Binary Economics

the modern universal paradigm

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Abstract

Binary economics is the expression of a new universal paradigm or new understanding of reality that creates a new economics, a new politics, a new justice and a new morality.

Introduction
 
Binary economics is the expression of a new universal paradigm or new understanding of reality that creates a new economics, a new politics, a new justice and a new morality.  It addresses the main environmental issues. Without the new universal paradigm there will be neither peace nor an end to colonialism and racism.
 
    Crucially, binary economics provides a trenchant analysis of the reasons for the present trembling in the global financial system (with potential for sudden collapse) and then sets out a gentle but powerful course of correction.
 
    In its economics aspect, binary economics is a market economics whose markets work for everybody. Furthermore, it upholds individual private property but private property (and the associated income) for everybody, rather than just a few. A general summary might be:-
 
             a justice which creates efficiency and an efficiency which creates justice 
 
 A more specific summary is:-
 the use of national bank-issued interest-free loans, administered by the banking system, for the development and spreading of various forms of productive (and associated purchasing) capacity thereby creating a balance of supply and demand with producers and consumers being the same people (as required by Say’s Theorem) and forwarding social and economic justice

    No subsidy is involved. Existing money (e.g., a bank’s capital or, with permission, the deposits of customers) may be lent in ways including interest although Islamic banking practices (e.g., “partnership”) are preferred. 
 
    However, newly-created money MUST be lent interest-free for developing and spreading the real economy to every individual in the population.
 
    There is no expropriation in binary economics − rather everybody is enabled to build. Binary economics is not a ‘third way’ between capitalism and socialism: it expresses a new paradigm. Binary economics is also counter-inflationary (which is not deflationary).  Its benefits essentially arise from the creation of a more efficient economy, embodying technological progress, which is also a universally just economy.
 
    Binary economics co-operates with, and supports, anybody who understands the uses of the national bank-issued interest-free loan supply −  in the USA an example is Dennis Kucinich and colleagues.
  
Illustrations of binary economics in practice

An illustration of binary economics in practice is the interest-free funding for low-cost public housing, a waterworks,
bridge, sewage works, road or hospital − the use of national bank-issued interest-free loans halves, even quarters, the usual cost.
 
Philadelphia Waterworks and Museum
Source: Jeannine Keefer  
    Three more illustrations are:-       
 
  • a halving or more of the usual cost of micro-credit
  • half cost environmental capital projects
  • the enabling of any individual in the population (from a baby to a retiree) to become a shareholder in one or more of the great corporations − the shares (in the form of a basket of shares) would be full payout ones thereby creating a considerable income for the holder.  (Binary economics defines ‘full payout’ shares as net of reserves for depreciation, research and development and they are expected to be five to nine times existing earnings.) 

                                                                                                     :      

    NB The financial savings of individuals are not used for financing the full-payout shares.  Instead the source of the loans is ultimately the national bank.
 
    The national bank is used as the source of the loans to emphasise that the national money supply is not that of a mere private grouping (as is the case today) but is society’s money supply which (although funnelled through the banking system making an administrative charge) can be interest-free for the purposes of an efficient, just, market economy. Indeed, where the financing of new productive capacity is concerned in a market economy, interest (as distinct from administration cost) is not necessary.
 
  Binary policy results in national bank-issued interest-free loans being available for the purpose of development and spreading productive (and so consuming) capacity to every individual in the population thereby enabling producers and consumers to be the same people and, at the same time, forwarding social and economic justice.
 
   In practice there would be two rates of interest – interest-free (for the purpose as above) and interest-bearing.  Economies should not be reliant on foreign financial capital and so national bank credit should be used with capital controls being available. 
 
Meaning of ‘binary’

The ‘binary’ (in ‘binary economics’) sometimes perplexes people. It means ‘composed of two’ because it suffices to view the factors in production as being but two (labor and capital) and thus there are only two ways of genuinely earning a living − by labor and/or by the ownership of productive capital.

 
    In viewing the two factors it can also be observed that humans own their own labor but they do not necessarily own the other factor – capital.
 
    NB ‘Capital’ means things which create wealth e.g. seeds, hand tools, machines, patents, land, aeroplanes, raw materials, ships, quarries, bio-technological processes, buildings, telephone networks, farm animals, trucks, power stations etc − anything which is not human, which is owned, and which is capable of providing an income.
 
 
Binary economics is fundamentally different from all forms of conventional economics
 
Binary economics is fundamentally different from all forms of conventional economics (be they expressions of right-wing, centrist or left-wing theory). For example, unlike most mainstream economics, binary economics accommodates belief in God, unicity and ethics. Furthermore, it directly addresses the main environmental issues; does not assume that humans only follow their own immediate short term self interest; ends economic colonialism; appeals to people of faith and of good faith; and does not assume that humans (as distinguished from capital instruments) do all, or nearly all, of the physical creation of wealth.
  
Outpourings of sewage like this….     
As a study, binary economics is not reductionist, does not ignore the imbalance in power relationships between people, and does not assume that extensive poverty is inevitable. NB. 55% of the world’s population live on under $3 per day: every day an estimated 25,000 people die from the effects of dirty water.         
 
                                                     resulting in pollution like this….
 
  
 
 
           
can be ended by building a sewage works like this.                                                                                 
 
Being concerned with social justice and economic justice binary economics also notes that allegedly successful ‘free market’ economies show symptoms of profound failure – thus figures from the 2004 Census show that one fifth of Americans live on under $7 per day. Moreover, up to one fifth of the USA population does not have health security – and this happens in a country which is the richest in the world; which claims to be the embodiment of a perfect, efficient and just ‘free market’; and which spends 18% of its income on health. Remarkably, forty two million Americans now have to rely on food stamps.
 

Main cause of poverty

Binary economics establishes that lack of access to productive capital (in various forms) is the main cause of poverty and of structural imbalance in a market economy so that producers and consumers are not same people with consequent imbalance of supply and demand and a general inability to further social and economic justice. Moreover the institution of interest (as distinct from administration cost) operates as a giant hoovering mechanism sucking up wealth from the poor and transferring it to the rich.

