Introduction to Transfinancial Economics
"What is presented in this series of articles is a new paradigm known as Transfinancial Economics, or TFE. The word "Transfinancial" implies innovative funding which goes beyond (ie.trans) our present conventional understanding of money. TFE is not only an abbreviation for Transfinancial Economics, but also implies a genuine scientific dimension to the subject of economics. In science many key terms use abbreviations.
It should be added here that we will not discuss the Great Financial Crisis, or the pathetic state of mainstream Neo-Classical Economics. Both topics have been discussed ad nauseum in any number of media sources, especially the former.
TFE can be summed up as follows. Essentially, it believes that new largely monitored non-repayable money can be created electronically in a highly responsible way by future governments, and/or by special banks to speed up, and reform the economy, society, and politics into something more ethical, and environmentally sustainable.With the right legal arrangement an initial limited form of it could be undertaken NOW such as famine relief without resorting to fundraising for earned capital from people. With the introduction of special electronic monitoring, and tracking (replacing interest, and taxation overtime), or ETM of the entire economy it would be possible to produce new money on an "industrial scale" without fear of serious inflation as special direct super flexible electronic controls would be in place. Ultimately, an advanced understanding of the productive capacities of relevant companies plays a vital role in determining the amount of mainly new non-repayable money.. otherwise "sudden" unexpected demands for more production could lead to unacceptable inflationary pressures.
Part One: The Core Concepts of Transfinancial Economics.
TFE recognizes the basic reality that virtually all money exists as electronic information. It also recognizes the seeming reality that large sums of largely non-repayable money does not lead to serious inflation. Taxation could be seen as an example of this. It takes earned money from the people, and re-distributes it for various social, economic, and political "needs". However, if the government overspends it can create bonds which are sold to mainly wealthy people, and institutions. This borrowed capital is returned to the lenders after a period of time with interest. Generally speaking, bonds are regarded as safe bets by investors because they know that in normal circumstances governments can raise taxes to pay off debts. Ofcourse, governments could as a last resort print money to deal with economic problems but this can lead to serious inflation, and even hyperinflation.
What people though do not realize is that huge sums of money are electronically created out of thin air by banks...but as something which is repayable. In other words, loans with interest ofcourse. This fact whether we like it, or not is supported by any number of statements made in economic textbooks, and other "respected" sources. It is generally referred to as fractional reserve banking, or more commonly in economic circles as credit creation. In it, the amount of new repayable money created electronically is "determined" by a fraction(s) of how much the bank holds as reserves. The so-called "reserves," or more precisely a fraction(s) of them are meant to act as security against any default by the borrower(s). However, the amount of money created electronically by the bank is often "many" times greater than the reserves. However, the details, and interpretations of the "model" presented here are subject to controversy by "experts". Yet, official documents seem to suggest that some form of fractional reserve banking still persists. Yet, in most cases (perhaps all) the amounts of new repayable money created are probably NOT based on any set amount of reserves held.
Transfinancial Economics claims that it is possible for special Smart Banks, or Facilitation Banks, or FBs, and governments to create Facilitation Finance, or new non-repayable money, in a responsible fashion. However, both FBs, and governments if desired could also create interest free loans. If enough, new non-repayable money creation is carried out it will not lead to serious inflation (with aid of specific conventional Economic Indicators such as the Consumer Price Index). Evidence, and reason would seem to bear this out. It is notably indictated by the ordinary mainstream banks creation of it as repayable loans.
It should now be noted that there are four basic phases of TFE. They are:
Phase I (also, called Primary Stage TFE) The Emergence of FBs.
This is the essential first step towards the setting up of a new financial system. The remit of FBs is concerned with the responsible limited creation of new non-repayable money to fund in full, or in part mainly carefully vetted environmental, and social entrepreneurship projects. This would be a huge boom for the world because it would also imply that many social, and economic projects (especially climate change ones) which were formerly unviable could become viable concerns with Financial Facilitation from the FBs.
