1.0 Introduction: Defining Issues and Outline of a Solution
revised 2/2012, 2,7,10/2016, 4,5/2017, revised 4/'19
1.0.0 Summary added 11/2017
1.0.1 History of modern economic systems
1.0.2 Outline of issues
1.0.3 Recent economic disasters; defining the problem
1.0.4 Paradoxes in the vanishing American middle class; immigration
1.0.5 Outline of a solution
1.0.6 Further considerations regarding a solution
1.0.0 Summary added 11/2017, revised 4/'19
Americas economic system compells individuals and institutions to go
which for many becomes unmanageable. The system works as a powerful
behavior modification program. If most people behaved rationally and
resisted the enticements of credit, the economy would collapse; there
would be a
• Economics is largely about "who does what for whom and why?" and, how can we influence economic interactions?
• Able adults primarily work for themselves and for the younger and the older generations.
• Money is central in economic activities outside families. Its main
functions are representing and holding value, measuring value, and
mediating economic transactions. The actual value of money is
determined by people's trust in its worth.
Representing and holding value: money represents the value of income
from work or sold goods until, at a later time, it is used to buy any
products and services of equal value. Prices and fees, in monetary
units, represent a measure of value, the amount that interested people
are willing to spend for offered goods or services. Mediating
transactions consists in paying money for work and goods, rather than
bartering or expect later reciprocity. [If there are workers, materials
and work to be done, but no money, needed work is probably not done
unless there is a trusting, tight-knit community.]
• To whom should our money belong, the money we use as private people, in
our enterprises or our governments? To banks and financial institutions?
• Why do we not have an adequate money supply? Why should most people,
enterprises and even governments borrow from financial institutions to
keep the economy from collapsing? Why should we pay interests for the
benefit of having the money supply our economy needs?
• Debts are generally disastrous for individuals and bad for
enterprises and governments. Most people hardly noiced the insidious shift from working with
owned money to relying on credit.
• Bank lending destabilizes the economy and contributes greatly to disastrous business cycles.
• Central banks failed to increase the money supply to facilitate the
growth of economies, and they failed to adequately regulate financial
Debts have caused much individual despair and economic disasters. If
people are indebted, they lose their sense of freedom, and inability to
make loan payments often leads to anxiety, poor functioning,
depression, substance abuse, crimes and suicides. Indebtedness among
businesses causes instability and may lead to economic recessions with
high unemployment, etc. The problem is not people wanting to be
indebted. Governments have failed to properly regulate financial
institutions and to infuse money into growing economies, for instance
using newly created money to improve education, health care, and
infrastructure. Today more than ever, our economy depends on bank
loans. If Americans would stop using credit cards and accepting loans,
the economy would collapse.
Economists have been discussing the failures of classical
theories, but there is little recognition of how the meaning of money
itself has been lost. Many hardly noticed the shift from money
representing savings and productivity to ‘money’ being equated with
credit; credit ratings rather than savings determine people’s living
Money, which has most frequently consisted in metal coins
and paper bills, was accepted to represent value, most importantly
referring to the value of labor and the products of labor. For
individuals saved money has been holding the value of labor from the
time of receiving a paycheck to the time of buying goods and services.
While bank accounts hold savings that may be withdrawn at any time,
loans and credit make people laborers of the bank: if unable to work
and earn enough to make scheduled loan payments that include sizeable
interests, borrowers risk losing all goods that are not yet fully paid
for and also what loan officers listed as ‘collaterals,’ and they may
be sued for failure to pay back loans for education, etc.
Economists appear to have abandoned the distinction
between auxiliary financial ‘services’ and productivity, including
manufacturing goods, providing education and healthcare, doing
research, etc. Modern financial institutions are called ‘industries’
that sell ‘products’, but their activities only try to manage and
control others’ economic activities with the single goal of skimming
profits off other people’s productive work. They may claim that
economies benefit from their prudent investing and lending but they do
not have adequate knowledge to judge situations; and adding to the
economy’s productivity is not their actual goal; instead they tend to
decrease people’s standard of living and waste much brainpower.
Why should people, businesses and governments pay a tax
(in the form of interests and other fees) to financial institutions for
the benefit of having a circulating money supply? Why is money that was
created by the Federal Reserve System in bank vaults while much of the
circulating money is borrowed from financial institutions?
Poor areas generally produce few goods that can be
exported but people still buy fancy good produced in highly
industrialized areas. Thus money tends to flow from poor to wealthy
areas. To prevent worsening of poverty and improve the economy of poor
areas, local currencies may be needed that may be used for trading
locally produced goods and services.