It follows that productive capital must become as widely spread as possible. Furthermore, productive public capital e.g., waterworks, sewage works, roads, bridge, hospitals and housing must be spread and human capital developed via the provision of education and interest-free loans. All newly-created money must be interest-free and used for the purpose of developing and spreading productive capital to all people in the society.  

 Binary economics addresses weaknesses in the current economic system
 
Binary economics addresses a number of weaknesses in the current economic system which are dismissed by conventional economics as being of no, or low, importance. The weaknesses include:–
 
  • almost all of the modern money supply is in the form of interest-bearing debt created out of nothing, and then owned, by the banking system. In the UK over 95% of the money supply is created in this way: there are similar percentages in other countries
  • the present money supply is generally not directed at productive (and the associated purchasing) capacity but instead goes into derivatives, rising asset prices, consumer credit and putting everyone − individuals, towns, corporations, towns, cities, countries − into ever-increasing debt
  • at present two lots of financing are required to keep the system going − one lot for production and a separate lot for consumption. The two lots are continually inflationary yet, all the time, more and more loan money must be created (by the banking system) if the whole economic and financial system is not to collapse. Inflation is inevitable with the present system
  • people do not have their own independent incomes. Forms of productive capital remain narrowly owned and there is no policy to spread the ownership of productive (and the associated purchasing) capacity throughout the population
  •  the practices of the IMF and World Bank which deliberately trap countries into never-ending debt; keep productive capital (and associated consuming power) narrowly owned; and, in an abuse of power, are generally bent on ripping off the wealth of poor countries
  • booms and slumps
  • in practice, racism
  • in practice, economic colonialism
    Economic colonialism, for example, is ended by allowing countries to have control over their own money supply; control over their own assets; and (because binary economics provides an interest-free alternative source of funding) freedom from international debt.  No country should ever borrow foreign currency; instead all countries should always use their own currency. 
 
    Opposition to racism has little meaning unless it is manifested in practical, everyday material improvement and binary economics provides this by spreading ownership thereby enabling the spreading of the associated incomes.
     
The binary competence
Over time, on market principles, binary economics enables all individuals to build an independent income or binary competence. The competence (the word can be traced back to Jane Austen, Alexander Pope and William Shakespeare meaning property or means sufficient for the necessaries and conveniences of life i.e., sufficiency without excess) is defined as:-
a capital estate large enough to supply sufficient current consumer income to support at least one half of an affluent life style (measured in the context of what society as a whole can efficiently produce).
    Figures contained in a 1998 study by Northeast Ohio Employee Ownership Center, Kent State University, Ohio and a 2005 study from the Center for Economic and Social Justice, Washington, D.C., indicate (2005 figures) that, aged sixty five, an adult would have a binary income of about $26,000 and a capital accumulation of at least $200,000 with both figures continuing to increase after the age of sixty five.
 
    Along with the binary competence, of course, individuals will also be free to gain income from their labour as now or from other ways.
 
    As part of binary policy to develop capital ownership for each member of the population there is no estate duty (or Inheritance Tax) on death IF the estate devolves in such a way as to spread capital estates, and therefore capital ownership, to more individuals. If it does not do so, then there is a graduated tax.
 
Other main characteristics of binary economics
Automation 
 
Binary economics is of particular importance in a world where, increasingly,
more of the physical contribution to production is being, and will be, done by machines and near-robots.
 
    With binary economics national debt is lessened and national unity encouraged. Binary economics creates a stable economy and associated financial system which is not subject to unsustainable booms and resulting crashes.
 
      In binary economics there is no expropriation (as there can be in socialism, for example). Moreover, because people come to have sufficient income from their own independent capital estates, much less redistribution is necessary (for example, by taxes in order to fund forms of government spending including welfare benefits). Because there is much less redistribution there is much less taxation.
 
      Binary economics cannot be inflationary: indeed, it is counter-inflationary. Nor can it lead to a global financial crisis of the sort now threatening economies and markets. It upholds the periodic political vote but deepens democracy by ensuring that all individuals have the everyday freedom stemming from an independent economic base.
 
    In its intent to involve people in ownership and participation binary economics has affinity with Distributism and with the worker cooperatives of the Emilia-Romagna region of Italy and the Mondragón Cooperative Corporation of Spain.
 
 
A Visual Summary of the Main Binary Mechanisms and Solution to the Global Financial and Environmental Crisis

 
Below is a visual summary of the main binary mechanism which can be used to provide a gentle but powerful solution to the global financial and environmental crisis.  It will prove helpful to study the diagram for a few minutes.
 
    NB The banking system is gradually stopped (by a gradual rise to 100% banking reserves) from continually creating money out of nothing. Instead it lends its own capital and (with permission) the deposits of customers, and such lending may be at interest.  As the banking system’s money creation is stopped, a supply of national bank-issued interest-free loans (administered by the banking system) is opened up with the supply being directed at the development and spreading of productive (and the associated consuming) capacity.  In effect, there will be two interest rates –  a zero rate for binary purposes (but with adminstration cost) and the other for the rest of the economy.
 
    Please also notice that, by using the banking reserves mechanism, the national bank has a macro tool in addition to that of interest rates to control the total volume of money in the economy..
 
 
 Conventional economics compared with binary economics
 
A good understanding of binary economics can be obtained by contrasting various aspects with comparable aspects in conventional economics (especially mainstream neoclassical economics). The first contrast is that mainstream neoclassical economics claims to be primarily a positive economics (i.e., an analysis of ‘what is’) whereas binary economics is considered (by mainstream neoclassical economists) to be primarily a normative economics (proposing an economic system that ‘ought to be’). However, as compared to mainstream neoclassical economics, binary economics undoubtedly has a superior account of physical reality (i.e., of what is) − particularly in its analysis (of who or what creates the wealth) called productiveness. Binary economics is therefore both a highly positive economics and a highly normative one
 
    Secondly, in its physical analysis of who or what creates the wealth mainstream neoclassical economics upholds the concept of conventional productivity (generally labour productivity giving virtually all the credit to labour) while, in complete contrast, binary economics has the new concept of binary productiveness giving fair credit to the contributions of both labour and capital. The binary productiveness analysis, as an understanding of physical reality, is far superior to the labour productivity analysis of mainstream neoclassical productivity.
 
