Economy in a nutshell
The Universal Economy


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