To replace the use of US dollars and other “hard”
currencies for international trade and as reserves of national banks,
an international (UN) bank should issue and adequate amount of a newly
created currency, that provides much more money than the by the
International Monetary Fund (IMF) issued Special Drawing Rights. To add
to existing inadequate safety nets, it is advised to issue minimal
basic incomes, mainly paid for by taxation of undesirable and luxurious
1.0.1 History of modern economic systems added 4/'19
the importance of credit dramatically changed with the time of
explorations and the ‘scientific revolution.’ Kings and governments did
not create an adequate money supply to support exploring and
subsequently colonizing the world, driving sciences forward and
developing infrastructures, even though it would have been reasonable
to enlarge the money supply as imports from exploited lands and
productivity of their economies grew. Explorers cooperated with
governments and scientists, but they colonized much of the world as
private enterprises funded with credit from wealthy investors by means
of joint-stock companies. They operated outside any law, hiring armies
with credit; there were no ethical constraints. Corporations developed
the transatlantic slave trade with governments looking the other way,
and the explorer companies cruelly exploited local populations,
torturing people, causing famines, etc.; they were often deceitful when
alleging to help indigenous populations. Borrowing, by selling stock
and other means, was out of control: kings borrowed to fight wars,
build palaces and support their lavish lifestyle; adventurers borrowed
to explore and colonize, industrialist borrowed to enlarge enterprises
and get richer, etc.
Spanish Kings and conquerors, as most people, believed the
value of money depends on the artificial value of gold, silver or
another commodity; they have not learned why the Spaniards’ loot of
America’s gold only led to inflation. The value of money can only
represent the productivity of an economy: if an economy collapses,
money becomes worthless because there is nothing to buy, and gold can
only be used to buy, for a limited time, from foreign economies.
Particularly in the USA, the “culture” of indebtedness is aggravated by
the cost of higher education and inadequate support of young couples
and families; rather than getting free education or grants for higher
education and financial support when starting a family (to avoid
indebtedness), many may get an inheritance at a later stage in life
when they are supposed to have an adequate income and no debt payments
except possibly a manageable mortgage.
A detrimental change in modern capitalism was that
capitalists suppressed artisans who owned their tools and workshops and
forced workers and their children into slave-like conditions; factory
workers hardly own anything. Even Indian rickshaw runners were charged
outrageous rental fees for these primitive vehicles so that it was
impossible for them to save and become independent. Based on Adam
Smith's observations, a capitalist creed evolved: Following
self-interest supposedly benefits everybody; the "invisible hand" was
to guide progress, and investors seeking profits would reinvest profits
thus creating more goods and more jobs. The conservative British
government believed that they should not interfere with market forces
during the Irish ‘potato famine,’ even though over a million people
starved to death. Industrialists felt no guilt when ruthlessly
Exploration and exploitation of the Americas and other to
Europeans previously little known countries, the ‘scientific
revolution,’ the expansion of banking and credit, and the evolution of
modern capitalism greatly influenced each other; but the capitalist
credit system and the development of stock markets were not the cause
of scientific and technological progress. However, capitalism that
fostered addiction like greed may have destroyed any decency that
rulers may have had prior to colonialism and transatlantic slavery.
Western people often blamed communism for genocides and
oppression. They usually fail to recognize that the movement and
ideology of communism was a response to the destructiveness of
unrestrained capitalism of plutocratic societies.
In highly industrialized countries, extreme poverty
eventually decreased dramatically and highly developed societies no
longer tolerates widespread cruelties. However the problem of private
credit and indebtedness greatly decreases people’s quality of life.
Inability to repay debts causes anxiety depression and drives many
people to suicide.
Particularly in the USA, the “culture” of indebtedness is
aggravated by the cost of higher education and inadequate support of
young couples and families; rather than getting free education or
grants for higher education and financial support when starting a
family (to avoid indebtedness), many may get an inheritance at a later
stage in life when they are supposed to have an adequate income and no
debt payments except possibly a manageable mortgage.
Unrestrained capitalism is inherently unstable; it support
the formation of oligopolies and monopolies and leads to frequent
financial crises (approximately every 20 years 1796-1929 During the
Great Depression, the federal government of the U.S. started to
reasonably and successfully regulate financial institutions, and new
regulations largely prevented the formation of business monopolies and
financial crises ceased until deregulation undermined needed
safeguards, leading to the mortgage and loan crisis of the late 1980s
and the great recession of 2008.
Still few economists and politicians have appreciated the
fundamental nature of money and the need of a money supply that is
owned by people, businesses and governments. There is a major
- circulating money that is created by bank loans,
- money that is issued by the government to shore up bank reserves in order to encourage bank lending, and
- money that is issued by the government for the benefit of working
people by subsidizing what is most valuable for the economy,
particularly education, healthcare, research and an extended
1.0.2 Outline of basic issues in economics revised 10/2016, editing 4,11/'17, 4/'19
Who does what for whom and why? How do we value actions, things, people
and the environment? People’s decisions are not primarily guided by
reason but by instincts that are manifested as emotions. Ways to
fulfill instincts evolved and gradually adapted to physical and
cultural environments. More immediately and directly, decisions are
influenced by economic conditions: economic incentives and
disincentives powerfully mobilize and sway the emotional-behavioral
system, positively and negatively.
The principle economic function of adults is to work for
themselves, the next generation and the older generation. Though
largely outside the money economy, one of the most essential economic
activities is bearing, raising and educating a reasonable number of
children. Most elderly people continue to be an asset to families and
society, but caring for old people is also a matter of ethics
(reciprocity and compassion).
Money developed with three primary functions: 1. to
represent the value of work between producing or earning and consuming
or spending, 2. to measure value, comparing values of different goods
and services, 3. to have a medium for indirect transactions, when
direct barter is not possible (selling some good to one person and
buying a service from another). These functions made economic
transactions much more efficient compared with people directly
bartering goods and services or relying on future reciprocity.
