A Better Economic System

 

I think it is pretty obvious that there will never be any “perfect” economic system, but there certainly can be a much better economic system that we humans have been able to come up with to date. Whatever economic system that is created will always depend on the type of political system in place - the two are interwoven. However, the issue we are dealing with is about economic systems and not political systems. In this day and age, the single most common factor in respect to every economic system is “money”. Virtually every economic system is intimately tied in with the concept and principles of accounting. Accountants have created the terms of profit and loss, as measured by various mathematical manipulation of numbers. It is also the application of numbers that has created the idea of “inflation” and “deflation”. Those mathematical phenomena have become significant issues for many economic theories. These, basically, artificial human ideas are the backbone of most economic theories. Most economic theories embrace the idea of supply and demand as the foundation for “growth” and “growth seems to have the single purpose of becoming “wealthier”. It seems that “wealth” can only be measured in terms of “money” as all material assets are ultimately valued in whatever form this idea of “money” is conceived. Debt and profit are also common accounting terms used in most economic systems now in place. Economics has become the dominant criteria of virtually every activity and the potential for making a profit is absolutely sacrosanct.

It now dictates what can happen and what can’t.

A better economic system has to change this type of thinking.

The purpose of having a “money” system in the first place

While some “economists” tend to wax lyrical about the history of “money”, by some strange coincidence, almost no exponents of the many economic systems ever delve into the fundamental purpose for having a “money” system in the first place. Nor do they discuss the basic concept of who should be the rightful creators and owners of the money needed for a modern society. By all logical reasoning, there is really only one purpose for having a “money” system, and that purpose is to provide an acceptable and guaranteed medium of exchange. “Money,” in itself, has no other practical use. You can’t eat it, you can’t drink it, if it is paper money it may keep you warm for a little while if you burn it, but really, all you can do with “money” is exchange it for something you need or want, and that includes both goods and influence.

In today’s environment, I know of no argument which can deny that “money” is an essential tool for the survival of the vast majority of people. This puts “money” in the same category as food, water, shelter, clothing, power, a healthy and educated population, a good sewage systems, and a host of other essential facilities that modern living demands.

What are the Alternatives?

Is there a practical alternative to the idea of “money”?

In my opinion, no there isn’t.

We all have our own distinctive abilities, our own needs and wants, and in order to survive, we need to cooperate with each other in the best and most practical way to fulfill those needs and wants.

To a limited extent, we can do this by barter trade, but that tends to be cumbersome and inconvenient and not a very practical system for exchanging goods and services.

So, if the idea of “money” is the best and most practical idea we have come up with to date, and if it is an essential tool for survival, shouldn’t it be made available as an essential service to the society?

Wow! That’s a pretty radical idea to contemplate.

Just give “money’ to people and not worry about profit or loss, debt or interest, bookkeeping or budgets.

Just provide the lubrication to let the wheels of commerce run smoothly in getting rid of poverty, homelessness and help people fulfill their potential in finding happiness.

Can’t be done, you say. Why not, I ask?

The issue of profit making with economic systems

As mentioned above, it seems that virtually nothing in the private sector can be attempted today unless there is a potential for a monetary profit, and it seems that affliction has now contaminated the public sector.

The theory is, that making a “profit” is the essential motivation for doing anything. If one does cannot make a profit out of an activity, why do it?

It is an interesting fact that we are the first life form native to this planet to ever learn, and build, and discover, and create. Although we’ve only been around for about a million years, imagine what we could achieve in another million years. Provided, of course, if we, as a human species, can survive that long.

 

We humans have developed an amazing understanding of the world, and indeed, the universe surrounding us.

 

We know the problems we face to survive another million years because we have created every threat to our own existence that faces us today.

 

We can solve these problems right now. We have intelligence, technical prowess and organisational capability to solve every problem we face, today, right now.

 

So what is stopping us?

 

We cannot afford it!

 

It costs too much money!

 

There is no profitable way to resolve the problems we have created!

 

If these problems remain unresolved they will eventually consign us to the same fate as the dinosaurs.

 

But, in reality, who cares how much a problem costs to solve?

 

Bankers? Politicians? Corporations? If they cannot make money out of it, then it cannot be done.

 

But wait, wasn't it “us” who created the money, the governments and the business in the first place?

 

Let's face it, there is no galactic bank going to foreclose on our planet and toss us out into the universe, homeless.

 

So, why do we insist that saving ourselves from destruction, at our own hand, must be profitable otherwise it just cannot be done?

 

How can we justify our own demise by saying profit trumps the interests of the whole human race?

 

That is not a trick question; it is the question that needs to be answered by every responsible economist.

The “economics” of Business

Most commercial enterprises have a number of objectives. Probably, the primary objective has to be to serve a need or a want. In other words, the primary purpose of any business is to serve their customers.