    Then, thirdly, conventional mainstream neoclassical economics believes that interest (as distinct from administration cost) is always necessary. However, binary economics, again in complete contrast, states that, certainly where the development and spreading of productive (and the associated purchasing) capacity is concerned, interest (as distinct from administration cost) is not necessary
 
    Fourthly, for newly-created money, conventional economics upholds the doctrine of the time value of money whereas binary economics, noticing that money is created out of nothing by the banking system, denies the time value doctrine. Consequently, binary economics rejects conventional financial savings doctrine (that there must be financial savings prior to investment): this is because no financial saving is necessary if money can be created out of nothing. Indeed, what matters is whether the newly-created money is interest-free, whether it can be repaid, whether there is effective collateral and whether it goes towards the development and spreading of various forms of productive (and the associated purchasing) capacity.
 
    Furthermore, an assumption of general scarcity is at the heart of conventional economics. Binary economics, however, denies the assumption. As Amartya Sen has shown, starvation is primarily due to lack of money in the hands of the starving and not the general absence of food: thus it is human attitudes, practice and institutions which are at fault.
 
    The contrast continues. Thus conventional economics:-
      • is largely unconcerned that the present money supply (mostly created by fractional-reserve banking) is generally not directed at productive capacity 
      • in practice engenders a continual inflation
      • conceives of a self-centred homo economicus
      • eschews ethics and belief in God
      • ignores the imbalance in power relationships between people
    But binary economics views it as essential that:-
      • the money supply be directed at the development and spreading of productive (and the associated purchasing) capacity 
      • the money supply be not inflationary, indeed, should be counter-inflationary
      • recognition be made that humans are capable of going beyond self-interest
      • ethics and belief in God be upheld
      • account be taken of the imbalance in power relationships between people
    Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a ‘free market’ which is free, fair and efficient. Binary economics states that the present ‘free market’ is unfree, unfair and inefficient not least because the ‘free market’ thinks it does not matter who owns productive capital and how it is distributed and does not worry if people do not have independent incomes.
 

Democracy

In a quite remarkable way the two economics differ on the subject of democracy. Conventional economics upholds the periodic political vote (as in, for example, elections to government). Binary economics does the same but then deepens democracy by insisting that productive capital and the practical everyday power its ownership gives to individuals be widely distributed as well. In binary economics freedom is only truly achieved if all individuals are able to acquire an independent economic base. In short, binary economics upholds political democracy plus economic democracy.
 
    Perhaps most importantly of all, conventional economics is generally heedless of (or at least, not directly involved with) environmental issues but, even if it does heed them, does not have the specific mechanisms to address the environment in a large-scale way. Indeed, conventional economics generally views environmental solutions as imposing an economic cost, and a large one at that. Binary economics, however, again in complete contrast, does have the mechanisms − particularly, interest-free loans − and its solutions do not impose economic cost.
 
    At present governments impose taxation yet many people do not pay their taxes thus putting a larger burden on others, particularly the poor.  To help stop this  − and while taxes remain necessary − binary economics  wishes to see experiment made with site value taxation and a transactions tax.
 
    Lastly, conventional economics claims that its mathematical equilibriums are a manifestation of a world-encompassing objective science expressing universal values. But binary economics denies that claim.
  
Binary economics is beginning to be taught in universities
Trisakti University  
 
The first such teaching is on the Islamic Economics and Finance postgraduate program at Trisakti University, Jakarta, Indonesia. Trisakti is famous as the birthplace of the 1998 Indonesian reformasi revolution. It is the biggest private university in Indonesia and second only to the main state university in prestige.
 
 
 
           
 
History of binary economics
   
Although elements of binary economics can be found elsewhere (e.g.,
Pope Leo XIII’s Rerum Novarum, 1891; the Distributism of G.K. Chesterton
and Hilaire Belloc; Harold Moulton (1935) The Formation of Capital; and
Ibn Ashur (1946) Maqasid al Shari’ah al Islamiya), the first clear formulation
of the subject was in 1958.  This was done by Louis Kelso (lawyer and
 economist, 1913-1991)  and Mortimer Adler (the American Aristotelian
 philosopher, 1902-2001) in their unhappily titled, but truly momentous,
 book The Capitalist Manifesto (1958) which can be downloaded from
 Louis Kelso 

 

Mortimer Adler 
 
 
 
The book’s title is a Cold War nomenclature in opposition to communism, but the book’s thinking can only be truly understood as being outside all left-wing and right-wing economics and politics – which is demonstrated by the attacks and gross misunderstandings which were made.
 
 
        
Binary economics is outside both left-wing and right-wing paradigms
Thus, on the left, Soviet Pravda saw the book as “ramblings based on thinking along a dead end of history” – which was an egregious misstatement because communism was soon to collapse completely and, today, binary economics is increasingly seen as the most modern economics.
 
    Meanwhile, on the right, Milton Friedman was nonplussed and could only conclude that binary economics must be “Marx stood on its head”. Very obviously, extreme left saw binary economics as extreme right; and hard right saw it as extreme left.
 
    And equally obviously, the puzzlement and confusion of Pravda and Friedman only serve to confirm that binary economics is outside both left-wing and right-wing paradigms.
 
More ground-breaking books
Kelso and Adler − e.g., The New Capitalists (1961) which can also be downloaded from www.kelsoinstitute.org − and, later, Patricia Hetter Kelso, were to continue to write ground-breaking books explaining how capital

instruments provide an increasing percentage of the wealth and, crucially, how and why capital is narrowly owned in the modern industrial economy. Their analysis then has an important consequence easily understood by market theorists – if what increasingly produces a larger percentage of the wealth (productive capital) is narrowly owned, then a properly balanced economy (implementing Say’s Theorem (Law) that producers and consumers must be the same people) cannot come into being unless, on true free market and private property principles, productive capital becomes much more widely owned. This is at the heart of the binary claim to create an efficiency which creates justice and vice versa.

