|
Proceedings
of the 2002 International Conference on a Stable and Just
Global Monetary System
International
Islamic University Malaysia (2002)
Seven
Steps To Justice
éRodney
Shakespeare and
Peter Challen
(co-authors
and co-presenters)
é
11,
Charman House, Hemans Estate, London, SW8 4SP, United Kingdom.
Tel:
(UK) 020 7771 1107.
email:
rodney.shakespeare1@btopenworld.com
À
21, Bousfield Road, London, SE14 5TP, United Kingdom.
Tel:
(UK) 020 7207 0509.
email:
peter@southwark.org.uk
Abstract.
With currencies no longer backed by gold, there
is a need for a monetary system which:
¦
addresses poverty
¦
focuses on the real, productive, economy
¦
enables societies and nations to control their
own destiny
¦
ends usury (interest).
At
present, most new money (in the West, 97%; plus 3% coins
and notes) is fiat electronic money created by the
banking system and issued as interest-bearing loans.
Such money has an essentially fraudulent origin,
tends to be inflationary, and can double or treble the cost
of capital investment.
However,
rather than the banking system issuing interest-bearing
loans, a State¯s central bank could issue interest-free
loans if the loans are used for public capital investment
or, (on the market principles of binary economics),
used for private capital investment which creates new owners
of capital. These
uses would back the currency with assets, break the grip
of usury, and be patently non-inflationary.
Both
Islam and Christianity will welcome the benefits including:
¦
two
basic incomes for all
¦
capital
ownership for all
¦
support
for small business
and,
even though they may differ on the implications for democracy
and women, they should work together in the areas where
they clearly agree.
Key
Words:
Interest-free loans, justice, binary economics, basic
income.
1
Introduction
There
is an urgent need for a new stable, just, global monetary
system which:
¦
addresses poverty
and rich-poor divisions
¦
focuses on the
real, productive, economy
¦
protects the
environment
¦
enables Islamic
and other societies to control their own destiny
¦
ends usury (interest).
Such
a system will appeal to all religions and although Islam
and Christianity, for example, may differ on the implications
for democracy and women, people of good faith should co-operate
in the areas where they agree.
If
it is to be widely adopted, the new system will need to
be embodied in a new paradigm, or way of understanding reality.
That is because, at present, the conventional paradigm
of neoclassical åfree market¯ finance capitalism dominates.
Indeed, unless there is a powerful challenge from
a new paradigm, the existing neoclassical paradigm, deeply
embedded in institutions and modes of thinking, will inevitably
prevail.
In
challenging the neoclassical paradigm it should be first
understood that the åfree market¯ is not free.
It is unfree, inefficient and unfair ì unfree
because most people are in practice excluded from the acquisition
of productive capital; inefficient
because ample supply fails to generate adequate demand;
and unfair because
millions of people do not receive proper reward (and often
no reward at all) as well as being excluded from the chance
to have a second income arising from capital ownership.
The
unfree market, moreover, is fundamentally based on ever-escalating
and unsustainable debt.
This happens
because
the issuance of virtually all new money is in the hands
of a banking system which both creates the money supply
and adds a requirement for interest.
Consequently, right the way round the world, individuals,
corporations, governments and societies are up to their
eyebrows in debt.
If
the unfree market is to be successfully challenged, the
new paradigm must comprehend three key matters:
¼
a new justice
¼
a new monetary system
¼
a new understanding of how wealth is created.
Among
other things, those matters are set out in this paper.
2
A new justice
Justice
is a set of universal principles defining right and wrong.
Its ultimate purpose is to elevate, under God, the
dignity and sovereignty of humans.
Justice
is concerned with the structures of society.
It is not charity.
Although charity is within justice, charity offers
only expedients and not long-term solutions.
Charity can never be a substitute for justice.
The
main aspects of justice are social justice and economic
justice together with ecological justice.
2.1
Social justice
Social
justice
guides us in the creation of social institutions.
Such institutions, if justly organized, provide what
is good for people, both individually and in their associations
with others.
Social
justice commands us to work with others to perfect our institutions
as tools for personal
and social development.
Also embodied in ecological justice, social justice
requires us to maintain the environment because, without
that maintenance, all else becomes nought.
2.2
Economic justice
Economic
justice
involves individuals and the social order.
