Economics as it should be.

Hour Economics

Hour Economics follows three principles;

1) Judge value by use time,  Time is not the only factor to use in judging value but it is the universal one.

2) Judge price by work time.  Time is not the only factor to use in judging price but it is the universal one.

3) Judge money by Hours.  Again, time is not the only factor to use in judging money, but it is the universal one.

The goal is more free time to do all the other things that make life worth living besides working for money. While occasional and temporary variations will occur, domestic and international exchanges will be more accurate, efficient, equitable and amicable than now. The World will be at peace and there will still be work to be done, but all will share the work and share the wealth.

Local Currencies

Local currencies have used the Hour money denominator for years:

http://www.paulglover.org/hours.html

A Global Currency Unit

The Provisional World Parliament in 2004, in Lucknow, India, adopted the Hour as the world money unit and urges its adoption by all Nations. More at: http://www.worldproblems.net/english/legislation/full_texts_en_htm/wla_22_world_equity_act.html

Socialism’s Obituary

It is my sad duty to report that Socialism died of exhaustion. Trying to do everything collectively, Socialism developed an enlarged heart, swelling everywhere, and brain overload culminating in congestive heart failure.

Some insist it isn’t so, others are angry, some are glad saying it proves that Capitalism is better if not the best system we can hope for.

Everyone is asking, what now?

Capitalism’s Obituary” “Everyone is asking, what now?”

We go to Hour Economics.

Here is how it happens.

The Marriage of Time and Money

After years of living together, Time and Money have married. Their families, Socialism and Capitalism (if the truth be known, each suspicious of the other) wished them the best.

In attendance on the Time family side were Clocks and Calendars, Scales and Measuring Sticks, Thermometers and Barometers, Micrometers and Odometers. On the Money family side were Dollars and Euros, Dinars and Yuan, Baht and Ringgit and more than 100 others.

More information about the wedding is available at http://www.siue.edu/~rblain/

Some time later:

Birth Announcement

Time Money gave birth to Hour Money. The birth was easy, hardly more than adding the word “Hour” to the plates used to print money. This small change corrected the genetic defect in money, no named denominator, that had caused unequal trade and the lifelong illness and ultimate demise of Capitalism.

Hour Money lives by the principles of Hour Economics; judge value by use time, price by work time, and money by Hours. Since then, though occasional and temporary variations occur, domestic and international exchanges are accurate, efficient, equitable and amicable.

Many local currencies have used the Hour money denominator for years:

http://www.paulglover.org/hours.html

In 2004, the Provisional World Parliament, meeting in Lucknow, India, adopted the Hour as the world money unit and urges its adoption by all nations. Read more at: http://wcpa.biz

Capitalism’s Obituary: “The formerly rich and ever poor have now found common ground.”

The rich were shocked to find that their claims were based on debt rather than actual wealth.  Perhaps, had they been in the same room with debtors, they would have known that Capitalism was on debt life support. Now with their claims reduced to zero, the formerly rich have rediscovered their common fate with those they once disdained as lower than themselves.  They both know now that they share a common fate on the same common ground – beautiful Planet Earth.

“It is a well provisioned ship on which we sail through space.”  Henry George, 1898.

“From up there, the world looked too small for all those divisions.”  William A. Anders, 1968, commenting on his view of earth from halfway to the moon.

And a merchant said, Speak to us of Buying and Selling.
And he answered and said:
To you the earth yields her fruit and you shall not want if you but know
how to fill your hands.
It is exchanging the gifts of the earth that you shall find abundance and
be satisfied.
Yet unless the exchange be in love and kindly justice, it will but lead some
to greed and others to hunger (Khalil Gibran, The Prophet.1923).

Capitalism’s Obituary: “Trillions in claims to debt known as wealth were wiped out.”

Claims to debt were thought to be claims to actual wealth rather than claims to debtors’ future incomes.  When debtors could no longer pay, the claims became worthless.

The Federal Reserve Bank of Chicago in 1963 explained the complete identity between claims to wealth and debt as the two faces of debt.

“While debt is a claim on the assets and earnings of those in debt, it is simultaneously a part of the wealth, or assets, of their creditors. Just as for every buyer there must be a seller, so for every debt incurred by any person or institution, someone acquires a financial asset of equal amount” (The Two Faces of Debt, Federal Reserve Bank of Chicago, 1963, p. 6).