If that is not the primary objective then there is little chance of making a “profit”.

It is important at this point to recognise that every single dollar of "profit" comes from consumption. Production does not produce one dollar of "profit" until the production is consumed. That applies to every step in the chain of production, from the supply of raw materials to the finished product or service. Every producer along the chain must find a customer in order to survive.

Although most economic systems are obsessed with the concept of monetary profit, the idea of “profit” can be viewed in many different ways. In a better economic system the idea of “profit” includes factors that are not measured in terms of money.

For example, the survival of the species is beyond evaluation.

Some of these factors can be an improvement in the enlightenment of all humans to the damage they have caused to the one small planet we call “ours”.

A “profit” can be made in improving the standards of education so that mankind can broaden its level of intelligence. It can greatly “profit” by eliminating warfare and improving the general wellbeing of every society.

If we are stuck in the quagmire of today’s economic thinking, every one of these essential improvements will cost “money”. And as we are constantly told, “money” for some queer, unexplained, and unfathomable reason, is of a finite quantity.

Why is that? After all, “money” is simply an idea of humans; it doesn’t exist in nature, we humans created it so, why have we let it become something that now dictates what we can do and what we can’t?

The human psyche and economics

The human psyche can be divided into many different categories but two of the main ones are their “needs” and their “wants”. These two characteristics can be used as the basis for a better economic system. We can create a Government to provide what the society deems to be the essential “needs” to serve the public. The Government can then support a private sector whose duty is to provide the huge range of “wants” that has become an accepted condition of modern living. Most of these “wants” are beyond the imagination and ability of any Government to supply and is far better left to the abundant entrepreneurial spirit in the private sector.

The Government can supply this support in several ways. An obvious requirement is to ensure the integrity and safety of the products and services provided by the private sector. Another is in coordinating the infrastructure in a way that benefits both the public and private sectors. A third way is to provide an independent adjudication service to resolve disputes and remedy breaches of the rules as they apply in our daily lives and the way business is conducted. A fourth and most important support is to provide the public and private sectors with a supply of “money” to allow the orderly conduct in the daily buying and selling of products and services.

But, you will probably ask, “How is any Government going to pay for all that?

Well, if you live in an independent and democratic country, then you automatically have monetary sovereignty.

“What in the hell does that mean?” is probably your next question.

Monetary sovereignty

The people of every independent nation automatically have the right to establish whatever set of rules they want to accept for their nation.

This set of rules would be based on the nation’s philosophy, and if we are going to follow today’s customs and traditions, ultimately, those rules would normally be embedded in the nation’s Constitution. The Constitution forms the backbone of the legal system and allows the Government to declare what shall be used as the nation’s legal tender. It should be an obvious fact that every independent nation is automatically endowed with the right to determine whatever form of token they wish to use for the nation’s “money” system. That declaration would also carry with it the authority to guarantee the authenticity of the legal tender and punish any attempt to counterfeit the “money” tokens.

Essentially, this means that every independent nation is endowed with the concept of monetary sovereignty and can create their own supply of legal tender money tokens as and when needed.

There are several factors that need to be taken into account when determining the amount of “money” a given society needs at any particular time. Three of the controlling factors are the level of population in the society/nation, the nation’s productive capacity, and the nation’s consumption capacity.

It is quite obvious that it is a waste of time, of energy, of resources and of money, to produce anything if it is not going to be consumed. That condition applies to both the public and private sectors. Hence, it is logical that before undertaking any enterprise there needs to be an honest and transparent due diligent assessment. This would assess the viability of the enterprise in terms of fulfilling the motivation for the need or want of the undertaking and doing so with an acceptable level of risk to ensure the effort is not wasted effort. This applies to both public and private enterprises.

Ultimately, ordinary people are always the final consumers of every enterprise and it is the inevitable changes in consumer sentiment that determines the risk factor. Those changes of sentiment can be greatly influenced by advertising and the way products and services are marketed. Assessing the changes in consumer sentiment is not an easy exercise but it needs to be done if reasonable viability for an enterprise is to be achieved.

The philosophic foundation

It seems obvious to me that if people choose to live in a society together they do so for the benefit of cooperation, and in the hope of a peaceful, stable and orderly life. Essentially, this defines the sort of philosophic foundation that society chooses to live with, and that type of philosophy is a good basis for a “democratic” system.

So, before we can have an economic system, and even before we can have a “Government”, if we are to accept the concept of “democracy” as our aim, we need the greater majority of the people to agree on the sort of philosophy they want to adopt for their society. Once we have a generally agreed philosophy the next step is to set out the policies for translating the philosophy into a workable and practical system.  