Like social justice, it is sensitive to ecological
justice which is the root of the sustainability upon which
the future of civilised life depends.
Economic
justice gives moral principles to be embodied in economic
institutions. These
institutions determine how each person earns a living, enters
into contracts, exchanges goods and services with others,
and otherwise produces an independent material foundation
for his or her economic sustenance.
The ultimate purpose of economic justice is to free
each person to engage creatively in the unlimited work beyond
economics ì that of the mind and the spirit.
Economic
justice has three principles:
¦
Participation
This
is an equal opportunity to participate in the economic process
in order to make a living.
Such opportunity cannot be equal unless there is
access to private property in productive assets as well
as opportunity to engage in labor.
The
principle does not guarantee equal results, but requires
that every person be guaranteed by society's institutions
the equal right to make a productive contribution to the
economy both through labor (as a worker) and through productive
capital (as an owner).
¦
Distribution
The
principle of distribution says that individuals should receive
from an economic system what they have productively put
into it (via their labor or capital ownership).
It involves the sanctity of property and contracts
in a truly free and open marketplace.
Through the distributional features of private property
within a free and open marketplace, distributive justice
becomes automatically linked to participative justice, and
incomes become linked to productive contributions.
The principle of distributive justice is inextricably
involved with the principle of participation and breaks
down when all persons are not given equal opportunity to
acquire and enjoy the fruits of income-producing property.
¦
Harmony
The
principle of harmony detects failure in implementing the
principles of participation and distribution, and makes
the corrections needed to restore a just and balanced economic
order for all. The
principle is violated by unjust barriers to participation,
by monopolies or by the use of property to harm or exploit
others. It
opposes greed because greed leads to the exclusion and exploitation
of others.
The
principle is also violated by environmental depredation
since such depredation ultimately harms all.
3
A new monetary system
At
the heart of the present monetary system lies something
which is essentially a fraud.
It is fraudulent because there is a general obfuscation
amounting to a deception; those who do the obfuscation obtain
a benefit; and those who are deceived suffer a detriment.
The
fraud happens because nowadays, whereas coins and notes
(issued by the government) are about 3% of the new money
supply, the remaining 97% is number money ì figures
on paper, or the figures of an account held in a computer.
Number money has various names ì credit, credit money,
bank money, debt money, cheque money or electronic money.
As mere figures, number money has no intrinsic value
although it represents money and, to all intents and purposes,
although it is not legal tender, it is money because it
can be exchanged for banknotes and coins.
The question then arises ì If number money is not
gold or some such, where does it come from?
3.1
Where does number money come from?
From
the bank, would seem the obvious answer: the bank is lending
the money that other people have deposited in their bank
accounts. Except
that it cannot be true that a bank always lends other people¯s
deposits because those deposits are always available to
the depositors ì and, if they were not, there would be a
dickens of a row.
So
the truth is generally that, when a borrower asks for money
from a bank, the bank just creates the money ì by pressing
a computer button ì and then enters the amount into the
borrower¯s account, at the same time adding a demand
for interest.
This is credit money,
one of the several names for number money which is an abstract
entity with no physical existence, created in parallel with
debt.
3.2
Multiplication of money
However,
the creation of money out of nothing does not stop with
the creation of money for one person¯s bank account.
When the money is removed from the account, it is
spent and eventually returns to the banking system by being
deposited in other people¯s accounts.
At which point it is treated as a new deposit, a
proportion of which can be directly lent.
Even more extraordinary when the lent (newly
created) money is returned to the bank whence it came, the
debt is cancelled but the money is not.
The
new deposits, moreover, are generally treated as a base
of money from which many times more money can be created
and lent ì thus eventually resulting in more new deposits
in the banking system allowing the process to be repeated.
So a bank starts with deposits that it lends but
those deposits circulate round the banking system and
are re-deposited by others.
The deposits are then lent again, deposited again
and are used as a base for the creation of more money.
Thus an original sum of money has been multiplied,
as if by magic, to many times (thirty or more) the original
sum. The trick,
of course, is that the system treats the deposited money
as genuine new deposits available themselves for further
lending or for being used as the base for the creation of
new money.