When debtors could no longer pay, the claims became worthless.

Capitalism’s Obituary: “… an autopsy failed to find any sign of a heart.”

Does it make money, that’s the only question that Capitalism cared about.  Not, does it help or hurt people?  Is it good for the environment?  Is it sustainable?

Capitalism asks, Is GDP growing fast enough?  Is the Stock Market going up?  It does not ask, What is in GDP?  Is it good or bad?  What does it mean for the well-being of people when the Stock Market goes up?

Here is an example from a very successful economics textbook.  The author, Paul Samuelson, used this example in the many editions of his textbook from 1949 to 1980 and “educated” millions of students with it.

“Goods go where there are the most votes or dollars.  A rich man’s dog may receive the milk that a poor child needs to avoid rickets.  Why? Because supply and demand are working badly? No. Because auction markets are doing what they are designed to do – putting goods in the hands of those who can pay the most, who have the most money votes.  Defenders and critics of the price mechanism should recognize this fact” (Economics, 1964, page 42).

With sentiments like, “Crippled children?  Oh. Too bad.  They just didn’t have enough money.”  is why an autopsy of Capitalism failed to find any sign of a heart.

Capitalism’s Obituary: “… commodity saturation caused circulatory clots…

Capitalism theory knows only growth.  It is silent on when enough is enough.  It has no brakes, no way to stop requiring more growth.  So it produced commodity saturation, more stuff than people could reasonably want or use.  Mountains of trash, misnamed “landfills,” mushroomed.  Storage units abounded – so much so that we had people bidding to buy what’s in them because the owners left them behind.  People’s homes were jammed with stuff including rooms, closets and garages.  People gave away valuable stuff at yard sales and flea markets just to make room for more stuff.  Still, we were expected to keep shopping.  Many people could no longer buy, buy, buy. 

So the capitalist economy suffered multiple and worsening circulatory clots.  Money could no longer flow in many places.  That is what we saw in capitalism’s last days.

Capitalism’s Obituary: “Debt saturation …”

The United States economy was put on debt life-support almost immediately.  During the Revolutionary War and under the Articles of Confederation, the Continental Congress issued paper money.  However, the British counterfeited huge amounts of that currency as an act of war, causing inflation and leading to the expression, “not worth a Continental.”  Some people opposed ratification of the Constitution because it did not give Congress the power to issue paper money, only coin. 

Why bother with having the government issue money, then go through the Capitalist process of unequal exchange to absorb that money when the First Congress had the votes to go straight to debt as the way to “fund” the economy.  So they passed the Funding Act on August 4, 1790 to base the money supply entirely on borrowed money, which it has been since then except for greenbacks issued by President Lincoln to fund the Union army for the Civil War.  Greenbacks are still legal currency but they have been taken out of circulation because they support equal exchange which goes against Capitalist unequal exchange.

Since 1790 when the Federal debt was $70 million, total public and private debt has grown at about six percent per year because of interest until now, 2011, to about $70 trillion.  That’s 70 million times $70 million.  Every year it grows by ever more.  When it doesn’t grow enough, we have slumps, by one count about 50, variously called slumps, recessions, depressions, and Panics.  As recently as 1976, total debt, not just Federal debt, was $3,800 billion, just under $4 trillion.  In the 45 years since, it has grown to $70 trillion.  Debt life-support, because of interest, requires ever more and larger new debt.

We passed the point of debt saturation, debt to the limit of our ability to pay it, long ago.  But the debt life-support infusion continues as you read this.  Federal debt alone has just surpassed $15 trillion.  That’s 15 million million dollars.  Debt in the rest of the economy is more than $55 trillion.  New debt must be taken on at multiple trillions of dollars this year and more next year, yet the focus at the moment is Federal debt – which is debt of the fire department.  Republicans think they can put out the debt fire by cutting the fire department.  What are they thinking!  They are blaming the fire department for the fire!!!

Someone said that it is very difficult for a person to understand something when their paycheck depends on their not understanding it. 

Capitalism’s Obituary: “Repeated resuscitations left it brain dead.”

