A Fair Economy is one where you get what you pay for. Modern economies are unfair because consumers should receive a fair share of the capital used to produce goods and services when they purchase them.
The price of goods and services is the cost to produce the goods plus a profit. The cost of production is the marginal cost of making one more of the goods plus the cost of capital, where the cost of capital is the cost of organising a business spread over all the goods sold.
A straightforward market is a market in money where a lender provides money to a borrower and charges interest. The interest on the money covers the cost minus the cost of operating a lending facility, the risk of the money not being repaid, and the cost of inflation.
When the money is repaid, the risk and costs to the lender are zero.
There are two ways the lender can influence the profit. The first way is to change the interest rate, and the second is to change how much interest is subtracted from the capital on each repayment. Changing the latter is the most efficient way to organise an economy.
The Market in Money is Unfair.
The money market is unfair because lenders charge for interest twice and charge interest on interest. Instead of charging interest on interest, a lender could get a greater return by increasing the interest and sharing the profits with the borrowers. This increases the speed of money movement and makes the economy more efficient, as lenders get a higher return and borrowers pay less.
Slowing money movement causes it to accumulate for the lender. The lender receives extra money from the borrower's work in earning the money to repay the loan. This gives lenders an advantage, leading to the unnecessary accumulation of immobile wealth with lenders.
Unfair Markets
The same principle applies to company profits. When a company makes a profit, it pays less to produce products than it receives from buyers. Buyers who never become sellers suffer the same as borrowers. Sellers keep all the profits, whereas if they share the profits, buyers would have more money to purchase goods, money movement speeds up, and the market is more efficient.
The Unnecessary Creation of Money
Interest is a derivative of money, creating an unfair market because the profit from trading the derivative is not shared. This has led to many other financial derivatives, including insurance. These derivatives are unnecessary as the services can be provided in different ways.
The greatest unnecessary creation of money is taking out loans to transfer value-generating assets like housing and companies. There is no need to buy the whole house at one time to buy it. It can be purchased one payment at a time with just as much security as purchasing it in full. When this is done, the need for traditional asset markets is removed with further immense savings.
Capital markets are unnecessary as money does not generate value and is fungible, while goods and services markets are necessary to provide choice and competition.
The back-of-the-envelope calculations indicate that we have at least twice as much money in circulation as we need. Freeing up this money could address problems like poverty, inequality, lack of resources, and issues like climate change.
The Benefits of a Fair Economy
Economies are not zero-sum games. Everyone can win if the game is played fairly. The most enjoyable games are those where everyone benefits. It is not winning that is important; it is the joy that comes from doing something for others and yourself. Competition is about playing the game where winning is the reward for competing well.
Economies are similar to a game. The most satisfying games are ones where everyone can play, and the rules do not bias the outcomes towards those who start with an advantage.
Evolving a Fair Economy
We cannot build a New Economy because economies are large and resistant to change, but we can rapidly evolve our existing economies. We can do this because we only need to shift some unused stationary money to those who have little money but need goods and services they cannot buy today.
Take housing. A borrower has a loan of $500,000 on which they pay 5% interest. With a regular loan, they will pay $302,000 in interest, and the lender will receive their money back plus the $302,000.
If they shared the interest 50:50 with the borrower, the lender would receive slightly less or $283,000 in interest, while the borrower would pay $141,000 or slightly less than half. If the interest were increased to 6%, the lender would receive $436,000 and the borrower would pay $172,000.
In the chart above, the yellow bar shows the sum of the extra money to the lender plus the savings to the borrower.
The extra value comes because the money moves from the lender back to the borrower and does not remain stationary in the asset.
By making money move faster, the money can generate more profits over a given period. This benefits all.
Typically, for a house purchased over 30 years, the cost is reduced by about 50% while the return on investment doubles.
However, the most efficient way for a community is carry forwared no interest and maximise money movement.
A Fairer Economy is a Productive Economy
Productivity is measured by the money used to build a product. Debt, where investors keep all the interest as capital gains in the business, increases the money needed to build a product because the money creates more money instead of more products.
Most companies become larger not by investing in new products but by buying existing companies and incorporating them into the buying company, which fixes more money in capital gains.
A solution is to share profits with buyers by buying goods and shares for each sale. The shares to sell come from every shareholder having to sell a proportion of their holdings each year. This provides a continuous market for shares and gives buyers a voice in investment decisions.
Profits are spent investing in ways to increase productivity by reducing costs rather than increasing sales. The increased sales will come from lower prices, and the investment money will come mainly from profits that will increase value to investors in the form of more shares rather than an increase in share price.
Permanent Asset Markets
Today, we transfer assets as a whole in one transaction. Tomorrow, we will transfer assets as we use them in local permanent asset markets. Sellers and buyers will jointly own assets in the same company or cooperative.
Permanent asset market participants jointly decide the value of their properties, and asset value never exits the market. Instead, investors and houses come in and exit the market. The user of the asset owns the title once they have an agreed number of shares in the asset. Typically, the market investors jointly own the rest of the shares.
Investors and buyers can move their assets between permanent markets if the markets agree to the transfers, and typically, there is no cost to move if the rules of the permanent markets are compatible. The cost of ownership of assets is typically half the current cost and frees up capital for other purposes.
Summary
The financial system transfers asset values in an economy. Today, the transfer involves transferring much more money than necessary. Productivity is measured by the money needed to purchase goods or services. Reducing the money to transfer assets increases the productivity of any economy and frees up money for investment in productivity or new production.