                Patricia Kelso
 
Implementation of Say’s Theorem (Law)
Kelso and Hetter gave practical form to their thinking and proposed new binary share holdings which (with exception for research, maintenance and depreciation) would pay out their full capital earnings, be capable of being insured and, if loss occurred, would occasion no recourse to the new binary owners. Because of the full payout provision the binary holdings might well pay out more than five to nine times what is typically paid out today. Thus what was being proposed was a new widespread capital ownership and associated individual incomes which can be possessed by anybody in the population irrespective of whether or not that person is in a conventional job or not. The practical result would be a balancing of balancing supply and demand − with producers and consumers being the same people − as required by Say’s Theorem (Law).
 
Employee Stock Ownership Plans (ESOPs)
                                                                    
Dr Shann Turnbull and Senator Russell Long
Very often the first acquaintance people have with binary economics comes through today’s Employee Stock Ownership Plans (ESOPs). These stem originally from Louis Kelso & Patricia Hetter Kelso (1967) Two-Factor Theory: The Economics of Reality; the founding of Kelso & Company in 1970; and then from conversations in the early 1970s between
Jeff Gates is on the right
Louis Kelso, Norman Kurland (Center for Economic and Social Justice), Dr Shann Turnbull of Australia, Jeff Gates (author The Ownership  Solution), Senator Russell Long of Louisiana (Chairman, USA Senate Finance Committee, 1966 – 1981) and Senator Mike Gravel of Alaska. 
 
In  the UK in 1976  Rodney Shakespeare and Wilf Proudfoot wrote The Two-Factor Nation.                                            
                                                                                      
Senator Mike Gravel 
  There are about 11,500 ESOPs in the USA today covering 11 million employees. As binary economics predicts, studies have shown efficiency improvements as an effect of employee ownership and involvement − binary techniques for this are called Justice Based Management (see www.cesj.org).
 
    The binary ESOP is a capital credit device which institutionalizes the basic binary property right − the right for all individuals to acquire productive capital, to pay for it out of its pre-tax earnings, and then to receive its full payout income. The legal entity which acts for the employees and oversees the capital acquisition and distribution of profits, is the ESOP trust.
 
    However, it is important to understand that present ESOPs are not true binary ESOPs because the original binary concept was implemented for the purposes of the old paradigm rather than the new binary one.    Among other things, present ESOPs do not have full payout of earnings and do not make use of the key binary concept – the use of interest-free loans issued from the national bank and administered by the banks (which may charge administration cost).                                                          
        
Other binary Plans
It should be noted that the ESOP is only one of several techniques − e.g., Individual Share Ownership Plan, Consumer Share Ownership Plan, General Share Ownership Plan, Mutual Share Ownership Plan − which can be used to broaden capital ownership but all the techniques have at their heart the use of central bank-issued interest-free loans for the creation and spreading of productive capacity. Without those loans the primary defect in the present ESOP legislation will remain in that it requires poor and working people to acquire capital primarily with the present earnings of labor rather than primarily with the future earnings of capital.
 
 
Present developments
 
Over the last few years binary economics has been developing and, in particular, making universal its appeal so that its essence is more easily understood around the world. The key books in this development are:-

 

 
      •  Robert Ashford & Rodney Shakespeare (1999) Binary Economics  the new paradigm
      • Rodney Shakespeare & Peter Challen (2002) Seven Steps to Justice
 
 
 
      • Norman Kurland, Dawn Brohawn & Michael Greaney (2004) Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security

  
  
      • Rodney Shakespeare (2007) The Modern Universal Paradigm
    
 
 
 
    
    Acknowledgement is also made of the contributions coming via internet discussion between binary economists.  Harold Channer, America’s longest serving television interviewer, is particularly thanked for many relevant television programs.                                        
                                                                                                                                                             
    The main developments over the last few years are:-                                                                      
 
  • whereas the proposed uses of national bank-issued interest-free loans  had been limited or under-developed, they now cover all aspects of the economy particularly if the spreading of productive capacity is involved
  • whereas public capital (e.g., low-cost public housing, bridges, hospitals, sewage works − at half or less of the usual cost) as a subject was neglected, it is now a principal subject with consequent diminution of the National Debt 

                                     

  •                                                      

                                                         Nanpu Bridge in Shanghai 

  •                                                                                                            Alberta Children’s Hospital

 
  • whereas it was recommended binary policy that children should have sufficient income to pay for their own education, the policy remains. However, account is now also taken of more immediate reality in that education for children should be free while older students should have interest-free loans
  • whereas interest-free loans for homes were relatively neglected (but are dealt with in the Kelso book Democracy and Economic Power, 1986 and 1991), such loans are now major policy in circumstances of proper control of the money supply and its application including 80% loans (not 125%; and only two to three times earnings) with criminal penalties for fraudulent declarations and manipulations
  • whereas micro-credit was not part of binary economics, it now is − the poorest people of the world must be given a chance to stand on their own two feet and not have money-lenders battening onto them. Micro-credit ensures that, through training, mutual support and financial help, poor people who previously had nothing become independent producers who really have something
     La Rance, France, tidal power plant
     
  • whereas environmental capital projects and clean electricity generation were neglected, they are now major subjects. There is no hope for achieving the large-scale projects the world immediately needs (e.g., tidal lagoons, solar electricity generation, clean water projects) without the use of national bank-issued interest-free loans. At present, the technology exists, but the funding does not
  • whereas the ability of the banking system to create money was noted but not substantially opposed, it is now proposed to gradually raise banking reserves to 100% so that the banking system will not be able to continually create new money.  It will of course, be able to use its own capital and, with permission, the deposits of customers 
  • and whereas the first emphasis was on capital ownership, it is now on the supply of national bank-issued interest-free loans for the spreading of productive capacity 
NB. The first emphasis on the interest-free loan supply is especially important for Islam − see interview with Sofyan Harahap (Professor of Economics, Trisakti University, Jakarta, Indonesia) www.youtube.com
 
The most universal economics with the most efficiency and justice 
Crucially, binary economics is now seen to be by far the most universal economics with the most efficiency and the most justice so that it falls naturally within the global justice movement – www.globaljusticemovement.net and www.globaljusticemovement.org – and, at the same time, it is an economics which corresponds deeply with core aspects of religious belief. It can thus be taken up by any society and by any faith and, in so doing, they may call it their own.
 