Capitalism’s brain is the theory you will find in any standard economics textbook.  Like any theory, it tells the body what to do.  That theory says, “There is never enough.  Let every person compete for what there is.  Supply and demand will set prices and everything will work out for the best for everyone (at least for everyone who deserves it).”

Resuscitations are interventions from the outside when the system breaks down.  For Capitalism, there have been many.  To mention a few: anti-trust laws to break up corporations whose large size is reducing competition; progressive income taxes to restore money circulation to parts where it has been drained away; deficit government spending to restart a stalled economy; massive new spending for war; tax cuts for the wealthy as incentives to invest in new products; free trade agreements to remove tariffs and any other obstacles to the freely competitive international flows of money, material, labor, and finished products; neoliberal austerity programs including cuts in education, health care, and public services generally to reduce government interference with the free market; the sale of government owned land, water, forests, and airways to pay interest on debts; bank and corporate bail outs; bankruptcies and lower interest rates; and more and faster growth.

We know that Capitalism’s brain is dead because these resuscitations have helped only temporarily if at all and the theory is silent, no more brain activity, on what to try next.

Capitalism’s Obituary: “Close relatives remain in denial.”

When someone hears of a person’s death, the first reaction is usually denial. “No, that can’t be.”  Then a turn to the past for hope.  “I just saw them the other day and they were fine.”  “I knew they were sick, but I heard they were getting better.”  Similar things are being said about Capitalism.

“Capitalism dead? That’s absurd.  It’s just a slump, a recession.”  “This has happened before.”  “It’s the business cycle.” “We have always recovered.”  “We just need to kick start the economy.”  “We just need to bail out the banks to get credit flowing again.”  “The Stock Market has been going up.  Oh, you say it just went down. That’s temporary.  Wait until tomorrow, or next week, or a year or two. It will go back up.”  “There will be pain and suffering for a while, but if we just tighten our belts, things will get better.” “Austerity will lead to prosperity.”

“Government is the problem.  If we just get government out of the way, capitalism will recover.”  “We just need to cut taxes and entitlements and regulations.”  “Balance the government’s budget and Capitalism will recover.”

The clearest sign of denial is the call for more growth.  “We need to grow the economy more.” “The rate of growth is too slow.”  “People need to spend more.”  “There is not enough demand.” “We can grow our way out of this slump.”

Capitalism’s Obituary “…capitalism has died.*

When a person dies, it is over all at once, like turning out a light.  Capitalism describes an economy of hundreds of millions, even billions, of people.  Capitalism lives and dies person by person, one by one, day after day, year after year.  We receive news of a death as that of a person, but it is at the same time news of the death of that part of what we call our society, our civilization, our way of life.  John Donne (1572-1631) expressed it so beautifully in 1623.

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friends or of thine own were; any man’s death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee.”

Capitalism’s Obituary: “…years on debt life-support…”

Continuing my explanation of the elements of Capitalism’s obituary, unequal exchange, the birth defect of capitalism, sooner or later transfers all wealth from one party to the other.  For example, if each party had $100 and one gained $5 in each transaction, it would take only 20 transactions for one party to have the entire $200.  It did not take long for capitalism to own every real thing of value.  For capitalism to continue, it had to have the losing party go into debt.  The debtor had to pledge to pay future income to the creditor.  It did not solve the unequal exchange problem; it just kept capitalism artificially alive on debt life-support.

Capitalism’s Obituary: “After a long illness caused by a birth defect …”

Just as we cannot say when capitalism died because the dying process is continuous, we cannot say when capitalism was born.  However, we do have the effect that plagued it throughout its lifetime, namely, unequal exchange.  That unequal exchange showed itself as phenomenal growth in capital simultaneously with phenomenal growth in poverty.  Henry George developed this aspect of Capitalism’s biography in his 1879 classic, Progress and Poverty.  Elizabeth Magie Kuhn Phillips invented The Landlord’s Game in 1904 to simulate the problem and Henry George’s solution.  The first part of that game, the problem, was the basis for the game MONOPOLY.  People have played MONOPOLY without realizing that they were re-creating the fatal defect in Capitalism.

