Economy in a nutshell The Universal Economy 1234567890123456789012345678901234567890123456789012345678901234567890 What would be the essentials of _any_ economy, apart from the question whether it is a capitalist, socialist, communist or even islamitic one? http://hdebruijn.soo.dto.tudelft.nl/jaar2009/economie.jpg 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. http://groups.google.nl/group/sci.econ/browse_frm/thread/c210cfcb48b938bf A (somewhat biased) summary of the debate is found here: http://hdebruijn.soo.dto.tudelft.nl/jaar2009/batra.txt 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 Fischer 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. http://en.wikipedia.org/wiki/Equation_of_exchange http://en.wikipedia.org/wiki/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: http://hdebruijn.soo.dto.tudelft.nl/www/programs/interest.htm 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 mortgages. http://groups.google.co.ls/group/sci.math/browse_thread/thread/43bcaed36c08df87?fwc=1 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 than 5 or 6 times what an average human being can eat. http://en.wikipedia.org/wiki/World_record I have a dream. Han de Bruijn 1234567890123456789012345678901234567890123456789012345678901234567890