Simplified Economics
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)
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)
Comment
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Comment by Morris Kent Thompson for President - 2012 on January 3, 2009 at 6:02pm - Take a look at a book "Value Added Management" by Randy Pulman. It provides a better understanding of how value impacts, owners, employees, suppliers, customers, government, other stakeholders. Value is not just the owner, The owner is no more than an employee,
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Comment by Gregory L. Smith on October 1, 2008 at 7:55pm -
Gregory L. Smith gregors@att.net Being King would end tragically. There has never been a singular process that has worked effectively. It takes a community of "Creators" to create the perfect world, and their numbers would vary from year to year as their interests in society changed. I would not even offer this world, as a useful means or canvas for formulating such a society, but I did write a Science Fiction world that had some of these elements, though myopic in scope. You should try it!
My piece is called Shest'Sot, which in Russian means "the Six Hundred", referring to the years since the great schism, caused by an asteroid collision on their planet. They have to deal with micro-meteors and odd planetary shifts in the magnetic poles towards a three poled magnetic flux. I enjoyed the practice and it vetted a lot of what I believe in an easy to perform screen play. I think it would make a good film and a good response to the idea of kingdoms...Besides, it argues that a planet can have three poles! Gregor S And thanks for the grade! I think you are A+ too, based on your question, that so many would never really bother to ask. gregors@att.net
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Comment by Lou De Frog on October 1, 2008 at 5:38am -
A+
Now we need to create an outline for a perfect world. I posted a comment on the forum wall "If I were King" but after 12 hours apparently no body has any idea what they would do if they were in charge of everything. Not much visionary leadership.
Do I have your e mail - in case this site goes down?
chris.tidman@gmail.com
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Comment by Gregory L. Smith on September 30, 2008 at 7:51pm
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Case in point, is Google, that did not have ANY substantial equity, nor did it have physical resources, except non-physical ones. Was it image or illusion? I say it was image of a real eventual product, but the concept was just that, a concept. It had no physical shape, no way to economically quantify it or place a value upon it. Its value existed prior to its physical manifestation. Still, millions of people perceived the vision and invested thousands of dollars and then millions of dollars and then billions of dollars! Is it no wonder that each technical giant starts by having no essential assets, that had real value to a banker? Concept is very powerful, and is the kernel of perceived value, missing in your model. Did they maintain the illusion long enough, or fill the illusion up with real production as a result of investment in the illusion? It was real only because they made it real. Now, each additional element grows another, and they do not need the illusion or image. Instead, they have brand illusion now. Now, whatever new technology they announce, awakens the "dog" by the ring of the bell, and the dog performs as before, by investing. Abraham Mazlow was a brilliant social scientist!
Invention is my point. Without it, the world would be just natural and some modifications might occur by chance, but they too, would then be natural. Invention can be good or bad, and an example of the bad is the perception that there is a shortage of oil. The mere perception that a shortage of oil exists, causes the price to go up! To a banker that has his stock on oil, that is a good thing, but how does one put a price on oil? Consider your model for this... If the price is the real price, why would it rise? If the price isn't the real price, why would it fall? It is the image of the perceived value that rises or falls. The real price stays the same. The real price is just the labor it took to get it and process it. Everything else is value added or perceived value added. That is why inflation occurs. Without perceived image value, no inflation could exist. Gregor Smith gregors@att.net
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Comment by Lou De Frog on September 30, 2008 at 5:38am
- Are you suggesting that in order to create change we first have to create an illusion which then has to be maintained long enough until it becomes reality?
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Comment by Gregory L. Smith on September 29, 2008 at 7:05pm
- I believe there are more elements than your model indicates, and those items are very much needed in the development of any healthy economic situation. Those elements are Invention, motivation, value added, and under-valued real value. Since bankers only bet or risk on those items that are generally considered standard values, bankers can only expect the same value or less if they sell that asset. What is occurring these days is that invention,or creative capital, is actually creating real value out of raw materials of lesser or no perceived value to the banking community. Motivation, is the force that powers invention towards value. Once the value is recognized, the Power element is now replacing the motivation force and the system continues to increase in value. As power rises, so does value and so does value added. This element is a subsection of value, but it can be separate in a physical sense, but is contingent on the properties of that valued thing. It is the image of the value and not the value itself. When the banker speculates, he speculates on the perceived value, the image of its real value, but that can be under value or over value. That is why the markets get excited over the next new thing. The invention quotient is introduced into the value image. That is why Google rose to be such a powerful force, yet had almost no real capital invested. It was over-valued, but the image value held, and products and inventive capital replaced the image capital with the physical appearance of real true value. This is how things get appraised by so-called experts. But, when it is all said and done, if you look at a paper tiger, it is just a piece of paper. But the image, if it is valued, will bring astounding real physical value to it. This is the mystery of invention, but it is an element missing in your model, which, like it or not, exists. Gregor Smith gregors@att.net
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