Phase II (also called Advanced Stage TFE). The Phasing in of Electronic Transaction Monitoring (ETM) of National Economies.
Most products, and even services have special business codes of one sort, or another. This is mainly for the ease of accounting.
In shops, and supermakets barcodes exist, and are used extensively. At the checkout transactions are recorded. In TFE such electronic records are not only collected electronically by the shop, or supermarket but are also at the sametime transmitted to the Resource/Inflation Authority. Thus, such transactions at the point of sale could if they are largely identified (via a barcode, or by just a written code tapped into some form of accessible technology such as a mobile phone, or computer) build up a highly accurate picture of the entire economy. This is revolutionary.
The above development is thus concerned with Electronic Price Monitoring, and indeed with what is notably known as Data Mining, and Big Data.
Anyway, all this would mean...
a) we would get a far more accurate understanding of the workings of the real economy
b) we would get a more accurate knowledge of how much resources are being used....
c) we would also be able to pinpoint serious inflationary pressures, which if necessary could be targetted, and controlled by direct electronic means. This could spell the end of the business cycle, or the famous boom, and bust scenario in economics.
What all thos means is that if we can have a highly advanced, and credible understanding of the real economy on more scientific lines (unlike the present dismal "science" of economics) we would also be able to know with great confidence how much new non-repayable money is enough thus avoiding serious inflation. This is explained more in Part II.
Moreover, in TFE taxation, and interest could overtime be phased out. In the latter case, interest could still be paid for in part, or in full by new capital rather than by earned money of the customer. Thus, the banks would not loose out. Ofcourse, none of this rules out uncertainty, or the irrationality of the markets.
Phase III. Growing Automation, and Greater Financial Empowerment of Non-Government Organizations.
Phase II, and Phase III can be seen as being part of the transition process towards an advanced environmentally sustainable world. It could involve the total phasing out of taxation, and interest on repayable loans. This though would only happen if all, or most businesses have been seriously restructuring themselves into something truly sustainable, and environmentally friendly in every respect(rather than relying purely on market forces which would make the whole process a lot longer, and more difficult to do). To speed up such a process the FBs, and governments would have supplied the necessary capital to bring this about. This capital ofcourse would in the main be non-repayable (ie. Facilitation Finance). For businesses, such funding is extremely attractive because virtually no money is paid back during their restructuring. Moreover, when they are truly green they could well receive a Zero Tax, and Zero Interest Status.
During this transition there would be increasing automation, and greater unemployment. The present limited tax system would probably be unable to fully cope with the latter. Thus, Facillitation Finance becomes increasingly critical as time goes by.
Moreover, since we would have such an accurate understanding of the actual workings of the real economy it would be possible to get largely accurate data on the amounts of largely identified transactions as well as the supply, and demand from the Resource/Inflation Authority. This would act as the basis on which new money could be created for unemployment benefits. It could be accurately assessed without serious inflation along with any "top up", and/or extra electronic capital for the creation of any social, economic, or political "employment" project, or NGO.
Ofcourse, existing NGOs concerned with any number of social, economic, and political issues would be increasingly able to recruit more, and more people as access to funds from Facilitation Finance becomes increasingly available. This could represent a big step in the evolutionary process of humanity.
Certain NGOs may also work in possible partnerships with governments(if necessary) in connection with the education of the masses towards the changing of their social, economic, and political values in society. They would become increasingly influential. Their open agenda would include such ideas as human rights; open source data; happiness economics; altruism; internet campaigning; direct (digital) democracy; smart technology; decentralisation of power; challenging plutocratic power structures; energy efficiency; new green technologies; human-scale sustainable communitie; et al.In other words, enlightened, and progressive thinking.
Phase IV. The Automated World.
The last phase of TFE could involve the abolition of money. When the world has reached a "fully" automated stage wage slavery would completely disappear. Work as we would presently understand it would no longer exist, and human beings would be involved in "higher things."
