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understanding scarcity of conventional money

I don't entirely understand why conventional currencies are inherently scarce. I think this is essential to have a basis for the whole complementary currency movement, so it must be understood thoroughly.

I understand the impossible contract, that there is always more owed in interest than what exists at any given time... but is this the only inherent basis of scarcity with conventional currencies?

I also understand that the supply of money is linked to the amount of money on deposit, which could be low or high depending on the policy of a central bank. But this is really based on how policies work, that are not inherent to the way the monetary system must work. What if the bank could access money from other banks readily, and the bank itself has a reasonable line of credit? If money can be readily created in a way that is responsive to supply and demand, is the only thing that makes money inherently scarce the fact that it is linked to interest?

If that is the case, then perhaps the issue is more that we need to create community banks, and clamor for change from the bottom up. It takes time to build liquidity, and perhaps it would be more practical to use the currencies that already exist, and change the way money is issued. Communities can have banks that create lines of credit for a mutual credit system, just as banks issue personal lines of credit today. As the movement builds, then they clamor for change. To create a responsive system, the banks first gain lines of credit with larger banks, and eventually, the banks can have lines of credit with central banks. As the movement gains strength, in the long run, the impossible contract can also be removed, and money can be issued without interest. Also, perhaps money can also eventually be decentralized. While this sounds like a huge endeavor, wouldn't it be comparatively easier than building liquidity from the bottom up?

It's important to be the devil's advocate :)

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Permalink Reply by Ferananda Ibarra on March 22, 2011 at 7:42pm

This is a great place where to go for conversations. Direct link to your question in quora:

http://www.quora.com/Is-the-monetary-system-and-economic-model-flaw...

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Permalink Reply by matslats on March 22, 2011 at 10:41pm

Goods and services are not necessarily scarce, they are certainly finite, some are even abundant. What is scarce is the money itself. Modern money is scarce by design. That means that the money is created as debt to be repayed later with interest. However the interest is not created except as more interest bearing debt elsewhere in the economy. That means that there is never enough money in circulation to settle all the debts. By design.

We know this is the case because in a depression there are no less resources available, but less money. When the money supply goes up, we experience abundance but the available resources don't change.

The quantity of money available depends mostly on decisions made by economists and central bankers.

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Permalink Reply by Kevin Carson on January 9, 2012 at 10:28am

I think the main reason conventional currency is scarce is it's a store of past value rather than simply a unit of measure for denominating the exchange of present and future goods. So if no one in a community already has currency already saved from past production, there is no liquidity to lubricate new exchanges. Alt currency systems (at least the great majority which are on the same general pattern as Greco's credit-clearing networks) provide a measure of value to facilitate new exchange even where no party to the exchange has any conventional money.