I find it inconceivable that any society could survive without a set of generally accepted rules to define how people should relate to each other. Logically, I believe, people would prefer to live in a society which recognises a set of rules that allows for the maximum amount of individual freedom and choice within those rules. I certainly don’t believe that people would voluntarily choose to live in a condition of slavery and inequality, which the acceptance of today’s economic system, based on accounting concepts of debt and profit, has proven to generate.

The concept of Government

It is clear that people must come together before there can be any concept of a Government, unless, as history has shown, the strong and powerful will dominate the weak. In terms of the “democratic” concept, it is the people who choose to create a Government for the purpose of improving the overall wellbeing of their society. A Government should be responsible for doing this through planning, providing, and maintaining, what can be described as the basic essential services. This is necessary for the society if the Government is to function in the best interests of the people.

Within the concept of a “democracy”, we do not create a Government to rule over us. We do not create a Government to start wars with other nations. We do not create a Government to become dictatorial and tyrannical and intent only on ensuring its own survival.

So, if “money” is an essential service for the benefit of the society, isn’t it logical that the Government should fulfill its responsibility in providing the nation with an acceptable and guaranteed medium of exchange?

The issue of interest-bearing debt

The other major problem for our economic wellbeing, is the problem of interest-bearing debt, especially when the interest is compounded.

Is going into debt inevitable? Not entirely, but over the centuries, it certainly has become an accepted practice.

The alternative to going into debt is to be self-sufficient, and over time, gradually acquire the tools, materials, experience, or money, to do what is wanted. That can be a very time-consuming undertaking, especially when there is an urgent need, for example, to get a roof over the head of one’s family.

There is nothing intrinsically wrong in seeking support for doing something. What is wrong is the exploitation of people who seek help. The opportunity to exploit people is particularly prominent when it comes to borrowing “money”.

Some religions condemn the practice of charging interest as usury, and even Jesus is said to have taken offense at the money lenders. The interesting thing about these stories of “money lenders,” going back a couple of thousand years, is that there is never any explanation of where the “money” comes from in the first place, who has the authority to create the “money” and how it gets into the hands of the “money lenders”.

Is there a practical alternative to going into debt? For a monetary sovereign Government of an independent country, there certainly is.

Such a Government does not need to borrow “money” from anyone, nor does it need a tax system to extort taxes from the people. For any independent monetary sovereign nation the perpetuated myth that taxes are as inevitable as death, is, and always has been, a lie.

A monetary sovereign Government does not need to impose taxes on anyone at any time, as it can always create all the money it needs to fulfill its obligations.

For people in the private sector, which includes public servants, there really isn’t any practical alternative to going into debt in today’s environment, apart from winning a lottery, inheritance, or sponging off others.

However, there is a way to greatly reduce the cost of borrowing by eliminating the interest charges.

To almost everyone, that is a sacrilegious suggestion, especially to the financial industry.

Let’s face it, there is nothing natural or essential about the process of charging interest, and especially with compounding that interest. These “ideas” are purely man-made accounting gimmicks to extract more “loot” from people who are forced, or choose, to borrow money. It certainly is an effective gimmick if one is collecting the interest payments, but it is not so effective for those who have to pay the piper.

Of course, it is all rationalised on the basis of the lenders taking a ‘risk”, but for bankers, that “risk” is negligible. Banks just create “money” via a computer keyboard and they can just as easily write off the “money” by reversing the process.

The nature of all lending is really just a form of gambling. The lender hopes the asset will be returned, and preferably, in a better condition than it was lent.

Lenders can always minimise the risk by proper due diligent appraisal and requiring some form of collateral up front. As we are always told, “Don’t gamble with anything you can’t afford to lose”. That should apply to “money lenders” as much as anyone else.

But, what about the “investors”?

But, what about all the investors and the people who rely on superannuation?

Well, let’s call them what they really are – gamblers – every “investor” only “invests” in the hope of winning – nobody “invests” if there is no potential for making a profit, and certainly, nobody in their right mind is going to “invest” if they are sure of losing. Every “investment” is a gamble – you lay your bet and hope to win. If you are in the “know” you can even make a “killing” at the expense of the “sucker” investors. Every time someone “wins’, ultimately, someone has to lose.

But, what about people who borrow to build a house?

Sure, a house is a form of “investment” but if the house is for the purpose of providing a home for a family, it is not being built with the intention of making a profit. And in any case, under the current financial arrangements, taking out a mortgage over a twenty-five year term, the compounding of the interest will cost the borrower some 200% more than the original funds borrowed. If the maintenance and other costs are thrown in, the resale return might just make up for the inflation rate over those years. Of course, there are other factors that will affect the resale price, not the least is location and the effects of Government policies over the period, and especially capital gains tax if it applies.

