Fundamental knowledge to run a sustainable economy
In every negotiation or trade transaction there are 3 elements - Value – Wealth – Power.
These 3 elements (domains) masquerade as one another in much the same way as a word may be either – subject – object – verb in a sentence. Generally speaking Value is the subject of a transaction, Wealth is the object, and Power is the verb (force) that drives the bargain.
To identify the different elements in a transaction one must ask – who gets what? - for how much? - why? When any two of these elements are on the same side of a negotiation, the other side always loses.
Incentive to produce is destroyed when the elements of Power and Wealth constantly combine to win the gains of Value producers.
If each time a raise is given to the Value producers, the brokers of Power and Wealth give themselves larger raises, the first award is effectively reduced.
To encourage Value production the influence of the domains of Wealth and Power have to be controlled. This can be accomplished by loaning Wealth to the brokers of Power and a controlled amount of interest-free money to the general population.
Productivity is the creation of goods or services of Value as sold to an individual. Selling something to a Government is the same as selling something to ourselves, it does not establish Value. What an individual buyer (or taxpayer) will pay for a share of a product or service in a “”free market” – determines the real Value of anything.
Taxation to provide government services is the opposite of individual choice in a free market.
To “guarantee” anything (pension, rate of return, employment, and so on) is a concession to Power.
Money was invented to facilitate trade. Data recorded in a computer can perform the same function at a fraction of the cost
Interest is a reward given to people with money. It moves money from people who do not have enough money to people who already have more than they need.
Every dollar in circulation is owned by someone who expects to collect interest on the money. This requires more dollars to be in circulation at the end of the financial year so that everyone can be paid the interest. We therefore either print extra dollars and cause inflation or do not, and allow some creditors to go bankrupt.
Financial losses are equal to the dollars claimed as interest by the banking establishment, less the amount of inflationary dollars added to the system.
We have two money systems. One uses dollars and the other uses credit. Extending credit to another individual (or government) is the same as printing money.
When a Government bank tries to control inflation by taking money out of circulation, merchants are forced (in order to stay in business) to sell their services on credit. This can result in inflation and recession occurring simultaneously
A government deficit budget has the same effect on an economic system as a government bank printing extra money – it causes inflation.
A national government bank puts money into circulation by loaning it to banks who then loan it to individuals at a higher rate so they can pocket the difference.
The “riskier” the loan, the higher the rate of interest charged. “Risk” being considered on the basis of the ability to repay, in other words, income stability and access to assets.
At the bottom of the “loan risk scale”, and therefore unable to qualify for any loan, are such people as unemployed single parents. To look after these people, governments borrow money for use as welfare payments, and then tax their populations in order to repay the loans plus interest.
However, with current technology it is possible for national banks to loan money directly to individuals (users) bypassing commercial banking operations. Concern over credit risk would be lessened, allowing for the possibility of a common rate of interest (0% perhaps), universal access, and social equality.
Loaning funds directly to students, the unemployed, the retired, and welfare recipients instead of borrowing on their behalf is a much more efficient process.
A “direct-to-user” electronic national accounting system is considerably more cost effective than the current system of bank notes and checks, which requires the expenses of printing, security, distribution, and processing. Perhaps in a highly cost effective and efficient accounting system there would be no need to charge for service let alone interest on borrowed funds.
A “direct-to-user” electronic national accounting system with a common interest rate for all, would put the current financial community out of work. There would be no money to juggle and no fluctuating percentage point on which to speculate. Insurance companies would not be needed as funds for any emergency could be borrowed. Everyone would own their own homes.
The national deficit could be passed down to the users of the system. Funds (interest free) could be loaned directly to welfare recipients without the numerous (and expensive) levels of bureaucracy now in place in most countries.
Products would be designed and developed to reflect real Value determined by average people rather than by a “super-wealthy” few.
Obviously, this alternative to our present social economic system is a rather dramatic change, however a gradual transition is possible.
At present, more than 50 times as much money moves around the world than actual goods and services, largely the result of speculators betting on which governments will inflate or deflate their currencies. This “money-juggling” keeps a few wealthy and powerful at the expense of the total system.
Eliminating interest on money or eliminating money would force all individuals to succeed only by offering goods and services of Value in a “free market”. Total real productivity increase would be spectacular.
Originally published under a different title on 19 Sept. 1994.
Ottawa Sustainable Community Association (OSCA)