In
a letter to the authors of this paper, referring to money
creation, the Governor of the Bank of England said: úThe
process cannot continue indefinitely, however, because each
bank has to hold a minimum of capital against deposits in
order to meet potential net withdrawals.î
Except
that the Governor did not say that the actual minimum is,
in practice, ineffective as a restraint and that, whether
or not net withdrawals are made, the multiplication still
goes on. Thus,
as JK Galbraith has said, money is created, by úa method
so simple the mind is repelledî.
It is, moreover, one that is almost breathtaking
in its audacity.
The
Governor was then careful to add that the banking system
cannot go on creating money limitlessly because the level
of interest rates (set by the Bank of England) influences
the rate of creation.
The level does influence the rate but that cannot
hide the fact
that the banking system creates money out of
nothing
and then, by imposing interest, claims ownership of the
money as well.
What
is more, governments raise money (apart from taxation) by
borrowing from the banking system which, of course,
creates the money to be lent.
It is therefore not surprising that the banking system
creates 97% of the new money supply.
3.3
The effect of interest is compounded
Having
created the money, the bank adds interest.
Interest is usually shown as an annual percentage
rate e.g. 10% per annum.
Part of that rate can be explained as a charge for
administration costs: part, in theory, as a charge to pay
for losses the bank sustains.
As
is well known, the imposition of interest quickly results
in ever-larger sums being repayable.
Interest is usually compound interest.
This means that if $100 is borrowed at 10% interest,
then $100 plus $10 interest = $110 is repayable at the end
of the year. If,
however, at the end of the year, nothing has been repaid,
the interest becomes 10% on $110 i.e., $11.
The effects on a house mortgage are considerable
ì typically, a borrower will eventually pay at least two
to three times the amount that was originally borrowed.
Moreover, the house itself is the collateral for
the loan and, in the event of non-payment, can be sold to
cover the loss. Since
the administrative cost of house mortgages in no way amounts
to anywhere near the sums originally borrowed, a very large
sum of money is returning to the financial system over and
above the necessary costs of the system.
Moreover,
the addition of interest to the original sum borrowed has
several consequences, two being:ì
¦
Because
money is lent into existence, but the money to pay the interest
is not, more money is owed than is in the system.
3.4
Interest is paid even when we do not borrow
Moreover,
we pay interest all the time, even when not borrowing
because:
- Every
price we pay contains an element, often a very large one,
of interest.
In
examples taken from Aachen, Germany, interest on capital
is 12% of the cost of rubbish collection; 38% of the cost
of drinking water; 47% of the cost of sewage; and up to
77% of the cost of public housing.
Remembering also that the prices a manufacturer pays
to his suppliers include the suppliers¯ borrowing
costs (and so on with the suppliers¯ suppliers) it has been
estimated that such costs (principal and interest) amount
on average to an amazing 50% of the price of goods and services.
¦
The
payment of that interest does not affect everyone equally.
There
are huge differences between what people pay.
In Germany, 80% of the population pay out more than
they receive: 10% receive twice as much as they pay.
This is one big reason why, in a hidden redistribution
system, the rich get richer and the poor get poorer.
¦
Interest
is also a big factor in causing inflation.
When
money is borrowed, interest is added so the repayment is
more than the original sum.
So more and more has to be borrowed thereby inflating
the money supply ì which explains why 97% of our new money
supply is debt-based i.e. borrowed from the banking system,
and repayable with interest.
3.5
Why should a government have to pay interest?
The
present position is that 3% of the new money supply is created
interest-free by the government as coins and banknotes with
the remaining 97% being created by the banking system but
with interest added.
This is an extraordinary situation because governments
have an inherent power to create money without interest
yet they have been bamboozled into giving the power away
to a banking system that always adds interest!
All of which leads to the very important question
ì Why does a government, when it borrows from the banking
system, have to pay interest?
An administration charge, yes, but why interest?
If money is borrowed to pay for public capital spending
such as low-rent public housing, it might be repaid over
fifty or sixty years.
However, even if borrowed at the prime rate of interest
(i.e. the lowest rates of interest), because of the imposition
of interest, three to four times the original borrowing
would eventually be paid back.
That is a colossal charge on the public purse. Nobody
denies the right of the banking system to cover its administrative
expenses and have a reasonable profit.
A $100,000,000 governmental housing project, however,
would pay back $300,000,000 or $400,000,000 when the risk
is virtually nil (governments can raise taxes to pay off
their debt) and the administrative cost is tiny.
So
why does a government
have to pay interest?