Technically, even a Government’s investment in infrastructure projects can be a gamble in some respects, particularly if conditions change, variations in population trends or adequate funding are not provided for the necessary maintenance of the projects. Generally speaking, very few if any, Governments are held to account for poor investment decisions, particularly when a decision is politically motivated rather than being based on logical and rational parameters.

An idea for a better economic system

Thus we come to the idea for a better economic system that will serve the people and the nation.

Every economic system in today’s environment relates to the concept of “money”.

While the private banking fraternity has proven very effective in distributing “money” in the private sector, they have been allowed to use their position to exploit the people by issuing interest-bearing credit. To make matters worse, the banks have also been allowed to apply compounding interest to the loans over the period of the contracts. This has led to the never-ending need to continually increase the nation’s supply of “money” as the debt noose is tightened around the neck of more and more people, as well as every irresponsible Parliament that has allowed this to happen.

A better economic system is based on the following:

  • That every independent nation automatically has monetary sovereignty to create their own supply of “money”
  • That the sole purpose for any nation to create a “money system” is to provide a universally accepted and guaranteed medium of exchange for the daily buying and selling of goods and services
  • That “money,” in today’s environment, has become an essential tool of survival for the vast majority of the people
  • The nation’s Parliament is the only entity with the sole authority to declare what shall be recognised as the nation’s legal tender and to punish counterfeiters
  • That the nation’s Parliament is the only authority allowed to create, manage and administer the money supply needed for the nation
  • That the quantity of “money” the nation’s Parliament is constitutionally allowed to create for the nation is controlled through an independent monetary authority based on five primary conditions
  • The five conditions are:
  1. The nation’s population levels and its demographics
  2. The nation’s productive capacity for both domestic and international supply of goods and services
  3. The nation’s consumption capacity with respect to both domestic and international consumption
  4. As long as a relative balance can be maintained between the production and consumption, in relation to the population levels, inflation and deflation would not become significant problems and the balance would mitigate against excessive waste and unnecessary growth
  5. The evaluation of employment needs to meet the demands associated with the production and consumption capacities above
  • That a responsible monetary sovereign Government is created to serve the public purpose of supplying and maintaining what the people consider to be the essential services necessary for the prosperity and well-being of the nation and to supply those services on a non-profit basis
  • Some of the aims of the essential services would include the development of a healthy and educated population, which for a monetary sovereign nation, would not be restricted by a lack of “money” but only by the competency and experience of the people responsible for managing and supplying these services
  • No Government of a monetary sovereign nation is created to exploit the people and profiteer on the basis of supplying those essential needs
  • That a responsible Government is required to cooperate with and support a private sector aimed at supplying the vast array of needs and wants of the people that are mostly beyond the imagination of any Government
  • That the fundamental purpose of the private banking fraternity is to distribute the money supply to the private sector on a transparent and legitimate due diligent basis
  • So, instead of allowing the private banks to create interest-bearing credit, the Government should sell access to “money” to the private banks based on the bank’s legitimate due diligent analyses of every application they receive from customers wanting to borrow “money”
  • This “money”, of course, could be exactly the same type of “money” currently created by the private banks, namely, accounting figures created by a computer keyboard and listed in a customer’s account.
  • Instead of  the banks being allowed to charge interest on their loans they would only be allowed to add an administrative cost for the period of the loan, over and above the cost of buying the “money’ from the Government
  • Because of the competition between the private banks in securing customers, the banks would be able to add a competitively controlled profit loading related to the period of the loan
  • Interest charges would no longer be allowed and the evil of the man-made accounting and manipulative concept of compounding interest would be eliminated

 

To my way of thinking, the above parameters define the proper way a monetary sovereign nation should use the authority granted by the people to their Government, in creating their nation’s legal tender. Any tokens not recognised as legal tender, cryptocurrencies particularly, should have no standing in any contract or legality within the nation’s monetary or legal system.

 

Available Books by the Author

The recently published book, as illustrated above, "Where to, Australia?" is now available. 

This is a new and challenging book that is divided into two Parts - the first Part explains the reasoning and philosophy behind each chapter of a new and better political and economic system that is contained in the draft of a new Constitution. The Second Part of the book is the draft Constitution itself.

If you are interested in this book and either of my two other books, "A Constitutional Journey" and "The Australian Constitution as it is Actually Written" I can send you a free eBook version, but you will need to download the free version of Adobe Digital Editions.  

Whilst I have copyright, these books were written to promote a true and proper understanding of the 19th century British Act Australia still uses today, as its Constitution. The only restriction on distributing the books, or excerpts, to anyone interested is to include a reference to this blog at www.aussieindependence.com.

These books are also available from www.sbpra.com or alternatively, contact the author at guggzie@gmail.com if you wish to obtain a copy.