The money supply represents the productivity of a people
but does not hold value in itself. Since maintaining the value of money
depends on the future productivity of the younger generation,
accumulating large amounts of money as retirement or pension funds does
not make sense and it distorts the economy, unless it is used on
education, infrastructure and other long-term efforts to safeguard
and/or improve future productivity.
In all economic-political systems, many people have some
drive to experiment and/or make improvements, to be inventive and
entrepreneurial. Such inclinations are usually held back by an inherent
propensity to follow customs and by leaders’ imposed conservative
traditions and/or religions. Because of extreme poverty and insecurity,
many people do not dare experimenting or accepting scientific
approaches to improving productivity. However, many talented people in
good jobs want to improve products and services and to advance science,
with or without incentive of profits or salary increases - in most
jobs, patents of inventions belong to the corporations or patenting
discoveries is considered unethical. Such workers may want to compete
with peers, and it feels right and gives a sense of satisfaction to do
one’s best. However, people in leadership positions often fear
progress. Societies must also be mindful whether progress benefitting
some is indirectly damaging to others and society at large.
People in power invariably distort the value of work, and
throughout history, they have mandated property rights that were and
are unethical. Claimed or perceived property included wives and
children, slaves, domesticated and wild animals including fish,
virtually all economically useful land, mineral deposits and
‘intellectual property.’ People in highly specialized and managerial
occupations, particularly men, generally overvalue their contribution
to an economy and demand high incomes. For multiple reasons, the income
gap between wealthy and poor tends to increase over time.
For meaningful improvements, our civilization needs to
address its economic system, how the money supply is managed and
allocated and what rules the economically powerful institutions must
obey. Economies should reward responsibility and social, ethical
behaviors rather than single-minded competitiveness and consumerism.
Humans have very strong inclinations to imitate behaviors and follow
customs of parental figures and older peers. This may explain why the
evolution of hominids to modern humans was extremely slow and painful.
The benefits of upright gate and increasing brain size were hardly
realized for millions of years. Humans ventured into distant dangerous
regions that required major adaptations, much by trial and error. As
they stumbled on agriculture and animal husbandry, people’s life
expectancy and quality of life greatly decreased, and with high
population density and anonymous societies, cultures became cruel.
Completely independently, agriculture and villages evolved in Eurasia,
Africa, the Americas and the highlands of New Guinea, all within recent
millennia. In addition, in many places cities and anonymous societies
developed. In all continents except Australia, patriarchal hierarchical
cultures developed in which most people and domesticated animals were
methodically abused. Religions usually reinforced cruel hierarchies.
Until very recently, in spite of their inherent intelligence, most
people’s lives were limited and miserable compared with those of Stone
Even while slowly accelerating, progress in the high
cultures of antiquity and the Middle Ages continued to be painfully
slow. Around 1500, a dramatic change in culture led Europeans to
recognize what they did not know; they became curious and started
exploring and ‘re-conquering’ the world and in the process again
shamelessly exploiting everything they could; and scientific progress
accelerated in spite of great resistance by religious leaders – this
religious-cultural resistance and hostile stance against science has
continued into the present.
What role capitalism played is disputable. Accumulation of
wealth has always been important and in the past supported the
construction of fancy structures and the creation of beautiful art.
Obviously what wealthy capitalists accomplished could have been
financed and organized by enlightened or greedy governments. The USA
and the Soviet Union showed that a government could accomplish the
development of nuclear weapons and space flight without the incentive
of profits. Other examples of governments realizing progress include
European public schools, universities, rail systems, etc.
1.0.3 Recent economic disasters; defining the problem revision, editing 4,11/'17, 4/'19
The central problem in modern
economies is a misconception regarding the nature and function of
money. Money developed as representation of the temporarily saved value
of work, which has not yet been converted into consumer goods, services
and/or durable goods (in large, anonymous groups people do not trust to
receive future reciprocity for their work, and bartering is inefficient
All people should be able to efficiently participate in
the economy, with reasonable access to goods and services, education
and meaningful work. Governmental and economic institutions are to
reach this goal by issuing and properly allocating money and by
establishing rules for the interactions between private individuals,
private enterprises and government bodies. The U.S. parliament and the
Federal Reserve System (‘Fed’) keep failing. After a major recession at
the beginning of this century, a deeper and broader recession started
in 2008. Many people have been marginalized, lacking access to training
and education, and unable to find stable employment according to their
capabilities and training or niches for self-employment. In some
regards, European governments and private financial institutions have
been failing in a similar way.
Today it is broadly assumed that money for economic
activities is usually borrowed from financial institutions and through
credit lines; for many, qualifying for credit has replaced the goal of
having savings, and scores of people function as managers of others’
assets and productive potentials. People and enterprises are willing to
pay in effect a tax (interests, management fees, etc.) to financial
institutions for the convenience of a money supply.