As far as is known TFE arguably offers the "first" really practical transition plan for the world to become something far more advanced, and civilized as never before.
Part Two: the role of Facilitation Banks and also Electronic Transaction Monitoring
In Part Two of Transfinancial Economics, or TFE we will examine in more detail about the role of Facilitation Banks, or FBs, and also Electronic Transaction Monitoring, or ETM.
These would be quite different to the ordinary mainstream banks..even though they would probably be part of the existing banking system. They would have special legal powers to electronically create sufficient new non-repayable money as commercial grants to deal with large, or small-scale environmental, and/or social enterprise projects. There are a number of key features for FBs.
i) Application for funding must go through a highly rigorous, and credible decision-making process which must be publicly transparent, and involve any number of experts.
ii) If feasible, checks on the productive capacity of relevant companies to fulfill orders for a certain project should be carried out as far possible ideally. However, funding would always be available if there is a need to increase capacity. This is a subject which we will return to later as it is somewhat important.
iii) The actions of FBs are electronically monitored, and tracked by an independent body, or the Central Bank. It should be said here that mainstreams banks would ofcourse still exist. But they would probably not be as well regulated as FBs.
iv) Commercial grants awards could also be subject to close electronic tracking, and monitoring to avoid fraud. Special binding contracts could be involved.
v) Unlike normal mainstream banks, the FBs do not need reserves on which to base the amount of money they can create electronically. This is instead determined by the cost. In TFE this is known as the Resource Capacity Requirements, or RCRs.
vi) Unlike the International Monetary Fund, and its so-called "structural adjustments" FBs adopt often, or not a more serious microeconomic "bottoms-up" approach in which parts of the economy are dealt with rather than the whole. This can at times prove more effective than a macroeconomic approach.
Electronic Transaction Monitoring, or ETM.
As mentioned before, in Part I most products, and services have identified codes for accounting. For example, barcodes notably at many shops, and supermarkets play an important part in the retail industry in finding out which products sell well. Such data though at the point of sale could also be transmitted to the Resource/Inflation Authority. If a process like this came into being (and this does not always have to require barcodes, or written codes as indicated in Part One) for most if not "all" products, and indeed, services, a highly accurate profile could be created of the productivity of the entire economy. In other words, an accounting process existing largely in real-time.
The Restructuring of Businesses.
The aim of the ETM is essential to allow the massive increase in the electronic creation of closely monitored new non-repayable money as commercial grants without the risk of serious inflation. These could "nudge" businesses into incentivizing them into restructuring them into something environmentally friendly. This would most notably include the mass phasing in of low carbon, or indeed, non carbon technologies for their line of business. These should be largely automated. Interventionism by FBs, and governments via Facilitation Finance as indicated could prove vital.
It is important to understand that most businesses during the mass restructuring process would be largely on an equal footing as far as competition is concerned....as the opportunity to apply would be open to everyone.
The Relevance, and Importance of Resource Capacity Requirements in ETM.
To understand the need for Resource Capacity Requirements, or RCRs, becomes somewhat important when ETM exists. The fomer are the means by which we can access to a large extent the inflation risk of creating new monitored non-repayable money, or commercial grants for a business which wants to restructure itself.It cannot though fully discount the factor of uncertainty.
To understand the importance of productive capacity we need to take an example. As economies grow in terms of wealth they start to "overheat". The key reason is because there would appear to be an increasing amount of money buying products, and services. However, if too much money is around the companies creating goods find it increasingly difficult to match demand. The reason in part for this is that their capacity to produce gets stretched. Hence, they start putting up their free market prices, and a situation may even be reached when shortages start happening.
In order to reduce the flow of money into the economy, taxes, and interest on borrowing can be raised. This may help reduce the "flows" of money in the real economy. A recession though may follow. Thus, the so-called business cycles ends, and later begins again when a low level of inflation is reached, and a new cycle of boom, and "bust" begins. To spur on this new economic growth, taxes, and interest may be lowered to encourge businesses to grow again, or be created.