One World……
For example, binary economics has a concept of unicity embracing all aspects of life. This resonates with Muslims (Tawhid); Christians (Kingdom (or Kin-dom) of God); Hindus, Buddhists, Jains and Sikhs (Dharma); and Jews (Shalom). Bodies like the Christian Council for Monetary Justice (www.ccmj.org) and the Washington D.C. Center for Economic and Social Justice (www.cesj.org) maintain the inter-faith aspects.
…….Many Faiths 
 
Past and present
Furthermore, binary economics now confidently combines major elements from the present and the past.
    From the past come:-
      • belief in God and unicity
      • a strong ethical sense
      • a sense of stewardship  
      • a prohibition of riba (interest) 
      • a demand for structural social and economic justice (as opposed to mere palliative charity)
    From the present come key insights including:-
      • money today is created out of nothing as debt on which riba/interest is imposed
      • in respect of newly-created national bank loans which are lent interest-free for the spreading of productive or environmental capital purpose, riba/interest – as distinct from administrative and any other essential cost – is not merely wrong and debilitative of the economy and society but is not necessary
      • the technological capacity exists to eliminate poverty and thus continuing poverty is the fault of human institutions and practices rather than of any inadequacy of equipment or expertise
Past and present then come together
Binary economics says that past and present then come together to create a new economics, a new politics, a new social morality, a solution to the major problems of the environment and a deepening of democracy. On the latter point, the political vote is far from enough. In a world where 25,000 people die each day from the effects of unclean water, a deepening of democracy requires not only the vote but also the proper provision of clean water, health services, housing, education and also some form of income for all individuals, including babies.
 
    Other consequences of binary economics include an end to economic colonialism, a diminution of the national debt; an improvement in the position of women, and policy to unite differing groups. Both national and individual sovereignty are upheld.
 
Existing social security systems to remain in place
Whilst binary incomes and prosperity gradually develop over time existing social security and health systems will remain in place and there can even be a “negative income tax” for anyone whose income from all sources is below a certain amount.
 
Iraq Plan, Palestine Plan, Kashmir Plan and Alaska Permanent Fund Dividend 
Binary technique is fertile with possibility and an example is the Iraq Plan proposal of the Washington D.C. Center for Economic and Social Justice which would use a combination of interest-free loans and future earnings to transfer ownership and control of Iraq’s oil resources to all individual Iraqi citizens. Each citizen, as a right of citizenship, would receive a personal lifetime non-transferable dividend-generating equity share in the national oil company.
 
    By giving each individual a big economic stake in the future of a country stability and unity can be encouraged.
 
    Other binary Plans exist for Palestine and Kashmir.
 
    The Alaska Permanent Fund Dividend takes the annual income from the Alaskan oil pipe line and distributes it directly as income to each individual Alaskan citizen − somewhere between $900 and $1800 per year (in 2005 dollars).
 
    NB Binary economics opposed the 2003 invasion of Iraq before the invasion took place on the ground that a rip-off of Iraqi assets to foreign ownership was intended. The USA Bremer Orders and endeavour to control Iraqi oil have subsequently vindicated the binary position.
 
 
Central bank-issued interest-free loans for the development and spreading of productive capacity
 
Binary economics proposes that national bank-issued interest-free loans should be administered by the banking system and that, while no interest would be charged, there would be an administrative cost as well as capital credit insurance if necessary. This supply of interest-free loans for the spreading of productive capacity (and the associated consuming capacity) as well as for environmental and public capital would take place in circumstances of a gradual move to 100% banking reserves so that the banking system would not be continually creating money (as happens today) but would be confined to lending (with permission) depositors’ money and the bank’s own capital. New, efficient productive capacity will be the backing of the currency.
 
    NB  If additional backing is desired it could be a basket of commodities and gold has also been proposed. However, the price of gold is not stable and, in any case, binary economics believes that, such the efficacy of its proposals, the commodities backing, let alone the gold backing, will not, in practice, be necessary.
 
Specific uses of national bank-issued interest-free loans
 
Public capital investment

Interest-free loans would allow low-cost public housing, hospitals, social housing, roads, bridges, waterworks, schools etc. to be built for one half, one third, even one quarter of the present cost. (This use is also advocated by the USA Sovereignty movement – Congressman Dennis Kucinich, Ken Bohnsack et al.). However, the capital projects can still, if wished, be built, managed, even owned, by the private sector and use made of Community Investment Corporations and the like.
 
    With interest-free loans not only would the cost of public capital projects be halved, even quartered, but their financing would not need to be done with interest-bearing money. A major consequence would be a great diminution of the National Debt.
 
    Interest-free loans for public capital projects are being used today and have been used in the past. Such loans have undoubtedly been used by the English Channel Island of Guernsey over the years but exact information as to the present position is difficult to obtain. However, it can be noted that Guernsey has minimal national debt and low income tax. Today Malaysia is believed to be experimenting with such loans and, of late, has achieved some remarkable feats of construction. Over the period 1939 – 1974 Canada used the loans and, today, many Canadian municipalities are again demanding their use. In the USA, 3,400 governmental bodies (local boards, towns, cities etc) and six State governments support the idea – a Bill (HR 1452) reached Congress but was defeated by powerful vested interests.
 