Banks and other financial institutions were given the
power to create and allocate money as they see fit, and to withhold
money from the economy when seeing no likelihood of profits. Issuing
money is formally a government monopoly, but governments have failed to
infuse an adequate money supply into the economy by using newly printed
money to subsidize what is essential to the economy: education, health
care, research, infrastructure improvements, etc.; instead governments
allowed private financial institutions to multiply the government
issued money supply by lending the same money to many persons and
enterprises. Deregulation of financial institutions that started
with Reagan's presidency greatly increased the problems; it encouraged
wild speculation, comparable to the time before the Great Depression.
Dangerous lending activities led to many credit crises; the worst in
the later 20th century was the savings and loan crises that led to a
$293 billion government bailout in 1989. To stem the severe credit
crisis of 2007-08, preventing large financial institutions from
failing, the Federal Reserve Bank created trillions of dollars much of
which was infused into banks as reserves; these actions decreased the
ratio of loans to reserves; (the newly introduced money was lent to the
financial institutions at very low interest rates). The banks that
could not properly handle the existing money supply were put in charge
of the newly introduced money: decreased interest rates and increased
reserve were to stimulate the depressed sectors of the economy but it
was left up to bankers to offer or refuse credit (rather than using it
for large projects that create jobs and are of value to the country as
In the USA, an inordinately large part of the functional
money supply consists in debts to banks and other financial
institutions. Close to half of U.S. households have hardly any savings
for emergencies, car repairs, etc., much less for temporary
unemployment. “Living on the edge” is stressful and often destroys
relationships. Inability to pay debts leads to impaired functioning,
depression and quite frequently suicides.
Studies by Sendhil Mullainathan and others indicate
that worrying, particularly about serious financial problems, decreases
people’s ability to reason with a significant decrease in measured IQ,
increased impulsivity, etc. People may develop "learned helplessness"
and no longer recognize obvious ways to escape vicious cycles of
poverty, that may include waste of limited resources, substance abuse
and criminal activities.
However, if people would start saving in earnest, the U.S. economy would collapse.
Former Harvard professor and now senator Elizabeth Warren
described in her studies the recent dramatic shift from people saving
to people falling victims to offered credit, and she enumerated grossly
unethical and illegal actions by financial institutions. In February
2005, invited by then acting Comptroller J. Williams, she presented her
research data and proposed actions to staff of the Office of the
Comptroller of the Currency (OCC); however, the OCC refused to act in
any way since, as Williams explained “the banks would not like it.” The
OCC’s failure and refusal to properly regulate banks is tantamount to
corruption. Lending caused a large increase in the functional money
supply by adding huge, very profitable loans; the so created economic
bubble burst and led to the great recession of 2008.
Short explanation of how banks operate and 'create' money: Money that
is lent by a bank is redeposited in another bank or simply changes
accounts within the same bank; it can then be lent to another borrower.
As part of a loan is used for labor, the money then belongs to the
workers; however, workers usually need much of these earnings to pay
their mortgage and other debts, and in that sense that money still
belongs to financial institutions. Bank reserve requirements, laws that
determine the percentage of checking and savings’ deposits that must be
kept in reserve, limit how many dollars of credit a deposited dollar
may produce. Obviously, checking accounts, used as a safe form of cash
during pay periods, should never be lent to borrowers for profit. In
the Eurodollar markets, banks often issued as much as $ 30.00 of credit
for every dollar that was invested in the bank branch. With $1,000,000
reserves, a bank branch may lend $1,000,000 to 30 Third World
governments to buy construction equipment, e.g. to build dams and
irrigation systems, from a U.S. company. The $30,000,000 loan accounts
are then moved into the accounts of the U.S. corporations, never
leaving the bank, but 30 Third World governments will have to pay the
loans back, in U.S. dollars, with considerable interests. If their
export earnings drop, for instance if a country's main export product,
cotton, becomes cheaper in the world markets, or crops fail due to
weather conditions, the bank does not accept any responsibility for
giving bad advice and offering bad conditions to the borrower.
Since banks always lend deposited money to many borrowers,
they will fail when too many people want to withdraw their assets. One
bank failure may quickly lead to 'bank runs' throughout the area or the
industrialized world, requiring massive government interventions to
prevent a collapse of the money supply and consequent depression. (Laws
that were enacted during the Great Depression were successful in
keeping bank activities relatively safe for half a century; later they
were considered "obsolete" and dismantled.)
In the past, Americans had relatively more savings and
banks kept a significant part of the checking and savings deposits of
individual and business customers in reserve. However, as populations
and productivity increased, the gross domestic product (GDP) grew and
more money was needed for the efficient functioning of the economy. The
increase of the functional money supply was to a large degree achieved
by much increased lending with the result that, for virtually every
dollar of circulating money and money-like media (cash and checking,
savings, money market and similar accounts) somebody pays interests to
a financial institution. Today, close to half the population is “living
on the edge,” being deeply indebted and 'living from paycheck to
The problem of lending by financial institutions is much
complicated by the expansion of other forms of money and “near money”
including forms of lending through unregulated financial institutions
(‘shadow banks’) and complex credit systems. Adding all ‘liquid assets’
(cash, different forms of accounts, easily into cash transferable
investments that are partly or largely based on derivatives, etc.) and
all forms of lending (loans from financial institutions, loans and
credit lines from corporations, etc.), there is a very large quantity
of circulating money-like media (functional money supply) compared with
reserves to back the lending. Complex “financial instruments” are no
longer understandable to investors, brokers and even the people who
create them – ways to estimate their future value would require complex
The financial sector has become hugely profitable:
According to Forbes’ website (2016), finance is the second most
profitable sector of the economy (after health technology), and, as
reported by The Century Foundation (tcf.org) “According to New York
University economist Thomas Philippon, who contributes one of the most
striking chapters in Rethinking the Financial Crisis, “total
compensation of financial intermediaries (profits, wages, salaries and
bonuses) as a fraction of GDP is at an all-time high, around 9% of GDP
(gross domestic product).”