The DNA for unequal exchange was a missing component of the money gene, namely, a definition of money’s worth.  The gene only carried a name, not a definition of money’s worth.  Without a definition, money facilitated unequal exchange without it being noticed as such.  Calling it “profit” completed the disguise and did nothing to correct the defect.  The growth in capital was seen as progress and not a cause of growing poverty, which it was as well.  That is what unequal exchange does; makes some rich and others poor.

Capitalism’s Obituary

After a long illness caused by a birth defect and years on debt life-support, capitalism has died. Close relatives remain in denial.

Repeated resuscitations beyond the advice of attending doctors left it brain dead.

Debt and commodity saturation caused circulatory clots and finally cardiac arrest, although an autopsy could not find any signs of a heart. 

Trillions in claims to debt known as wealth were wiped out.

The formerly rich and poor have now found common ground.

Everyone is asking, what now?

From Capitalism to Cooperation

Capitalism is biased in favor of capital.  That’s why it is called Capitalism.  Those who support it avoid using that word because it makes the bias obvious.  They prefer instead to call it “free enterprise.”  Everyone favors freedom, so the use of that word throws anyone who would object to it back on their heels.  Observers easily think, “Oh, that person must be a socialist!”  Socialism is not an advance, it is a step backward – although in the absence of an alternative sometimes a necessary one.

The eighteenth century German philosopher Friedrich Hegel made the point that we need words to communicate but those words become barriers to our own understanding.  The substitution of free enterprise for capitalism is an example of a barrier to our own understanding erected by capitalists to subdue criticism of them.

Another way to make the point is that capitalism is all about hoarding, hoard money, hoard ownership of everything, factories, newspapers, water, land, etc..  Government is the obstacle when it taxes the rich to help the poor.  Government is great when it takes taxes from the middle class to pay exorbitant amounts of money to private companies for weapons, drugs, and borrowed money.

At first, capitalism promotes expansion of production because the private capitalist does not need permission to start a new business.  Government would require getting a lot of people to agree to a new project.  However, the hoarding by capitalists leaves more and more people in poverty.  We see that today with the protests against it that are occurring all over the world.

The question those protests are raising is, what do we do next?  Many hope and others fear that socialism, that is, government take-over of everything, is the only option.  The better option is cooperation.

We know cooperation today as cooperatives.  They are an example of trying to adjust for a defect in money that allows capitalists to hoard, namely, the lack of a definition for “dollar.”  A basic rule of a cooperative is that profits are returned to customers based on patronage.  That is, cooperatives keep records of how much customers spend at their stores.  Then, at the end of a year, the profits are returned to them based on how much they spent.  The theory is that profits represent overcharges, which they are.

Profit exists only after everything is paid for.  This includes wages and salaries of all people who work there, and whatever equipment and supplies the company bought.  If everything is paid for, any charge above that is an overcharge.  A capitalist would never agree; a capitalist prefers to call it profit.  Profit is a good word because it implies that the capitalist deserves it.  Overcharge is a bad word from the capitalist’s point of view because it implies that it belongs to the customer, not the capitalist.

Cooperatives are a step in the right direction – that is, toward cooperation, but only a step.  The problem with cooperatives is record-keeping and deciding who should get the refund.  Customers and the cooperatives must keep records of purchases and who made them in order to return the overcharges.  Only a relatively small store can do that.  I cannot imagine a store like Walmart being able and willing to do that.  There is also the problem of what is due to suppliers.  What looks like an overcharge to customers may be too little paid to suppliers.  In short, cooperatives run up against a huge bookkeeping and judgment problem, tracking purchases and deciding who should get the overcharges returned to them.

The kind of cooperation that can correct the hoarding of capitalists with the least paperwork is cooperation using Hour Money.  Hour money promotes accurate pricing at the point of sale and purchase.  Both seller and buyer have the “yardstick” in time to decide more accurately than with dollars what is a fair price.  That is why I link Time Money to peace.  Peace happens locally when both seller and buyer believe that they have made a fair and equitable exchange.  Unrest begins when one of the other believes that they have been treated unfairly.  War happens when unrest if widespread.  People everywhere are screaming that they are mad as hell and will not take it anymore. 

