Economy in a nutshell
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The Universal Economy
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What would be the essentials of _any_ economy, apart from the question
whether it is a capitalist, socialist, communist or even islamitic one?
I have a dream.
No booms. No busts. An economic system as stable and solid as rock ..
A few remarks are in place.
0. Note that there is NO need for money. Because the only thing really
needed is bookkeeping: debit and credit. Computers could and should
do all of this work. (Note: the necessary infrastructure is already
present nowadays a great deal)
1. It seems that there are no means of production. It only seems so ..
Because the means of production are just "consumed" in a different
way for the obvious purpose of making production easier. Reason why
using a shovel is not essentially different from eating food. (Thus
producing and "consuming" machinery is not separate in the diagram)
2. Profit is replaced by: costs of continuity. Of course a company has
to make savings to be able to replace its means of production, just
in time. Infrastructure such as roads are also part of the means of
production. Thus taxes (assuming that governments exists) are costs
of continuity as well. See note below.
3. Note that the economy is not different from a FREE economy, in that
there exists Supply and Demand. And there is Trade for distribution
of the goods.
4. However, also take note of the fact that Work (i.e. not Capital) is
very much present at the Supply side of the Economy. See note below.
5. Cycles must be closed. Anything that has been Produced must also be
Consumed. Supply and Demand must always be brought into _balance_.
See note below.
6. Cycles must be closed. Any debit must be balanced by a credit. One
can't buy / hire something unless one has sufficient credit for it.
(With exceptions on the rule for children, disabled, elderly people
i.e. all those who cannot work) See note below.
7. There is no risk. For the simple reason that there never been hasn't
any. Therefore there NO interest shall be charged. There is NO debt
as well. Things to expensive to buy (e.g. houses) are hired instead.
See note below.
8. Since bookkeeping replaces money, rewarding of work and pricing of
goods can as well be expressed in: standard working Hours. Quality
of work can be expressed in a weighting factor times these Hours.
9. Because no human is better than at most five or six times another
human, the abovementioned weight factor should never exceed 5 or 6.
With education improving and the mental capabilities of all people
increasing, we should even arrive at a factor 3 or 4 in the end.
sci.econ (Google groups)
A (somewhat biased) summary of the debate is found here:
Link between minimum and maximum wages
Further notes:
2. Companies can only make decent savings (without the intervention of
banks) if they are sufficiently large. This does not eliminate all
competition, because the minimal requirement for competition is the
presence of at least _two_ (large) companies who produce the same.
4. The Equation of Exchange by Irving Fisher P.V = M.T is incomplete,
because it's only covering the Demand side of the economy (Trade).
The Supply side of the economy (Work) has only received sufficient
attention, so far, from the marxists. But it's impossible to close
the cycles if Work is not taken into account.
Equation of exchange by Irving Fisher
5. Many of the goods produced nowadays are simply thrown away. Or they
are made of such a poor quality (i.e short lifetime) that they need
to be replaced prematurely. Anyone who has worked in a supermarket
knows examples of the former. An example of the latter are the light
bulbs made by Philips. A good deal of thought could be spend on the
question whether it is rational to keep consumption artificially in
pace with production by launching even more irritating commercials.
6. Two mechanisms are available for balancing the _total_ credit with
the _total_ debit. On the credit side: adapting the number of hours
to work. On the debit side: adapting the price level of the goods.
Since everything is expressed in (weighted) Hours and everything is
in our computers, this represents no problem in principle (assuming
that productivity - efficiency - is NOT to be tuned downward)
7. The notion of "risk" is just a phantasy, made up by those who want
to make make money out of thin air. The truth about interest is not
that it is charged because of risk but rather the other way around.
Goods are _made_ risky, on purpose. Their _quality_ is artificially
held _low_, because of the profit involved when they get replaced.
This may be called "Interest BY Depreciation". See:
Interest BY Depreciation
Thus the whole notion of financial "risk" is _ridiculous_, even more
when compared with the risk of those who risk their lives by digging
up coals in a coal mine. Honest labour is a more of a risk for sure.
But where is the proper reward that should be accompanying _this_ ?
And, after all, DID all these brave financial enterpreneurs actually
ACCEPT their loss (which is the mere consequence of taking a "risk",
remember ?) instead of forcing the government/taxpayers to bailout ?
That it really works this way is clear from the theory of -- Mortgage.
Suppose you buy a house and you have an annuity mortgage. Then you
pay more interest to the bank than you have borrowed as a principal
loan iff:
v.T > 1.59362426
Here v is the interest rate, T is the term. If your mortgage has
a lifetime of, say, 30 years, then:
v > 1.59362426 / 30 * 100 = 5.4 %
Thus, with a _very common_ interest rate, you pay back to the bank
_twice_ (i.e. _two_ times) the value of your asset. How can this be
possible ? The secret is in the fact that the _lifetime_ of a house
is not supposed to be longer than 30 years. Therefore your loan has
become worthless, because your house has become worthless (at least
to the bank). Interest is charged because of that "risk", resulting
in the equivalent in money of a "new" house virtually replacing the
old house. Effectively resulting in as if there exists a house with
"eternal life". The bottom line is that we actually are perverting
quality by attaching it to money instead of attaching it to assets.
A consequence is that interest can only be killed by enhancing the
quality (= lifetime) of our assets dramatically: NO "risk" anymore.
9. Not only can a human being be not more productive than 5 or 6 times
an average human being. Humans are not capable as well to _consume_
more (fast) food than 5 or 6 times an average human being can eat.
I have a dream.
Han de Bruijn
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