Government interventions seemingly stabilized the credit
situation after each crisis. Consequent misguided overconfidence, greed
and broad irresponsibility of financial institutions led to repetitions
of these cycles with new failures. However, economists tend to have a
short memory, hardly ever anticipating the next credit crisis.
According to articles published in the Bank of England’s Quarterly Bulletin series Q1 and Q3, quoted in
The roles concerning money have been reversed as compared to textbook
economic teachings. Bank lending has created money by way of new
deposits: commercial banks have determined where and how much money is
“needed” and created it, encouraging individuals and businesses to
borrow and/or accepting requests for credit if they expected profits
with low risks. The central banks have been issuing the reserves,
according to banks’ wishes and needs, insuring most accounts.
Governments even bailed out banks that should have failed after
Multiple factors contribute to the continuing increase in the gap
between poor and wealthy. Generally, life is more expensive for the
poor: stores in poor areas are more expensive, poor people are charged
higher interests if accepting a loan, rental property is higher taxed
than owned houses, etc. Poor people usually overspend and are trapped
in poverty; middle class people may save some for retirement, while
wealthy people usually invest significant amounts of excess income and
wealth. Being wealthy allows people to make risky investments that, in
the average, earn much more interests and dividends than savings
accounts and low-risk investments.
Average investment earnings are generally higher than the
rate of economic growth that is, increases in worker productivity and
salaries; this discrepancy leads to a widening of the gap between
wealthy investors and middleclass workers. Reinvesting unearned income
increases the person’s capital and consequently the investment income;
but investments increase the productivity of the economy at a
relatively low rate. Workers' salaries may be stagnant for decades.
Today, many families are unable to improve their lot.
Poverty often leads to chronic anxiety, depression, and hopelessness
(particularly in an affluent consumer society). People with low incomes
may be wasteful, buy luxuries they cannot afford, and drink. When
incomes stagnate, people often believe their living standard declined
even though many products they buy, made by very poorly paid Third
World workers, are much better than what they could afford in the past.
Often there is a fatalistic attitude and a continued perception of
anger and stress because of the apparent social injustices. Poverty is
often aggravated by local circumstances, lack of affordable housing and
poor public transportation to where better jobs are, etc. Families who
live in economically depressed areas often cannot afford to move, and
understandably, they usually do not want to leave what still feels like
home. With inconsistent incomes and no savings, people may decline to
destitution and homelessness.
However, poverty is relative. Human relationships and
roles in society are more important than income. Even extremely poor
people are generally content and often proud if they are not
significantly poorer than the average population of their civilization
or subculture and if they live in cohesive families and communities;
however, frequent moves, particularly young people leaving the places
where they grew up, may destroy their communities. With the
deterioration of local industries and neighborhoods, they may even lose
their sense of identity.
1.0.5 Outline of a solution revision, editing 4/'17, 4/'19
main element of a solution consists in creating a stable money supply
that is owned by people, enterprises and government agencies.
Governments must introduce large amounts of money into the economy
while better regulating financial institutions. This is essential
during a major recession or depression even if no major changes in
economic institutions are planned, other than limiting bank lending1.
If ‘injecting’ needed money into a depressed economy leads to
inflation, it is due to banks multiplying the money through
irresponsible lending, allocating it inappropriately and offering
grants and credit where few or no productive workplaces are created.
prevent fluctuations in the money supply, banks must be prohibited from
lending money of checking accounts, which people use like cash; and to
avoid the rapid transferring between savings and checking accounts,
assets in savings accounts must also be kept in reserve until they have
been left idle for over one month. Bank reserve requirements must be
increased. The securities (stock, bonds, etc.) market must decrease in
importance, and trade of securities must not be exempted from sales
taxes even if taxation levels may be lower; this would also slow down
the speed of transactions; taxes may be higher when selling a short
time after buying stock or bonds, in order to encourage long-term
considerations in economic activities. The large majority of economic
interactions should consist in people earning, saving, then spending
savings; enterprises should save profits and utilize them for expansion
and for research, development and improved production processes. When
people are dissatisfied with available products and save rather than
buying them, banks should then lend the savings to affected enterprises
so they have the resources to work on improving their products.
Government issued money may initially be entered into circulation by
paying out one-time subsidies for poor and middle-class people who have
debts and who will no longer get credit to buy goods. To maintain the
health of an economy and to promote growth, newly issued money may be
used for education and research, to support health care, to build a
comprehensive rail system and otherwise improve the infrastructure, to
back broad energy savings measures and use of renewable energy, etc.