    After 1935 New Zealand used such loans – for hydropower schemes, railways, state housing etc. – and had a remarkably prosperous period to the 1970s when the loans were stopped. People should ask why the example of the New Zealand is not being followed. At an interest rate of only 1%, hydroelectric projects and public housing were financed. Why not today?
 
    Furthermore, after 1949 national bank loans were a major factor in the Taiwanese Land to the Tiller program which spread land ownership from the few to the many. This was done without causing inflation and was an overall binary solution because, in various ways, the money went into the spreading of both productive and consuming capacity. (One way was by financing the buyout with industrial bonds, thus giving capital to small industries to provide things for the newly empowered farmers to purchase.)
 
Private capital investment
Fractionating columns 

Ownership of productive (and the associated consuming) capacity can be spread by binary economics. Interest-free loans should be allowed for private capital investment IF such investment creates new owners of capital and is part of national policy to enable all individuals, over time, on market principles, to become owners of substantial amounts of productive, income-producing capital.

 
    The object of the widespread capital ownership is to enable all individuals to obtain an independent income or binary competence.
 
 
  
Binary competence, binary property right and right to interest-free capital credit
The binary competence is the practical implementation of the basic binary property right – the right for all individuals to acquire capital, to pay for it out of its pre-tax earnings, and then to receive its full payout income. The binary property right cannot be effective without an associated right to interest-free capital credit.
 
    Figures contained in a 1998 study by Northeast Ohio Employee Ownership Center, Kent State University, Ohio and a 2005 study from the Center for Economic and Social Justice, Washington, D.C., indicate (2005 figures) that, aged sixty five, an adult would have a binary income of about $26,000 and a capital accumulation of at least $200,000 with both figures continuing to increase after the age of sixty five.
 Cement works in Norway 

    

 
By using national bank-issued interest-free loans, a large company/corporation would get cheap money as long as new binary shareholders are created. The key point is that the cost, at the very least, is being halved while, at the same time, the ownership of productive capacity is being spread.
 
    It is proposed that all large corporations should have to pay out all their earnings all the time (with exception of reserves for maintenance, depreciation, repair and research). The large corporations will then have the option of obtaining interest-free loans on condition that they help to spread ownership using the binary trust mechanisms. Medium-sized corporations will be able to have interest-free loans if they spread ownership.
 

‘Green’ environmental capital investment
Interest-free loans should be used, in particular, for clean, renewable energy. At present, a lot of green technology projects are not financially viable. With interest-free loans, however, they would become viable. At last we would be able to have clean electricity through tidal barrages, tidal lagoons, wave machines, wind turbines, solar electricity, and geothermal power stations. Time is short. Global warning is accelerating. A crash program of clean energy-generating projects is urgently needed.
 
    Clean electricity generation projects can be constructed. The Rance tidal barrage in France is 330 metres long although similar structures − e.g., tidal lagoons − can be many times larger and can also be built out at sea in shallow coastal waters. Miles of sea barrage, covered by mangrove forest, can be created. All such projects can be financed − at half or less of the usual cost — by binary economics.
 
Cutting-edge technologies
There is now also hope that some technologies – at present viewed with varying degrees of scepticism by mainstream science and previously thought to be physically impossible – are practical. Indeed, there are many ‘alternative’ technologies that, in principle, would be eligible for research and development funding under binary economics.
 
    Some of these technologies, if physically possible, would enable the clean generation of electricity for cars, houses, trains and factories and they can be found among the Top 100 Technologies http://peswiki.com/index.php/Congress:Top_100_Technologies_–_RD which are a mixture of that which lies within, on the edge of, and outside existing science. An example is the use of magnetic interactions for clean electricity generation which does not require the input of any other energy (i.e. ‘free’ energy generation). Cars, houses, trains, factories could be powered by clean, ‘free’ magnetically-generated electricity.
 
    Moreover, algae, grown in tanks under lightweight
structures, could easily solve our energy problems  – see http://www.solaroof.org/wiki/SolaRoof/MassAlgaeCulture and http://www.solaroof.com/  All of these technologies should be
 implemented with interest-free loans.
 
 
 

Small and start-up businesses including microfinance

Greenhouse Farm, North Yorkshire, UK
Courtesy Mr & Mrs Eddleston

 

 
Interest-free loans should be used for micro-finance, small business and farms thereby freeing them from the huge pressure of compounding interest-bearing debt. Farm capital can be one half or less of the usual cost. 
 
    The world’s poor people can be enabled to acquire some capital or training by the use of interest-free micro-finance being funnelled through the Grameen Bank and similar institutions such as the Institute for Integrated Rural Development.
                                                                   
 
 
 
 
 
 
 
    Women at a village pond in Matlab, Bangladesh, washing utensils and vegetables. The woman on the right puts a sari filter onto a water-collecting pot (or kalash) to filter water for drinking
    
However, today, as in Bangladesh, the micro-finance money bears interest. This is because, increasingly, donor fatigue is resulting in the drying-up of grant money and so micro-finance lending institutions are turning to borrowing from commercial sources at interest. This causes the loans to cost twice as much as they need cost and that has dire consequences for people living on one or two dollars per day. Binary finance to a borrower costs roughly half or less that of conventional finance and it is disgraceful that, quite unnecessarily, the world’s poorest people, e.g., Bangladeshi women, have money-lenders battening onto them.
 

Loans to older students

Courtesy Trisakti University, Jakarta, Indonesia 
There are two factors in production – human labour and capital. The labour factor is enhanced by education.  
  
    Education should be free, particularly up to the age of sixteen. If, thereafter, education cannot be free, interest-free loans should be available because older students should not be unnecessarily burdened with interest-bearing debt maybe for the rest of their lives.
Veterinary students 
 
 
 
 
 
 
 
                                                                                   
 
Homes
At present the money supply largely goes into derivatives and existing assets (e.g. the continual inflation of house prices around the world) rather than into the development and spreading of new productive capacity. It is not the intention in any way to risk adding to the inflation but, certainly when there is 100% banking reserves (and so the banking system cannot create money), the use of interest-free loans for homes will be considered. 
 