Indeed, moving up to a larger scale of things, right
around the world governments borrow huge sums from the private
banking system and have to repay billions, yes, billions
and billions in various currencies.
Why?
The
only possible answer is that the
banking system owns the money it has created and interest
is the charge it chooses to make.
Whereon the truth is exposed ì governments
have allowed the most fundamental thing of all ì the money
supply ì to be owned by a 97% banking system monopoly.
Essentially, in past times, kings and governments
in need of money (in the form of metallic coin) borrowed
from bankers who charged interest.
Today, when money is not metal but is created merely
by the push of a computer button, the banking system has
ended up with a virtual monopoly power to create money and
to add interest. A
power inherent to government on behalf of all ì the power
to decide on money matters ì now lies with the banking system
over which the government only has some influence (by deciding
interest rates).
3.6
A lying structure
Here,
then, is yet another aspect of the obfuscation ì a banking
system monopoly of something at the centre of society (the
money supply) is not a fact that is likely to be shouted
from the rooftops.
Indeed, it could be expected that every effort would
be made to sideline enquiry, block questions and generally
ensure that the truth never surfaces.
However,
now that the truth is out, the situation is as in the children¯s
story of The Emperor Who Had No Clothes
ì an untrue situation can be supported or believed
by everyone,
or certainly by all the powerful, until some innocent waif
points to the obvious and undeniable, thereby, to the relief
of most, collapsing a lying structure.
From
the acknowledgement of the truth, moreover, the outlines
of new policy soon become apparent.
3.7
The new monetary system
The
basis of the new monetary system can now be seen:
¦
Since
a government has an inherent, existing, power to issue its
own money, it can increase the amount of new money that
it issues.
¦
The
money can be interest-free.
Whereon
a supporter of the Western banking system can be expected
to jump up and shout, úWhat about inflation?
You are proposing the printing of money as in Germany
in 1923.î
3.8
Inflation and counter-inflation
The
response is simple ì there can be no inflation if the money
is made repayable (and so cancellable) and is used
to create productive assets.
Put shortly, if the money is issued in the form of
an interest-free loan for a productive asset and the loan
is repaid, the money no longer circulates.
Indeed, since productive assets are, by definition,
productive and the money has been repaid (and can then be
cancelled), nothing is left except the productive asset.
Consequently, something extra has been gained and
the money which created it has been withdrawn.
In general terms, such a situation can only be counter-inflationary.
Even
more importantly the cost of the asset will, in general
terms, be one half or even one third of what it would otherwise
have been simply because no element of interest is involved.
3.9
Interest-free loans for public capital assets
All
states have an inherent power to create money.
Equally, they all seem to have been bamboozled into
believing that, when in need of money, they should let the
banking system do the creation and pay it interest.
Not surprisingly, power is rapidly ebbing from states
and national governments and is going to unseen financiers
in the world¯s financial centres.
However,
the way is wide open for any state to create money for its
own spending at no
interest. If
the money is repayable, and is so repaid and cancelled,
there cannot possibly be any inflationary effect.
There would, in particular, be no inflationary effect
if the interest-free loan were to be spent on public capital
works. Repayment
of the loan, of course, would come from taxes, but taxes
much lower than they would otherwise have been.
At
which point the supporter of the Western banking system
may be expected to jump up (again!) shouting that state-issued
interest-free loans will reduce the resources available
for the private sector.
As everybody knows, he will add, the private sector
is a much more efficient allocator of resources than the
public one.
The
supporter, however, is completely missing the point which
is that there is always a large amount of public capital
spending ì things like low cost public housing, roads, fire
stations, bridges, sewage systems and water works.
When that spending is made it should be done at the
lowest possible cost i.e., without interest.
This in no way crowds out the private sector.
It only means that when public capital spending is
done, it is done cheaply, instead of expensively.
Thus if the state issues $1,000,000 as an interest-free
loan for public capital spending, only $1,000,000 needs
to be repaid instead of perhaps $3,000,000 as at present
(because of the interest which attaches to the loan).
Taxpayers will give a sigh of relief.
3.10
Islamic view of the non-inflationary creation of
money
How
would, Islam, for example, view the non-inflationary creation
of money? The
authors of this paper have no expertise in Islamic matters
but they have been informed that while
there is the concept of an Islamic treasury (bete el
mar), a publicly accountable body, it is not clear whether
this body would have the power to create money.