Speculating should be limited and discouraged through taxation;
bundling of unrelated investments other than well-defined mutual funds,
and the marketing of complex investment ‘instruments,’ including
derivatives, should not be permitted. Some derivatives are designed to
decrease risks but also decrease expected earnings; these should be
replaced by reasonable insurance policies, offered by cooperative
Multiple tiers of money are needed: international, federal and, in many areas, local currencies.
low income tend to lose their money when people buy products from
industrialized areas, creating a negative trade balance with the rest
of the country or economic block. The unemployment problem may then be
alleviated by introducing a limited supply of a local currency that
serves as barter coupons, used to pay for locally produced goods and
services. The supply of such a currency must be regulated by its value:
if its value rises, more is introduced, if inflation develops, local
governments buy currency back. Retailers may determine that goods must
be paid for in part with local, in part with official (federal)
safety net, there should also be a by the federal government
distributed minimum basic income that is adapted to local living costs;
in addition, poor unemployed and partly disable people should receive
subsidies while studying, working part-time and/or doing unpaid
community service work.
international trade has been transacted in dollars, and U.S. dollars
(particularly U.S. treasury bills) have largely replaced gold as main
reserve of Third World national banks. Other ‘hard currencies’ play a
similar but much smaller role. This arrangement is extremely costly to
poor nations. It caused the U.S. to build up huge trade deficits and
debts, paying very low interests, and benefitting from vast quantities
of cheap goods that are produced, in Third World countries and emergent
economies. As was previously proposed, a UN related international bank
should establish an international currency, we may call ‘international
monetary unit’ (IMU): for any transnational trade, the buyer buys IMUs
and these can be converted into any currency. The ratio of any currency
to the IMU would be determined by supply and demand: there should be a
targeted amount of each currency in the international bank; if the bank
has too much or too little of any currency for some time, that
currency’s value should be decreased or increased.
proposed international bank is different from the World Bank or IMF; it
is designed to facilitate international trade without involving
economies with “hard currencies”, not to lend money. John Maynard
Keynes and Joseph E. Stiglitz proposed the creation of international
money for conversion of currencies and for reserves2.
(The by the IMF established ‘Special Drawing Rights’ (SDR) were a form
of international currency, but they were rarely created and exclusively
given to highly industrialized countries.)
the USA pays very low interests for its rapidly growing debts, Third
World enterprises borrowing to buy U.S. equipment generally pay
interests above 10%. Much more profits flow to Western banks than all
the aid to the Third World combined.
was the case in 2008, the functional money supply shrinks because of
‘bubbles’ in some economic sector ‘bursting,’ financial institutions
failing, and banks dramatically decreasing their lending activities,
central banks need to introduce new money into the economy, but that
should happen by governments spending the newly issued money on
projects the country needs and that create employment, for example a
much extended rail system and maintenance and improvements of aging
parts of the infrastructure. It makes little sense that the new money
is lent to the banks that caused the problem. New laws should then
strictly regulate financial institutions, addressing their
irresponsible lending activities and speculation.
financial system creates artificial wealth by “generously” lending when
financial institutions’ agents assume that assets such as real estate
or stock values rise. Banks shrink the money supply, the nation’s
wealth, and economic activities, when they foreclose homes rather than
adjust bad loans, refuse to lend at appropriately lowered interest
rates if a borrower defaults, and then generally decrease lending. The
financial institutions have the power to increase and decrease the
circulating money supply and to choose to which enterprises or
individuals they allocate loans: they act de facto as a branch of
government. Banks’ inappropriate actions cause much suffering,
unemployment and disruptions in steady economic growth.
Ethically and logically, when home buyers or Third World enterprises
are unable to make payments, banks must admit to at least partial
responsibility; they should accept losses, forgo interests and/or
reduce the principal, and they should save rather than destroy family
homes and indebted businesses. The precipitous foreclosures and
destruction of businesses contributed to the credit crisis and
senseless suffering. The financial institutions are largely responsible
for the economic ‘bubbles’, recessions and all the financial crises in
the Third World that have led to the devastating International Monetary
Fund interventions of the late 20th century3.
Bankers’ activities have been described as gambling with others’ money,
the rule being, “If I win, you lose, if you win, others cover the
losses (outside investors, governments/tax payers).”
1.0.6 Further considerations regarding a solution last revision 4/'17
Most economists agree in principle that we need both: 1.
entrepreneurial freedoms with incentives for broad research and
development activities, and 2. a public sector that organizes or
actuates what private groups hardly can do in a comprehensive way: a
democratic, ethical government should be responsible for creating a
money supply with a framework for financial institutions, a
comprehensive infrastructure, an education and health care system, a
‘safety net’, enforceable rules and laws that correspond with ethical
values, and setting priorities for guiding and regulating institutions.
Economic institutions need goals for production and
development and these goals are to be guided according to what is
beneficial for individuals as well as for civilizations as a whole.
Material growth is not necessarily good, e.g. if it enriches few and
leads to misery of many (not meeting local needs and/or aggravating
unemployment and inequality) or if it damages the environment. Net
economic growth has been much smaller than generally assumed when
considering damages from economic developments such as
pollution-related illnesses and ‘natural disasters’ due to rising sea
levels and extreme weather conditions. In addition, an increase in
material wealth above a certain living standard hardly increases
people’s quality of life. Historically, people spent most time
procuring or working for food; clothing and housing was also expensive.
