Humane Civilization Peruvian Andes


  A Draft Manuscript home






Ethics, Economics and the Future of the World

 Humane Civilization -- A Draft Manuscript
 humane Zivilsation / civilización humana / civilisation humaine

 Chapter 1 - Basic Economic Issues;
                     Misconceptions in Economic Thinking

Chapter 1                                                                                                        
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
1.0.7 Appendix

1.0.0 Summary     added  11/2017, revised 4/'19

The Americas economic system compells individuals and institutions to go into debt, 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 depression.

• 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 institutions.

    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 standard.
   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 goods.

1.0.1 History of modern economic systems      added 4/'19

     Historically, 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 exploiting workers.
   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 difference between
- 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 infrastructure.

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 Age populations.
   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 and inconvenient).
   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 a whole).
   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 paycheck.'
   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 computer models.
   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 ( “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 irresponsible actions.

   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

   The 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.
   To 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 nonprofit institutions.
   Multiple tiers of money are needed: international, federal and, in many areas, local currencies.
   Areas of 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) currency.
   For a 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.

   Much 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.
   This 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.)
   While 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.
   If, as 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.
   The 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 living environments.
- 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 market.
   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 happiest people.
   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.
Jared Diamond: Collapse - How Societies Choose to Fail or Survive 2005 .

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      H. Aeschbach, M.D.:   About the Principal Author