Moreover,
the authors have also been informed that:
a)
some Islamic thinkers take the view that banks should
not lend unless they have an equivalent of 100% of their
own money held in reserve.
b)
some Islamic thinkers wish that Islam should return
to a monetary system based solely on gold and silver.
In
respect of both a) and b) the Seven Steps proposal
agrees that money should be directly related to assets and
not cause inflation.
However,
it also argues that there must an addressing of poverty
and rich-poor divisions to fulfil the Conference aim of
a just and stable global system.
Furthermore,
the authors have taken the informal advice of an eminent
Islamic academic who thought that Islam could well allow
the state to create interest-free loans if
they are lent for patently beneficial,
productive and non-inflationary purpose.
The
eminent Islamic academic also pointed out that, in Islam,
there were key requirements to keep in view including the
need for:
¼
Resources to be mobilized into socially acceptable
projects
¼
Appropriate spending and participatory economic
and financial instruments to be used
¼
An extensively relational overview relating
to participatory purpose to be kept in mind.
Those
requirements might well be expressed in, for example, Community
Investment Corporations
and the like.
3.11
Community Investment Corporations
Community
Investment Corporations
would be ideal financing vehicles for local infrastructure
capital assets. While
their main finance would be state-created interest-free
loans, they would also give ownership and control to the
local community. Indeed,
it would also be possible to have citizen-owned
leasing companies
owning the assets.
In these ways it is possible to encourage to the
maximum the initiatives and empowerment of citizens.
4
A new understanding of
how wealth is created
The
proposal for the state to create and use interest-free loans
for public capital investment in an inflation-free way is
only too likely to seem impossible, or at least highly undesirable,
to a conventional Western mind.
Yet many thinkers and monetary reformers now understand
that interest-free loans for public capital investment are
possible, and not just possible, but that they also relate
to a much wider change of paradigm.
4.1
Binary economics
Once
it is understood that the state can issue interest-free
loans for public capital investment, it becomes easily comprehensible
that the same basic mechanism ì interest-free loans ì can
also be used for private capital investment.
In both cases, public and private, repayable money
without interest is used to create productive capital.
This is patently sensible for public capital investment
and is even more sensible for private capital investment
done on market terms, because such investment, by definition,
pays for itself.
In practice, such private capital investment is not
just non-inflationary but counter-inflationary.
Yet ì it might be asked ì why should private capital
investment have the benefit of interest-free money?
That¯s allowing the rich to get richer.
Yes,
indeed, but it would be a completely different matter if,
on the principles of binary economics,
the interest-free loans were used to ensure that all
individuals, over time, on market principles, should come
to have a substantial independent income from their ownership
of capital. If
all really did mean all ì carers, retired,
sick, unemployed, women, children and men ì then poverty
would be banished.
Moreover, the rich-poor gap would be properly addressed
and, most importantly, the economic base that empowers
individuals and deepens democracy would have been established.
4.2
The binary reality check
Much
is new in binary economics but perhaps the most important
thing is its view of who or what actually creates the
wealth. This
is the binary reality check which starts by observing that
the prevailing obsolete neoclassical paradigm can never
answer a very important question -
Why is it that, when
sufficient productive capacity undoubtedly exists, billions
of people throughout the world (and even whole strata within
the developed economies) still remain in poverty?
The various conventional answers are always unsatisfactory
not least because they never explain why the world is full
of people who labor long and arduously but who still have
poverty-stricken lives.
Indeed,
every day, we are taught that we must work to earn our living.
The mantra is always jobs, jobs, jobs and
understandably so because, in practice, jobs are at present
the only way by which most people can earn a living.
However, the mantra ignores the facts that a lot
of people cannot labor and that jobs are not always available.
Moreover, many jobs do not pay enough for a reasonable
standard of living and, in many parts of the world, pay
only a pittance; and, everywhere, jobs are insecure.
The mantra ignores these facts because society (and
conventional neoclassical economics) says that jobs create
the wealth.
Yet
suppose it were true that it is not labor but rather productive
capital that really does most of the work and creates most
of the wealth. Then,
indeed, there would be a new situation in which all individuals
would have to have at least some ownership
of capital if they were to be genuinely economically productive.