The labor needed for producing food, clothing and shelter decreased
dramatically, but rather than shortening work hours, most people work
hard to increase their material standard of living. Though obvious,
most people do not acknowledge that, compared with previous
generations, much more resources are needed for elder care and that we
consider much higher standards in health care a right. More investments
should also be made in the care of pregnant women and infants, in
education as well as in the prevention and effective treatment of
physical and mental disorders, particularly addressing propensities
towards criminal careers.
Instead of investing retirement savings in securities
(stocks, bonds, etc.), elderly people should receive adequate
retirement incomes from general government revenues, while the vitality
of society is maintained: an adequate amount of taxes and private
retirement investments should support schools and universities, health
care, protection of the environment and long-term planning for
essential economic functions. To help young people in families of all
levels of income, governments may issue sensible financial support to
young people struggling to establish independent lives and to start
families. Money for such support may come from high taxation of
inheritances and large gifts within families.
Entrepreneurial freedom does not equal capitalist
enterprise. Within public service and building projects, professionals
are to figure out how goals are best achieved, as is the case in
private for-profit corporations. In addition, cooperative enterprises,
such as local electric grids utilizing solar and wind energy,
non-profit medical facilities, etc. depend on workers’ ingenuity.
Many thinkers consider “spiritual needs” and national or
religious identity essential and even believe ethics must be derived
from or supported by religious beliefs. Societies must give individuals
better ways of gaining a sense of belonging than nationalism, specific
religious teachings, etc. Social groups that replace tribal loyalties
may be based on a sense of supporting neighborhood communities and many
endeavors based on naturalism, art, practice of meditation, etc.
Goals for a solid basis to improve the economy and quality of life include:
- Good educational systems that teach ethics and prepare young people for meaningful work and research.
- Less but high quality media, to include primarily meaningful news
coverage, documentary reporting, art, and educational programs.
- Minimizing advertisement costs, improving access to concise, relevant information.
- Support of pregnant women and families with infants.
- Comprehensive health care including family planning, mental health care, preventive and palliative care.
- Minimal dangers including good accident prevention efforts, assuring
humane conditions in all work, educational, recreational and other
- No/minimal harm to animals and to the environment in all human activities.
Much or most research must be relevant towards improving
quality of life: medicine/health and mental health, prevention of
crimes; infrastructure, city planning, transportation and communication
systems that support healthy social systems, etc.
Goals for more appropriate economic activities and production should include a worldwide vision:
- Having worldwide economies that provide for the basic needs of all
people and minimal or no unemployment and relatively short work hours,
increasing high quality family time, time for artistic enjoyment, etc.
- More investment in parks and preserves with natural environments.
- Building densely populated towns and cities with small housing units, small and space saving furniture, etc.
- Generally building less sophisticated and smaller products with high functionality, reliability, safety and durability.
- Building far-reaching, comprehensive rail system including high speed, conventional, light rail and narrow track.
- Solar panels built as roofing material, used for most building roofs,
roofs over passage ways, play and picnic areas, parking lots, etc.
- Broad use of wind generators, water turbines in ocean currents, other forms of 'green' energy and conservation approaches.
- Production of hydrogen and installation of high energy consuming industries where excess electricity is generated.
- Fostering largely vegetarian and vegan diets; meat of mammals should
be primarily gained from culled animals that do not have adequate
predators, road kill, etc.
- Hydroponic and vertical horticulture and agriculture.
Already in pre-school, education should include ethics,
teaching compassionate empathy, sharing, cooperation; limiting
aggressive competitiveness; and fostering connectedness with and
respect for nature. Example: to teach empathy, stories and reading
material may lead children to identify with very different persons some
of whom end up being victimized in some way and suffering much.
Educators need to learn from successful changes in other countries such
as Finland. Intelligent people should work in human services, research,
and production, not in law offices or speculating in the securities
Entertainment should help integrate ethical values, not
distract from education and ethical thinking. In advertisements, it
should not be allowed to mislead or to associate products with images
that appeal to emotions not directly relevant to the product.
Regarding improved protection of the environment, we must
work towards the great biologist Edward O. Wilson's goal that half the
world is left or returned to a natural state.
Civilization should rethink and gradually change perceived
values of different types of work and payment for work, putting
emphasis in human services, high quality teaching and care of children,
disabled and elderly people, improving housing, infrastructure,
functionality and aesthetics of public places, parks, natural
environments, etc. The loss of many jobs due to automation and robotics
makes it relevant that people receive excellent education so that they
can create new work opportunities that are meaningful for them, their
families and communities and the world's civilizations; for people of
lower levels of education, jobs of the near future may include building
comprehensive rail systems and working in child care and with elderly
and disabled people. Today’s food service work should be largely
automated; coffee shops should be pleasant places for people to meet,
not necessarily job creators.
1.0.6 Appendix last revision 4/'17
Tribal cultures developed coincidentally in somewhat different
directions. Later tribes enhanced differences that distinguished them
from their “inferior” neighbors and created their own fads in clothing,
symbolic or decorative tattoos and scarifications, legends, religions,
etc. Often cultural developments did not advance adaptations with
improvements in quality of life or economic progress. Many cultures
collapsed because their traditions and religions did not allow them to
adapt4. Cultures tended to be very oppressive and rather
aggravated instinctive tendencies to cruelties. Leaders were usually
suspicious of any changes and progress, other than what helped them
increase their wealth and power.
