In light of, and as a remedy to, the notorious, deep, and chronic damages (wage slavery, unemployment, de-industrialization, social injustice, misery, obscenely unequal wealth distribution, spiritual retrogression, etc.) inflicted to society by the present system of money management, we have devised what we believe is an alternative, and wholesome, model of wealth creation and distribution, whose performance hinges on a very particular conception and treatment of the means of payment.
In this last regard, the idea is to devise a monetary medium, whose nature and life-cycle is radically different from the traditional one —different, that is, from what is known as “loan-money,” which is put into circulation through banking debt.
Money-wise, the world, we know it, is ripe for (institutional) change: the discursive space is awash in reform proposals, denunciations, ideas, magical recipes, etc., but a true, alternative paradigm of political economy is still struggling to emerge.
One of the tenets of the FAZ is the strict non-indispensability of “finance-as-we-know-it” to a properly managed economy. Clearly, to support such a claim, serious critics are in need of a rigorous critique of the financial system and the process by which this very system creates of money.
The FAZ is rooted in cooperation, not competition; it aims to make the community prosperous through abundance, rather by than invoking the imaginary merits of allocating “efficiently” resources that are falsely assumed to be scarce.
The philosophy of the FAZ
Abundance, not scarcity: the fundamental principle of the FAZ is that resources are always sufficient to achieve whatever is needed by the community at any given time. To argue otherwise is to construe as natural (unjust) conditions that are, de fact, entirely man-made.
Resources are abundant, not endless, of course. The decisive factor in the economic process is not some chimerical notion of “intrinsic value,” but rather the peculiar uses to which resources are put. What drives these “uses” is the agents’ very mentality and comprehension of the soil, technology, and rejuvenation of the entire productive cycle, along with a keen sense of distribution to strike the proper balance between social and ecological peace.
In this sense, resources represent opportunities, as well, as some have said, “flows of information,” which convey directly to the users what “the organism” (be it society, the sun, or the body) truly needs for its proper functioning.
Wealth, we know it, is information. Wealth is knowledge.
The very knowledge, furthermore, that intimates that money —the crux, pivot, and vector of the economic process—, by nature, cannot be a merchandize, but only a symbol — the symbol that sets everything in motion for the benefit of everyone, and which, therefore, cannot but be owned in common. And that is to say that money should be issued only exclusively through communal mints, never through the channels of an “industry” (i.e. banking) to which constituencies have (unknowingly) sub-contracted the formidable power of (modern) coinage.
Social Capital, Life Credit and Investment Credit. The first, and momentous, consequence of this assumption is that there is no need for any material accumulation of capital. The capital required for the development of a venture consists of the knowledge of a given society and the ability it possesses to organize itself. Without such knowledge, all the raw resources of the earth would remain idle. This we call “Social Capital”.
According to this view, for which a community’s capital is the wealth of everyone, regardless of the level of his or her direct participation in the economic cycle, every human being is entitled a social dividend of sorts, a natural communal basic income. This we call “Life Credit”.
It is understood that such a basic income must be commensurate with the scale of the investments being made in a society. A portion of each investment goes to remunerate the factors of production and the entrepreneurial risk, but another portion should indeed remunerate the “social capital” of the community, in the form, as said, of “life credit.”
As it happens nowadays, however, this part is systematically dissipated in the vortex of speculative finance, a vortex which is bottomless because interest on monetary capital never stops growing (exponentially). And in order to repay the endless cycle of loans, more interest is added to a snow-balling mass of debt that sucks, in turn, more interest. And so on.
Credit is not intended here as a substitute for income from regular work: it is meant to complement the latter, and its amount should be determined by positing “subsistence” —the dignified minimum needed to nurture one’s talent and development— as the lower bound.
Thus quantified, the community’s aggregate human wealth (i.e., its “social capital”) should coincide with the community’s money supply. Under a proprietary regime of money management, such as we have today, the equivalence obviously does not hold since there is no creative, genuinely “economic” counterpart to the enormous and ever swelling mass of speculative money (esp. of derivative products).
In these terms, everyone, as a potential manufacturer of wealth broadly defined, is entitled to an individual line of credit. Each is entitled to his share of the community’s monetary supply. This entitlement goes under the name of “Investment Credit”. And, as it conventionally takes place, anyone is free, if he so wishes, to transfer his investment credit to a third party, whom the primary recipient deems more capable than himself of turning the credit into greater wealth.
Non-Money. The realization of an investment in a FAZ proceeds in the following manner. Money is put into circulation as “investment credit”; the capital amount is determined by the project’s estimated life-cycle, and by the number of participants. The suitable monetary instrument for the purpose is a common bond, yet one carrying a negative rate of interest.
This is the essential aspect of the entire reform plan.
The beauty of a monetary means burdened by a rate of depreciation —as if money itself carried an expiration date— lies 1) in its power to erase debts as it circulates, and 2) in its disappearing, through natural obsolescence, in concomitance with the assets it brought into existence.
The operation of a negative rate of interest also prevents the accumulation of financial capital by greatly boosting money’s velocity of circulation.
This is so because a medium that loses value in real time cannot, by definition, be hoarded. It must be spent, invested, “consumed.” It is, thus, as if the economy were continuously goaded into producing and putting to work all available resources, human and otherwise. Depreciation thus unleashes the community’s full potential.