That
said, most people probably still have some difficulty in
re-thinking who or what creates the wealth.
Nevertheless, they could start to consider why the
rich are rich and might then notice that the rich tend to
own a very large amount of productive capital that produces
a lot of valuable income.
They might also notice that in large parts of the
world, millions of people labor ceaselessly every day yet
they are, and always will be, in poverty because they
own little or no capital.
Unfortunately,
space does not permit the detailed binary analysis of who
or what really does create the wealth although some idea
can be gleaned by a consideration of the productive power
of a machine, hydroelectric power station or technological
process. Suffice
it to say that binary economics clearly establishes the
significance of the productive contribution of capital to
wealth creation and so it becomes a matter of the highest
importance that everyone should have some ownership
of productive capital.
(In contrast, conventional economics, concerned with
keeping capital narrowly owned, says that it does not matter
who owns the capital).
When
everybody owns capital, moreover, a balanced growth becomes
possible. Binary
economics states that the more broadly productive capital
is acquired over time on market principles, and its income
fully distributed to its new owners, the larger the economy
will grow. Binary
economics gives a capital acquisition right, to every individual.
Operating on market principles, this right enables
any individual to acquire efficient, income-generating capital
assets. The
assets pay for themselves out of their earnings.
The
neoclassical and binary views are in further opposition
when jobs are considered.
The conventional paradigm alleges that jobs and welfare
are enough for most people.
In contrast, the binary view, particularly in the
face of technical advance, is that jobs and welfare can
never be enough (not least because, even with jobs, many
people remain in poverty).
Indeed,
binary
economists insist that there can be never be proper market
efficiency, or substantial growth, or any hope of social
and economic justice, without the ownership of productive
capital extending widely throughout the population.
4.3
åBinary¯ means åcomposed of two¯
Yet,
at present, most people do not
own substantial amounts of productive capital.
People (unless they are slaves) own their own labor
but they certainly do not
own the other big factor in production ì capital.
åBinary¯ means åcomposed of two¯ and there are two
factors in production ì capital and labor.
Thus
there are only two ways of genuinely earning ì either
through owning capital and/or
though owning your own labor.
The main object of binary economics is to ensure
that all individuals have access to both ways of earning.
The result is the founding, on market principles,
of a private property system which diffuses, rather than
concentrates, capital ownership so that 100% of the population
come to be substantial owners.
4.4 Benefits of binary economics
Among
the beneficial consequences of that ownership are:ì
¼
A basic income for all.
¼
The balancing of supply and demand.
¼
A change in attitudes towards consumption.
¼
A green growth.
Other
obvious benefits include the provision of old age pensions;
a huge reduction in the need for welfare benefit; an income
for children, sufficient to pay for their basic needs; and
the ability to stop people getting their income in ways
harmful to the environment by giving them another means
of being productive.
4.5
Basic mechanism of binary economics
Very
briefly, the binary mechanisms work in exactly the same
way as happens at present, using existing institutions and
practices with a little modification.
Each year in the USA new capital investment is made
ì somewhere around $7,500 per woman, man and child per year.
That is a huge amount and it remains huge even when
depreciation is taken into account.
Yet, each year, it stays narrowly owned, and will
always stay narrowly owned, because åfree market¯ practices
are unfree and ensure that narrow ownership.
Binary
economics, however, uses principles now well established
in USA ESOP (Employee Share Ownership Plan) legislation,
but extends the principles to cover 100 % of the
population.
The
credit privileges and special tax advantages that the U.S.
government has given to workers who adopt ESOPs, allow workers
without savings to purchase shares on credit wholly secured
by the future profits of the company.
Because employees are directly linked to productivity
increases and profits through their ownership rights, studies
indicate that firms financed through ESOPs, when combined
with participatory management and gain sharing, generally
perform better than their competitors.
Knowing
about the ESOP helps towards understanding how binary economics
enables everyone, over time, to come to individual ownership
of productive capital.
Suppose
a big corporation or company wishes to expand.
It could go to a local bank for the money which would
be lent at interest.
Yet the corporation could also decide to ask a Constituent
Trust (similar to an ESOP) to put up the money ì the Trust
would offer to give the money to the corporation and, in
exchange, the corporation would issue new shares to the
Trust which would then hold the shares in the name of its
constituent clients.