    There should also not be 125% loans for homes as happens at present (maybe 80% is more appropriate) and deliberate false valuations, like false declarations of income, should be subject to criminal penalty.
 
 

Environment and Population

 

Binary economics spreads productive (and the associated consuming) capacity so that all individuals in the population – including babies, carers and those not normally in conventional employment – have at least some form of secure, independent income. The income starts small and grows larger over time. A secure, reasonable income for everybody is essential if there is to be any hope of changing people’s attitudes towards excessive consumption.
 
Insecurity causes greed
At present virtually everyone has either had a scarring experience of poverty or has a perception or fear that they might fall into poverty. In short, people feel insecure and that is one of the main factors in explaining greed. The insecurity − and the associated aggressive consuming attitudes − will only disappear if, as in binary economics, ALL people have material security and, at the same time, all people in some degree earn in exactly the same way as do others (i.e. at least part of their individual income should come through capital ownership). Only then will there be hope of people voluntarily minimising their greed. Moreover, as between individual countries, fairness between populations is essential if there is to be willing co-operation.
 

Present financial system causes greed and destruction

Greed is also caused by the present financial system which creates sufficient money for the principal of interest-bearing loans to be repaid but does not create sufficient money with which to repay the interest. The result is that more interest-bearing money has to be created (with more inflation and more people going into debt) and more frenetic activity in the endeavor to try to make repayment. Worse, the system favors the short term destruction of natural wealth rather than its long term maintenance. Unless the role of interest in the financial system is substantially diminished (as happens with binary economics) not only is the environment at risk but so is the stability of the world financial system.
 

Stable population levels
It is also the case that populations stabilise when there is a reasonable standard of living, good education, health and at least some status for women. Binary economics provides a reasonable standard of living, good education, health and full and equal status for women particularly by ensuring independent income. Thus binary economics is the only hope for moderating the present growth of the world’s population.
 
Alternative technologies
Lastly, there is now an extraordinary range of ‘alternative’ green technologies capable of generating clean electricity but which cannot be used because, in the present system of interest-bearing money, they are not financially viable.    Examples include tidal barrages and tidal lagoons; and large-scale solar structures. However, with interest-free loans they will become financially viable.
 
    There is now also hope that some technologies − at present viewed with varying degrees of scepticism by mainstream science and previously thought to be physically impossible − are practical. 

   All of these technologies should be implemented with interest-free loans. 

 
    NB An Irish company − Steorn www.steorn.com − may, or may not, be on the verge of succeeding in using magnetic interactions to produce clean electricity with no input other than that coming from the magnets. If this proves to be practical, a major component of the solution to the world’s environmental problems will be in place. Another company − Blacklight Power http://www.blacklightpower.com/− has raised very considerable sums of money and may be about to produce a powerful new clean electricity technology.
.
 
Productiveness
 
Students of binary economics may wish to be briefly introduced to an important binary concept – productiveness. NB Binary productiveness and conventional productivity are completely different animals
 
Conventional productivity
Conventional productivity, in the conventional classical and neo-classical sense, is the ratio of labor as input to the overall output. As a mathematical fraction, it is total output divided by human labour input. Conventional productivity attributes everything to human labour. Thus Adam Smith (The Wealth of Nations, 1776) attributes all growth to human labour and views machines as being but things which ‘abridge’ labour. In short, labour does it all.
    NB. Adam Smith did his thinking in the years 1760 onward which were before the industrial revolution had clearly manifested itself as a machine-led phenomenon.
 
Binary productiveness
In contrast, binary productiveness is the percentage of total input that labor and capital each contributes to the output. In binary economics, labor and capital are viewed as being of a different, although co-operating, nature and therefore should be seen as separate inputs contributing to output. Capital contributes an increasing percentage as even Marx understood.
 
    For example, a man digging a hole with his hands only will take four hours. But, by using a form of capital − a shovel − he can dig the hole in one hour or dig four holes in the same amount of time it took him to dig one hole with his hands. The productiveness of the human labor is 25% while the productiveness of the capital shovel is 75%. Together, of course, man and shovel − labor and capital − produce much more than they would produce separately.
 
    Where binary productiveness is concerned, it is also useful to consider the examples of an automated factory or a huge dam producing electricity and fresh water. In the case of the automated factory there is minimal or no human input (the work involved in design and building is over and has received its payment, and maintenance and repair are only maintenance and repair rather than a direct contribution to production). In the case of the dam, with relatively little human input although it is critical, the physical output of the capital is huge and binary economics views the sun, weather and gravity as greatly contributing to the production.
 
    The sun, weather and gravity are co-operating capital assets even if they are ones which cannot be owned. Binary economics views both humans and capital assets as production factors having an independent productiveness which does not stop their co-operating with other independent production factors but which does mean that their contribution to production requires individual recognition.
 
Criticism of binary economics
Criticism of binary economics tends to concentrate on the example of the man digging the hole. A paper by Timothy D. Terrell (Binary Economics: Paradigm Shift Or Cluster of Errors? Ludwig von Mises Institute) summarizes a critique given by Timothy Roth on the shovel example. The criticism claims that:-
            a) somebody invented the shovel
            b) the shovel cannot be independent.
    Roth argues that someone with human capital had to invent the shovel before it could be used, so the presence of the shovel is not independent of human capital. Also, Roth notes the presumption that the human hole digger has no role in the productiveness of the shovel. 
 
    But, firstly, the fact that somebody invented the shovel has nothing to do with its present use for digging a hole and binary economics views the shovel as an independent contributor which co-operates with the man just as the man co-operates with the shovel.
 
    Secondly, just as two humans can, and do, co-operate, so the man and the shovel co-operate to dig the hole and produce far more holes than either the man or shovel could do by themselves. 
 
    Moreover, binary economics does not say the human digger has no role in the shovel’s productiveness − both binary economics and Roth agree that man and shovel together produce far more than man or shovel separately.
 