Ethology (the biology of animal and human behaviors),
cultural anthropology, particularly the study of people's morals,
superstitions, and religions, and economics are sciences that address
the basic questions “Who does what for whom and why?” Economic systems
powerfully and often destructively influence people’s decision-making;
they work like bad behavior modification programs, often rewarding
behaviors that do not support overall goals of individuals and
societies. What is monetarily valued becomes attractive to people and
is often perceived to represent status; consequently many strive for a
lifestyle that depends on the exploitation of underprivileged people
and/or is socially and environmentally destructive.
In virtually all civilizations, widespread discrimination
against women and minorities has led not only to much suffering but
also to major inefficiencies. Many factors contribute to this
propensity, and religions and political leaders almost always
reinforced the devaluation and subjugation of women, discrimination
against racial minorities, etc.
The development of money greatly enhanced trade and
economic growth. However, money is addicting since it represents any
good or service available in an economy as well as high rank.
Particularly attractive is unearned income, money that is not received
in return for sold goods or productive labor, but obtained from
profits, speculation, gambling or crimes, in the past often through
warfare and slave labor.
Buying goods feels good and has itself addictive
qualities; therefore people have a strong tendency to buy on credit
even though the good feelings after a purchase rarely last and
indebtedness generally leads to anxious and depressed mood. Western
financial institutions and businesses exploit this weakness.
Consequently, the economies have become dependent on money that is
borrowed from financial institutions – if people would stop buying on
credit, the U.S. economy would collapse.
The quality of life and stability of economies improve
when governments provide for education, healthcare and the basic needs
of people, particularly of young families, and when lending by banks is
very limited. Finland may serve as a model worldwide regarding its
successful work of creating an outstanding and ethical educational
system, improving its health and mental health services and improving
its legal system with much less severe punishments than are usual in
the USA. Consequent to their balance between material growth versus
healthy societal institutions, the Danish have been considered the
Different types of work are not equal: some work is easy
and requires little effort, some is hard, causing various degrees of
discomfort, and some work requires many years of special training, but
all civilizations should strive to eliminate work that is inhumane or
dangerous, and differences in pay or standard of living should be
limited. Highly skilled professionals need to be aware that they can
hardly contribute to a civilization without the work of many less
specialized workers, that satisfaction of doing complex work is a more
important reward than money, and that their saved earnings become
worthless as they become older unless women bear and raise children and
less educated people work to keep the economy going.
Related to the issue of consumerism and a vanishing middle
class is the large number of two-income households with young children
and single working mothers without adequate support.
Cultural-institutional factors are a large part of the problems. In the
U.S., the importance of a strong bond between infant and mother and
other stable long-term relationships are not adequately appreciated.
Extreme income inequality, low job security and high indebtedness
severely strain poor families. Most young men are not compassionately
empathetic towards girls and young women when wanting sex prematurely
and/or without reliable protection; girls and young women often believe
they ‘should’ be sexually active, perceiving pressure from boys/men as
well as female peers. The instinctive attractiveness of the idea of
impregnating a girl/woman and/or expecting a [or another] baby often
overrules good judgment. For some, inappropriate, exploitative and
dangerous sex is particularly enticing and becomes an obsession and
addiction. Sex education is often inadequate particularly regarding
psychological and ethical aspects; there is rarely adequate access to
and teaching about use of reliable birth control measures and
indications for abortions. In addition, in the U.S., a woman going
through pregnancy, child birth and early infant care, with or without
breast feeding, has no legal protection and/or support other than
possibly getting minimal government supported health care; whatever
minor work relief she may qualify for are parental benefits that a
father and other caretaker may also receive.
The relatively high infant mortality at age 2-12 months in
poor U.S. families is most likely a consequence of poor infant care in
cheap day care centers with unstable staff, and the lack of a stable,
caring bond with the infant’s mother. A mother’s financial insecurity,
often without a fixed schedule of work hours, and inadequate support
within her family leads to high levels of stress hormones that probably
are damaging to the late fetus and to the quality of the mother’s
attachment to her infant.
Political decisions by the Republican government of Texas
in 2011 have directly affected poor women. The changes were associated
with a significant increase of the already high maternal mortality
within a couple of years.
1 The Great Depression was largely due to a collapse in credit with
many bank failures. It ended with World War II because previously
unemployed people were paid for work; they built weapons, airplanes,
etc., that were not useful for the workers, but much money was
introduced into the civilian economy. In Germany, the building of
highways (‘Autobahn’), paid for with newly introduced money, but not directly useful
to alleviate poverty, greatly stimulated the economy during the Great Depression.
[and: Daily Koss: Stunner: Bankers admit to being responsible for global
inequality By gjohnsit, Jun 01, 2016 at
2 John Maynard Keynes, in Proposals for an International Clearing
Union 1942, and Joseph E. Stiglitz, in Making Globalization Work,
2006, p. 260ff
3 Compare S. C. Gwynne: Selling Money, 1986.
4 Jared Diamond: Collapse - How Societies Choose to Fail or Survive 2005 .