Quite often economists argue about what are the exact causal sources of these business cycles are. With ETM we may be able to find out exactly why based directly on the electronic transaction data transmitted to the Resource/Inflation Authority. Moreover, in TFE, taxes, and interest are gradually phased out altogether to be replaced by a whole series of direct electronic methods to reduce any kind of inflation. This could mean the end of boom, and bust.
In TFE, it would be possible to get an accurate picture of the productive capacity of companies relevant to a business wishing to seriously restructure itself via the powerful incentives of Facilitation Finance. it would have to disclose its new, and old suppliers. If their electronic wholesale, and retail transaction data are on record on the computers, or rather the supercomputers, then these can be examined. The actual supply and demand of their raw materials, and resulting products would with the aid of mathematical modelling be able to determine how much productive capacity may, or may not be necessary. This would infact involve a computer simulation in which new grants, or Facilitation Finance were created to see how likely the free market prices would rise (based ofcourse on the electronic price record of the company, or companies involved) . If there is little spare productive capacity the FB can step in with funding be it an interest free loan, or indeed, a commercial grant ofcourse depending on the importance of the restructuring process. Yet, in spite of this there is always the problem of uncertainty, but TFE is robust enough to deal with any economic problems.
The Use of Super-Flexible Electronic Controls.
As transactions of most products, and services at the point of sale are continually tracked, and monitored they can be electronically targetted by supercomputers by Resource/Inflation Authority. These supercomputers would be programmed to check all kinds of price changes. They would also instantly compare, and contrast prices of any set of like goods,and services to see if there are any inflationary risks. This programming is dependant on the quality of data given by barcodes, or commercial codes of most products, and services. The following are the key controls.
i) National Inflation Adjustment.
This is when most if not the entire economy can have its money electronically adjusted instantaneously thus maintaining its purchasing power.
ii) A False Tax.
When a price of a product being bought at a checkout is found to be above the inflation rate new money could be used to instantly adjust it to the "right" Free Market Price. This could be like a tax but the money taken at the point of sale is recreated electronically in the account of the customer, or indeed, the retailier depending on the situation. In other words, it is temporarily taken out of general circulation where the inflationary pressures are being "felt."
iii) Automatic Inflation Deduction.
This is when a temporary "tax" is created at the point of sale in which the inflated portion is instantly taken off at the point of sale. It is the opposite of the False Tax which for obvious reasons would be more popular.
iv) Instant Electronic Price Subsidization.
This is when a price of a product maybe below the inflation rate, and an instant subsidy, or adjustment is created, and transmitted back by the Inflation Authority to the relevant checkout after a supercomputer check.
v) Electronic Price Capping.
Here, a maximun price maybe set by a government, or by an FB in certain circumstances. If the price of production starts to exceed the maximun price, the producers would recieve instant financial help, or compensation where necessary. Ofcourse, electronic price capping should be avoided if possible.
What has been said so far should give us some idea as to the basic mechanics of TFE. There will always ofcourse be critics who will say that it is impossible, or that it would lead to continous "price controls" (but ones which are far more advanced, and super-flexible to anything that has existed before). Some would say that the ETM is like a command/control economy. But this is incorrect as Captalism,and the Free Market Price still plays its part, and would would still exist until everything were "fully" automated. It would then be that money itself as we as presently understand it would become unnecessary along with wage slavery . This would be the natural, and ultimate result of automation.
Part Three: Some Outstanding Implications of Transfinancial Economics.
The potential implications of Transfinancial Economics are vast, and outstanding in many respects. Alot of the Facilitation Finance would occur with the introduction of Electronic Transaction Monitoring, or ETM which would take into account in advance the productive capacity of relevant businesses in a commercial project. Thus, the production of the "right" amount of new non-repayable capital could be assessed without fear of serious inflation.
