How To Make Money (How Money is created in the economy)

I gave a talk at Sydney Python for September 2016, specifically regarding how money is created in our modern economy, and why so many people misunderstand debt.

The talk was partially live-coded through with a iPython Notebook, simulating a economy. That iPython notebook will be shared soon.

Some of the results have been reincorporated into the slides with some new notations. Some slides have been edited from when the presentation was given (for more clarity). A last slide has been added to round off the presentation, which I felt didn't finish too correctly.

Code: https://github.com/chewxy/economy-sim
View: http://nbviewer.jupyter.org/github/chewxy/economy-sim/blob/master/How%20To%20Make%20Money.ipynb
Play: http://mybinder.org/repo/chewxy/economy-sim
Writeup: http://blog.chewxy.com/2016/09/30/how-to-make-money/

Transcript

1. How To Make Money
   SyPy September 2016
   Photo by Ondrej Supitar
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   View Slide

2. WHAT WOULD THE WORLD
   LOOK LIKE IF THERE WERE
   NO BANKS?
   The Question
   Photo by Tim Evans
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3. WAR
   The Surprising Answer
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4. LET'S TALK ABOUT BANKS
   Common Conception
   •  Banks store value
   •  Banks were invented for
   safekeeping of money
   •  Banks are thieves
   Reality
   •  Banks create value
   •  The first bank was created
   to create credit*
   •  Banks aid in allocation of
   capital
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   *The τραπεζίται were pretty much the first bankers
   Photo by Dave Meier
   

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5. WHAT IS MONEY?
   The Underlying Question
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6. LET'S SIMULATE
   To Understand Money
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   The Sims Plumbob is a copyright and trademark of EA Games
   

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7. Very Elementary
   Simulation
   •  No dynamic changing of interest rates
   •  No dynamic/reactionary behaviour
   •  Single-lifetime simulation.
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8. Very Elementary
   Simulation
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   Real Growth
   

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9. Very Elementary
   Simulation
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   Boom/Bust
   Cycle
   

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10. Very Elementary
    Simulation
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    Stagflation
    (0 growth, prices
    keep inflating*)
    * Price ceiling was created for computational purposes
    Different run of the simulation from the previous
    

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11. Very Elementary
    Simulation
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    Slow growth
    owing to
    investments
    Detbt not allowed in this run
    

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12. Very Elementary
    Simulation
    •  No dynamic changing of interest rates
    •  No dynamic/reactionary behaviour
    •  Single-lifetime simulation.
    •  Enough to show basic concepts and really
    macro behaviours like cycles
    •  Main Takeaway: Growth is powered by debt
    •  Growth also powered by investments, but no
    debt means fewer investment opportunities
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13. Unrest Every Century
    •  1920s – The Great Depression è Hitler*
    •  1840s – The End of Class; Civil War brewing
    •  1780s – Louis XVI beheaded
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    * Godwin's Law invoked
    

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14. Unrest Every Century
    •  1920s – The Great Depression è Hitler*
    •  1840s – The End of Class; Civil War brewing
    •  1780s – Louis XVI beheaded
    •  See also: works of Peter Turchin; maybe also
    Santa Fe Institute people
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    * Godwin's Law invoked
    

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15. Debt is Not Bad
    •  Poorly managed debt is
    •  No debt means no growth*
    •  No growth is historically responded with civil
    unrest†
    *other than intrinsic growth like population growth rate
    † this simplistically settles the question of "is growth a moral thing to strive towards?"
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16. On Institutions
    •  Institutions are one of the most fundamental
    human technology
    •  Agglomeration happens on all levels of
    existence
    •  Finance companies? Technically they make
    things more fluid, but can screw things up
    too.
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17. DOES IT MAKE SENSE TO
    MOVE ONE'S ENTIRE
    NETWORTH TO BITCOIN?
    Corollary Question
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    Photo by Craig Dennis
    

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18. DOES IT MAKE SENSE TO
    MOVE ONE'S ENTIRE
    NETWORTH TO GOLD?
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19. TIME FOR A
    FOUNDATION?
    Worth Considering
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    View Slide