Acting for employees or
for anyone, the trustees then makes a proposal to a
local bank which independently evaluates the soundness of
the proposed expansion.
At
which point binary economics proposes that cheap money should
be available. The
state¯s central bank (e.g., the US Federal Reserve) would
issue the money at a 0% rate of interest, and give it to
the local bank which would then lend it to the Trust.
So this would be interest-free loan money for market-driven
productive investment as
long as the investment makes capital owners of previously
capitalless people.
For
the next five to seven years, on average, the Trust will
receive dividend income from the stock held in trust for
the client. This
income is credited towards the cost of the stock bought
in the client¯s name and is repaid to the local bank which
provided the original loan.
The local bank, upon receiving repayment from the
Trust, in turn repays the Federal Reserve.
The Federal Reserve can, of course, then cancel the
money or recycle it into further industrial expansion.
As
each share of stock is paid for in full, it is released
from the Trust and ownership accrues to the clients who
thereafter will receive the cash income from their investment
in the form of dividends or capital appreciation.
The
specific result of all this is that the clients become the
independent owners of a capital estate providing income.
The overall result is, among other things, an increase
in productive and consuming capacity but no corresponding
increase in the money supply, so there is no inflation;
rather counter-inflation.
A new word is needed ì perhaps ådoeflation¯.
Consequently,
efficiency and
justice are forwarded.
In binary economics, the
efficiency creates the justice and the justice creates the
efficiency. Yet,
in contrast, neoclassical economics thinks that nothing
much better than the present can be reasonably expected
and that those who have little or no labor income (or no
security of income) are only getting what they deserve.
Crucially,
binary economics ensures that all
individuals can become, and remain, economically productive
(whereas conventional economics only conceives of people
being productive when they are in paying jobs).
Thus binary economics serves everybody, and not just
a few, with remarkable benefits.
Without inflation or recession, the binary economy
offers to release the full potential of technology to the
immense advantage of humankind and the environment.
It offers to lower and eventually remove the need
for redistribution, consumer debt, and deficit spending.
It offers to tame, if not eliminate, the destructive
economic cycles that have blighted history.
It will establish economic justice and, eventually,
eliminate material poverty.
In
a binary economy, moreover, freed from the constraints and
pains of poverty, people will have happier, more balanced
and independent lives.
They will have a greater freedom to be creative.
There will be an overall increase in our physical
capacity to do God¯s work.
4.6 Small business
The
basic principle of interest-free loans for productive capital
investment (if new capital owners are created) can
be used for small business but possibly without the requirement
for new owners to be created.
There would still be a requirement for collateral
as security against the possible loss of the loan and it
might be desirable for eligibility for the loans to be confined
to socially beneficial businesses.
That said, the
key point is that interest-free loans could be used for
small businesses in exactly the same circumstances as today
except that the small businesses would not be suffocated
by interest payments.
5
A second basic income
As
has been seen binary economics and its provision for all
of a basic income stemming from capital ownership is counter-inflationary
ì greater output and consumption, particularly for the
previously poor, but in the context of generally lowered
prices. Yet
it is a generally agreed aim that the general level of prices
should be stable.
Whereon
a remarkable possibility arises ì of a second basic
income. When
the context is counter-inflation, prices could be raised
to a stable level by the issuance of debt-free (non-repayable)
money on the lines of the proposal made by Joseph Huber
and James Robertson.
Such issuance would not be directly related
to productive capacity but, such is the counter-inflationary
power of binary economics, the issuance becomes acceptable
as the price of achieving a stable level of prices.
6
Summary of the Seven Steps
The
Seven Steps are set out in the book by Rodney Shakespeare
and Peter Challen.
With brief accompanying comment, they are that:
¦
That
there be open, regular and public acknowledgement by state,
economists and academia that the present banking system
is an unjust monopoly that creates 97% of the money supply
as interest-bearing debt.
At
present widespread debate on monetary reform is not possible
because the subject is maginalized, even suppressed.
Therefore obtaining acknowledgement
that the present banking system is an unjust monopoly is
not something that can wait.
Rather progressive individuals and groups should
agree to put the issue to the front of their discussion
and altercations with government, academia and economists.
Once there is a widespread understanding of the main
features of the banking system, the other Steps will surely
follow.
