's ingenuity and willingness to try new ideas combined with current trends in the areas of P2P energy and P2P economy almost guarantee that we will see such implementations.
It is important to note, however, that an off-the-grid community does not exist in a vacuum. It is built on top of the existing economy. The emergence of off-the-grid communities that employ the model defined here will help society transition to an abundance-sustaining economy, a la "the more you share the more you have," and further away from the manipulative/controlling behavior prevalent in today's scarcity based economy.

Feedback

Request for Comments

I’m an engineer by education, not an economist, and it’s about time for engineers (all of you out there) to take over from business people in shaping the economy. The economy we have today has been driven mostly by people with business degrees or economists with no appreciation for the laws of physics and too much inertia to fundamentally change and disrupt their comfortable ideas about money, energy and the economy.
I'm interested in feedback, insights, help, coordination, etc.

Readers Comments

Please go here to view or add comments.

Collaboration

How To

The first step is to provide feedback.
The next simplest step after feedback is conversation.
Once we start conversing we will get a clue as to how we can collaborate
If you wish to jump head first into conversation, you may join our on-going discussions at P2P Energy Economy at Google Groups. In such case, please make sure to browse the links under ReadMe First before entering the discussion.

References

• P2P Energy Production

Meta

Change History

To see all changes and revisions, please use history tab on this wiki page.

Document Location

URL: http://p2pfoundation.net/P2P_Energy_Economy

Content License

Attribution-NonCommercial-Sharealike 3.0
Registered at RegisteredCommons.org

Model Development Process

Agile–> release early, release often, high-bandwidth communication
The model achieves stability by being open to instability.
Thus, this author is continuously seeking insights, comments, questions, and disagreements.

Related Links

• Complementary Currency Software

• P2P Exchange Infrastructure Projects

• Thermoeconomics

External Links

"P2P Energy Economy" on Evolving Trends (for comments)
Publications on i-WAT
Related concepts:

1. Decentralized Energy
2. Distributed Generation, or at http://en.wikipedia.org/wiki/Distributed_generation
3. Distributed Power Generation
4. Microgeneration
5. Microgrids
6. Micropower
7. Net Metering
8. P2P Energy Grid

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Categories:

• Money
• Energy
• SocialEnergy
• Peerproduction