You can help bring us local and world peace by promoting the use of an hour of work as the base unit of money everywhere so that we can each make fair exchanges with each other right at the time we sell or buy.  Send me your address and I will send you Hour Money examples to give to your family and friends.  Help plant the seeds of economic justice, democracy, and world peace.

How did the 1% get it all?

Answer: percent by percent year after year.  Big amounts of money cannot be earned.  They are the result of contracts otherwise called investments.  Once a person has made a contract that results in the addition of more money year after year, that person can receive far more money than they could possibly ever earn.  To change $100 into $106 takes work; to change $100 million into $106 million is inevitable.

Once these contracts are in place, money keeps accumulating.  A person need not be greedy for this to happen.  It is important that we recognize the automatic nature of this accumulation because that is how we can get to a solution.  There must be limits put on how much money any one person can accumulate.  Life is limited.  Few people live 100 years or more.  That is nature’s way of making room for new people.  We need to limit income to make room for other people to have decent incomes. 

You have heard of the “death tax.”  That makes it sound as if people who die should no longer be taxed.  That is very misleading as it is intended to be.  The phrase in effect gives heirs the money.  Heirs didn’t earn it.  Perhaps it would be fine if letting some people accumulate money did not hurt anyone else.  But it does.  We have millions of people in poverty because we have billionaires.   No one earns one billion, $1,000,000,000.  No one needs one billion.  That single billion would give 1,000 people $1 million – more than most people will earn in a lifetime.

Bottom line: money is not corn.  What one person gets another person does not get.  We need to focus on fair wages, fair prices, and reasonable limits to income.  That’s why I promote the Hour as the world money unit.  Time marks our path in its beginning, throughout its length, and at its end.  Nature is setting the example for us to follow.

The Quantity Theory of Money

I just read a pamphlet by Friedrich Hayek published in 1976 titled, “Choice in Currency: A Way to Stop Inflation.”  It is relevant today because Ron Paul, who is running for US President, is advocating the same thing. Hayek argues that governments should not have a monopoly on the issue of money.  Instead, everyone should be able to use whatever they want for their money.  

His argument is shown to be absurd by Douglas Jay in the same pamphlet with a simple example.  “But suppose I offer one paper rouble in payment of a bus fare, and the conductor refuses to accept it; what happens?  Is the bus stopped while the conductor and I seek a ruling which nobody can give?  And imagine the controversies in the bus over the latest exchange rate between one currency and any other.  Professor Hayek’s new scheme would produce chaos and slow down the whole business of production and exchange in a welter of disputation.  That is why history has forced governments to legislate on legal tender” p. 27.

Hayek bases his argument on the quantity theory of money.  It says that an increase in the money supply will cause a general rise in prices, while a decrease in the money supply will cause a general decline in prices.  If we want price stability, then we need the money supply to be stable.

The quantity theory of money assumes that there is already enough money.  It says nothing about the quantity of money that would be neither too little nor too much.  That is, it says nothing about the amount that would be enough money.  If there is not enough money, an increase in the money supply would be good and not inflationary.  Only where there is already enough money, is a further increase not necessary.

Let me use an analogy.  Suppose an accident victim shows up in the Emergency Room bleeding profusely.  Imagine that the doctors there are using the quantity theory of blood as economists use the quantity theory of money.  They would say to each other, we must not give the patient a transfusion because that would increase the general amount of blood that the patient needs.  Let the body’s own “free market” decide how to distribute the remaining blood.  That patient would surely die. Our bodies need enough blood, neither too much nor too little.

Hayek sees inflation and concludes that the only cause of inflation is too much money.  He never considers that the problem is that there is no quantity on money.  Imagine that every note about length was followed by the word “meter” but there were no meter sticks.  What would the statement, “This room is 10 meters,” mean?  Would we have a quantity theory of length that said the more notes in circulation, the shorter the meter would become ?  That would be nonsense.  Given what we do when we measure length, we would say, we need meter sticks so that everyone can measure length accurately.  The same is true of money.

We need to wed time and money.  We need Hour Money.  We can then judge price with clocks.  That is the proper way to stop inflation and deflation.  That is how we move all wages and prices to their actual price, namely, the work time it took to produce goods and provide services.  People can always negotiate variations if they think such variations are justifiable.  That’s a free market that can be a fair market.