PHYSICS of MONETARY SYSTEMS/MONETOPHYSICS INTRODUCTION It is common sense that only love has driven more people mad than money; in addition, the invention of banking is often equated with the first use of the fire and the wheel. A realistic evaluation of economic science reveals an eminent theoretical deficit, concerning money, as the late Frankfurt private banker J.P. von Bethmann postulated; canonical economic theories are centered on the use of private property for credit and interest, but they do not understand the physics of money in an economic system which, of course, takes also place in a social context of human action. Our study shall elucidate the physical (natural) laws of the monetary system, a subject we coined monetophysics; this approach goes definitely beyond the scope of economic orthodox religion.
RESEARCH ISSUES
The most common economic production function is taught as: P=f (K,L) The economic multiplication of Kapital and Labor is equated as productive function.
We are proposing at least the following economic production function: P=f (K,L,M) Our reading of the production function is an economic multiplication of Kapital, Labor and Money. ( Ben Tamari: Ecometry-Foundations of Economics,1990(Hebrew),Ecometry Ltd; Ph.D. thesis: Hebrew University, Jerusalem; visit: www.bentamari.com/ecometry.html)
Please note that both formulae do not calculate with the temporal entropy of natural resources (N); for example, land value and the utility of natural resources are excluded from this equation. Also taxation (T) is not considered in the formulation. It goes without saying that such reasoning is a stranger to natural law or to the physics of socio-economic systems. However, the decisive scientific and logical problem is that in the current monetary system, M cannot economically perform as M. Why? The fiat credit of private banks, operating on fractional reserves, gradually converts M into C=Credit. At a certain temporal point, the economic production function performs as: P=f (K,L,C) As credit always works with interest, we experience an exponential economic crisis in the production function. Even the most prudent central bank cannot police this systemic error in the temporal long run; from the viewpoint of monetophysics, this economic problem cannot only be rectified by 100%money and/or a gold standard, so that P=f (K,L,M). The elimination of human influence on base money via fiat credit for gambling on financial markets is the ultimate goal of our study; otherwise, bad credit drives out good money as Gresham’s law does postulate.