It is also becoming increasingly clear that funding via redistribution of financial wealth through taxation, and donations to NGOs using earned money will probably not be enough to bring about genuine global change. Hence, the pressing necessity of Facilitation Finance.
Anyway, let us now list some outstanding implication of TFE with some comments.
I. Democratic Governments.
They would find it easier to fund social, economic, and political projects as taxation is gradually phased out. Bonds could also be gradually replaced with alternative investments notably in a growing ethical/green business market replacing old "unsustainable" businesses.
II. Independent Grant-Giving Bodies for Non-Government Organizations, or NGOs.
These would have money from earned sources, and also most notably hold new non-repayable capital from FBs. The latter may ultimately replace the former as the sole source of funding. All this implies that NGOs, and other non-profit societies would be able to increasingly undertake more, and more social, economic, and political work for the betterment hopefully of humanity. Thus, organizations for example dealing with heart disease, cancer, AIDs, and the like would find this highly beneficial.
III. Ethical Takeover.
This is a controversial measure which could be undertaken in which companies regarded as being somehow unethical, and/or environmentally unfriendly (eg.the arms trade), or producing wasteful, or"unnessary" products could be taken over in a "hostile" bid. This could come about with pressure from campaigning NGOs possibly in partnership with certain democratic governments. Facilitation Finance could come from a government, or even a FB using extraordinary legal powers to create the new capital to finance the ethical takeover bid. This could have implications for the corporate world in general especially if it does not gets it act together by becoming more ethical, and environmentally friendly.
IV. Industrial Emissions.
Subsidies using newly created money(ie.Facilitation Finance) rather than via taxation could in full, or in part arguably cap industrial emissions. This could compensate any loss of profits, and at the sametime ofcourse reduce pollution which could lead to runaway global warming.
V. Green Technologies.
At present, governments find it difficult to fully switch to green technologies such as wind farms, and solar energy. They require subsidies of earned money from the taxpayer.However, with the right legal arrangement there is no reason in the world that Facililtation Finance could be used to speed the process forwards rather than have the installation of nuclear power stations.
Incidently, TFE does not believe in continous economic growth. But growth would be necessary for the initial mass financing, and restructuring of various businesses. With mass education by certain organizations society must learn to accept to live in a simpler, and less greedy world.. but one in which advanced technology exists.
VI. The Ageing Population.
Notably in the developed world people are living longer. With Facilitation Finance it could be possible to fund in full, or in part quality care homes, hospitals, hospices, and carers. This can happen with the help of private commercial providers, and the state.
VI. Adaption, and Mitigation.
With the probability of unpredictable weather changes which could threaten whole populations, Facilitation Finance could in full, or in part expedite adaption, and mitigation projects which could protect people.
VII. Mega Resource, and Environmental Projects.
Here, again Facilitation Finance could be created by FBs, and governments using extraordinary legal powers. It could for example be used in full, or in part for mining resources on other planets notably the moon. Such extraterrrestrial resources could be brought back to earth.
Be they poverty reduction projects in the developed, or undeveloped world there would always be funding from FBs, and in certain cases from governments for social enterprises that help to improve the economic status of people.
IX. Universal Health Care.
TFE raises the serious possiblility of quality universal health for everyone in the world, and not just in the rich countries. Facilitation Finance could in full, or in part create a business model which could be largely controlled by private firms, or mainly by the state.
Many other outstanding implications of TFE could be listed. The above should give us an idea of the sheer scope of what could be done with a revolutionary, and ultimately high-tech financial system. If its claims are true, and workable this new global paradigm could become the greatest revolution in the history of economics.
It should be added that "full"development of TFE would also need the help of experts notably in the law, economics, and information technology. Moreover, a largely pragmatic approach towards banks, and corporations would probably be adopted to ensure that the introduction of this paradigm becomes reality.
For more information about this "work in progress" project along with any text updates see http://www.p2pfoundation.net/Transfinancial_Economics