The magnitude of the rate itself is to be taken as an average rate of obsolescence of a representative basket of goods covering the whole spectrum of physical durability —from the most perishable (e.g. vegetables), to the most durable (e.g., buildings).
This type of money is logically conducive to an economic environment that is deflationary, since the monetary mass is continually diminishing; and the diminution is only countered by the level of investment.
Because ordinary bonds —which carry a positive, debt-generating, rate— are issued by debtors as loans wherewith to obtain funds at a price (interest), they must be redeemed at maturity. Not so with the negative-bearing obligations we propose. These gradually lose value; and this means that the principal amount will be zero by the end of the investment period for which they have been issued.
Every investment generates more wealth than the amount of the same investment, according to Khan & Keynes multiplier. This allows the issuance of another amount money for “Life credit”, that will be commensurated to the investments’ amount.
The benefits of the FAZ
The FAZ is advantageous to all.
The State would benefit from such an arrangement because it would be in a position to supply far more, and better, services without any tax increase. Tax pressure would, as a result, be alleviated.
Furthermore, the implementation of a FAZ would lead to a more scrupulous monitoring of communal expenditures, upon which, indeed, the allocation of investment credit rests. The outcome of such a tighter self-perpetuating control of public finance would function as the most efficacious impediment to corruption and graft.
Businesses would always find themselves suitably funded, never, that is, in a position of suffering the imposition of more or less (and legal) usurious interest payments.
All they have to do is return the capital they have been loaned, one installment/depreciation-allowance at a time, without interest, until the debt is exhausted.
The constant drive to investment, create and produce (”investment credit”), on the one hand, and the consumption guarantee of the social dividend on the other, represent for businesses a ready and secure outlet.
This by no means signifies guaranteed profits for inefficient outfits: competition would remain keen.
Finally, firms and companies would always have the option to finance themselves by drawing on the pool of domestic savings, which, in the absence of the conventional placements of the rentier, must necessarily be channeled to the entrepreneurs of the real sector.
The citizens would be able to choose, and prepare for their preferred line of work, without having to get in a line to beg for a corporate job, whose constricting scarcity, ends up blackmailing them into subjection and into performing an alienating routine they very soon come to resent and detest.
The associations animating the FAZ would thereby have the opportunity systematically to plan for an exponential increase in the number and quality of cultural, spiritual, and scientific endeavors (in the allocation of social capital).
Labor legislation can be expected to be fully liberalized, because it will become manifest that the life of the community cannot depend on the fate of a single factory, but, rather, on the efficiency of the system as a whole.
An example from the 1929 Crisis. During the Great Depression, a group of Swiss entrepreneurs, in order to cope with a crisis not unlike ours, which suffered at the time a 50% unemployment rate and a dramatic shortage of liquidity, resolved to print money outside the legal remit of the State-sanctioned banking network. This group counted 16 members in 1934.
The money they printed is precisely of the kind we are re-proposing in this draft: it came in the form of negative-interest-bearing bills that could not be horded. The entrepreneurs named their association and monetary circuit, “WIR” (short for “Wirtschaftsring,” which in German means “economic circuit,” as well as the pronoun “we”).
The association started its operations by pooling the un-redeemable debts of the members and exchanged them for a nominal amount of WIR-denominated marks, which could only be spent within the WIR-network itself.
In few years, membership grew dramatically and Switzerland’s economic difficulties were greatly alleviated by this system.
Currently the WIR circuit counts 65,000 companies; in 2011, more than 18 billion Swiss francs worth of loans have been extended to its participants.
The FAZ wishes to emulate the exploits of the WIR, not juts by focusing on small and medium-sized enterprises, for which it has been indubitably been an unmitigated success, but also on private individuals and governments.
The Big Picture
The goal of the FAZ is to build an environment in which self-interest may simply coincide with the common good. To build an inclusive society, there is no need for anybody to sacrifice and give anything up for the sake of others.
Nor is there any need to swear any kind of ethical or ideological oath.
Compared to the setting of an agrarian society, which is completely static, or that of an industrial environment, in which innovations are implemented slowly and very erratically, a post-industrial society de facto requires a very swift changeover in the morphology of labor itself: it is, indeed, impossible nowadays for an individual to axe his whole identity, survival, and energy on “the one job for life.” Rather, it is the system that should function as the individual’s entire framework of reference. Only in this way, will the quality of “work” be able to keep up with technological innovation.
In a FAZ, the fiscal system will gradually disappear from the horizon of workers and enterprises: it would thenceforth be confined to regulate and legislate over the proper limits of the accumulation of critical factors of production in terms of public utility, such as land, houses, or sophisticated and ponderous machinery.
The financial system should be closely linked to investment risk.
Financial income will be taxed in progressive fashion in order to prevent the accumulation of too much power in the hands of too few.
CE.S.P.E.A., Centro Studi per l’Economia dell’Abbondanza
The FAZ is an economic model created by Domenico De Simone and developed during the years by a research group called CEN.P.E.A., founded by Domenico De Simone, Marco Giustini and Gabriella Bravi. The group, through the collaboration of Italian and international experts, aims to carry out research and development in the monetary sphere, to build an economy based on abundance rather than scarcity.
More information: http://www.cespea.it/#