¦
That
interest-free loans (i.e. state-issued repayable loans created
free of charge beyond administrative and other necessary
cost) be used, via community investment corporations and
the like, for capital investment needed by the public sector
thus enabling such investment to be for one half, even one
third, of the present cost.
No
disadvantage comes from introducing this Step.
It does not increase the amount of public capital
spending and is counter-inflationary.
Its great benefit is that public capital works can
be done for one half or even one third of the present cost.
Any society not introducing this Step suffers a detriment.
¦
That
interest-free loans (i.e. state-issued repayable loans created
free of charge beyond administrative and other necessary
cost including loan insurance) be used, on the principles
of binary economics, for private capital investment which
will create ownership stakes and property incomes for all
income groups, especially the poor.
The
underlying mechanism of binary economics is to permit the
use of interest-free loans for private capital investment
if new owners
of capital are created thereby.
Binary capital requires the full payout of earnings
which could be eight or nine times what is paid out at present.
¦
That
interest-free loans (i.e. state-issued repayable loans created
free of charge beyond administrative and other necessary
cost including loan insurance) be used for loans to start-up
and small socially beneficial business.
Instead
of small businesses being burdened by interest so that their
backs break, this Step gives them a better chance to survive.
Since they are the seed corn of any economy, it is
important they do so.
¦
That,
since the Steps above, while enhancing productive capacity
and individual productiveness, are counter-inflationary
and ultimately diminish the money supply, debt-free money
(state-issued, non-repayable money) should be issued for
another individual basic income to the extent necessary
to keep a stable level of prices.
The amount should be decided by a body free from
operational control by politicians.
Money
is being manufactured on a huge scale at present by the
banking system (which, of course, then adds interest to
it). So there
is nothing new in the manufacture of money.
Debt-free money, therefore, could be introduced by
itself if balanced by compensating measures in the rest
of the economy. That
said, the Seven Steps proposal sees the case for
debt-free money as being much stronger when it is allied
with interest-free loans for capital investment purposes.
¦
That
women be addressed as to the role they can play in providing
two basic incomes for all individuals throughout the world.
It
should be pointed out to women that they can play a big
role in implementing two basic incomes for all individuals.
Such incomes cannot be a detriment to them nor, for
that matter, to anybody else.
¦
That
moves be made to establish The
Abraham Society and The
Kashmiriat Society.
This
Step uses the previous Steps to find a new solution for
the problems of the Middle East and Kashmir.
A solution is urgent and would be about as clear
a gain to the human race as anything could be.
6.1
What the Seven Steps will create
Implementation
of the Seven Steps will create:-
a)
individuals involved in practices destructive of the environment
can be given another way to earn
b)
the economic efficiency allows for the introduction of more
costly, but greener, processes.
- Enhanced
economic status of women and a proper power balance between
the sexes.
- A
solution to poverty through a guaranteed two income security
for all.
- A
foundation for the ending of National and Third World
debt and the stimulation of economies and societies no
longer in hock to outsiders.
- Deepened
democracy because all individuals will have much greater
control over their daily lives.
- An
economic foundation for the voluntary control of population
levels.
- Hope
of a solution for two of the worst danger spots in the
world ì the Middle
East and Kashmir.
- The
existence everywhere of a practical basis for a new honesty,
optimism and generosity of spirit.
Michael Rowbotham,
op. cit.
The method was neatly summarized by Graham Towers,
former Governor of the Central Bank of Canada who in
1939 said that, úEach and every time a bank makes a
loan, new bank credit is created ì new deposits ì brand
new moneyî.
The true, full dividend earnings of shares, in
a binary economy, could be as much as five, possibly
eight or nine, times what is paid out at present.
In order to protect the bank and the Trust against
possible losses from business failure and default by
the corporation, the Trust pays a premium to buy insurance
from a commercial capital credit insurer.
The cost of the premium is added to the cost
of the investment and charged to the client, as is the
administrative cost of operating the Trust.
The financial soundness of the privately owned
capital credit insurer will be guaranteed by new legislation
creating a state capital credit re-insurer (similar
to the USA Federal Deposit Insurance Corporation ì åFDIC¯
ì which safeguards bank deposits against loss).
Although, of course, it is possible to arrange
things so that the money is held on trust for the client,
if that is appropriate; and it is also possible to arrange
things so that (e.g. for new-born children) previously
paid-up capital is used thus giving immediate income.
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