    Furthermore, when the examples of an automated factory, or a huge dam producing electricity and fresh water, are considered, the critics of the binary analysis of productiveness have a problem − in the case of the automated factory there is no human input (design and building have been paid for, and maintenance and repair are maintenance and repair but not a direct contribution to production). In the case of the dam, with relatively little human input although it is critical, the physical output of the capital is huge (and, don’t forget, the sun, weather and gravity can be viewed as co-operating capital assets but ones which cannot be owned).
 
    Moreover, binary economics does not say the human digger has no role in the shovel’s productiveness − both binary economics and Roth agree that man and shovel together produce far more than man or shovel separately.
 
    Furthermore, when the examples of an automated factory, or a huge dam producing electricity and fresh water, are considered, the critics of the binary analysis of productiveness have a problem − in the case of the automated factory there is no human input (design and building have been paid for, and maintenance and repair are maintenance and repair but not a direct contribution to production). In the case of the dam, with relatively little human input although it is critical, the physical output of the capital is huge (and, don’t forget, the sun, weather and gravity can be viewed as co-operating capital assets but ones which cannot be owned).
 
 
Global crisis  financial and environmental – causes and solution
 
The sub-prime mortgage scandal is only a factor in the continuing financial crisis. Indeed, the financial crisis is the manifestation of a global financial system (called unfree market finance capitalism, or just finance capitalism) which is fundamentally flawed and about to collapse. The flaws ensure that the system cannot:-
 
      • avoid economic cycles
      • avoid the build-up of the cycles into bigger ones
      • prevent rich-poor division
      • solve global poverty
      • provide social and economic justice
      • address the major problems of the environment
The biggest factor in the financial crisis
 
The biggest factor in the crisis is what conventional economics claims is the secret of the ‘free market’s’ purported success, namely, conventional endogenous loan money. This loan money:−
      • is created out of nothing (by the pressing of computer buttons) by the banking system
      • has interest (as distinct from administration cost) added
      • is not directed at the development and spreading of productive (together with the associated purchasing) capacity so as to achieve a Say’s Theorem (Law) balance of supply and demand (with producers and consumers being the same people) while, at the same time, forwarding social and economic justice.
    In short, finance capitalism concerns itself with the making of money out of money and NOT with the true purposes of the real economy and society.
 
The creation of money takes place primarily in banks
Contrary to popular belief and continual propaganda, banks do not lend their own money or that of the depositors. Instead, lent credit is new money which is created out of nothing (by the mere pressing of computer buttons) and, on repayment, the principal of the loan is cancelled.
“The actual process of money creation takes place primarily in banks.” (Federal Reserve Bank of Chicago (1992), Modern Money Mechanics – a Workbook on Bank Reserves and Deposit Expansion.)
    In the UK around 97% of the new money supply is created in this way and there are similar figures for other countries including the USA.
 
    Furthermore, when the banking system creates the loan money out of nothing it creates sufficient money for the principal to be repaid but no money is created for the repayment of the interest. Therefore, if the overall money supply is not to shrink, more and more interest-bearing debt must be created. The result is that there is a continuing pressure for more and more interest-bearing debt to be created and that is the fundamental mechanism which lies behind the build-up of individual, town, corporation and national debt.
 
    Conventional economics claims that the system of interest-bearing money serves the needs of the economy by efficiently allocating resources. But this is not true – the banking system money does not allocate its interest-bearing money to new productive capacity and its spreading. Instead, it allocates it to derivatives; to the bidding up of existing asset prices (such as house prices); to consumer credit; to putting individuals, companies and societies into debt, indeed, to anything but the real, productive economy.
 

    Moreover, the paying of interest diminishes the capacity of borrowers to repay and diminishes their capacity to consume.
 
    In addition, conventional endogenous money requires two lots of financing (one for production and one for consumption when only one lot − for both production and consumption at the same time − is necessary). The result is that there is continued inflation.
 
    Because it has detrimental effects and does not serve the purposes of a true, fair, free market, let alone the purposes of society, conventional endogenous loan money must be gradually eliminated. This can be done by a gradual rise in banking reserves eventually to 100%. Banks will then be left with the duties of lending (as they are supposed to do) their own capital and (with permission) the deposits of their customers; and of administering interest-free loans stemming from the national bank.
 
Other factors contributing to the financial crisis
Other factors in the financial crisis include:-

      • computerisation
      • off-balance sheet creations and the unregulated, largely unseen, derivatives market
      • the elimination of legislative constraints (e.g. repeal of the 1933 Glass-Steagall Act which ensured that banking, stockbroking, mortgage provision and insurance had to be separate activities)
      • the ending of proper banking reserves
      • the reliance only on interest rates as the basic controlling mechanism
      • corrupt lending practices and valuations
      • the vacuous belief that the ‘free market’ is Perfection Manifested (and so soon everything returns to the most perfect equilibrium).
 

The purported ‘free market’ is not free, fair or efficient
All of the factors contributing to the crisis take place against a background of deceitful propaganda and deception about the ‘free market’. The truth is that the ‘free market’ is not free, not fair and not efficient and there cannot be true democracy unless all individuals (whether or not in conventional jobs) have their own independent productive capacity giving them their own income.
 
    Furthermore, throughout the world, capital ownership is concentrated – in some ‘free market’ countries only a handful of families own most of the stock market (in Indonesia fifteen families own around 60% of the stock market). Over-concentration of economic power and the prevention of the operation of a true free market (in which producers and consumers are the same people) are prime causes of autocracy and poverty.
 
    NB The justification for the present system of the banking system creating money and lending it at interest is that, by so doing, it is furthering the allocative purposes of an efficient ‘free market’. However, in reality, it does not allocate resources efficiently and, since interest is also unnecessary where productive capacity is concerned, the whole justification for the present system collapses.
 
    On top of which, the present system (unlike binary economics) is incapable of achieving a proper balance of supply and demand with producers and consumers being the same people as required by Say’s Theorem (Law) and the requirements for social and economic justice.
 
 
Environmental crisis
 
Because of the interest which compounds, debtors are under continual pressure to repay and, on the international scene, whole countries are effectively colonised by having to repay amounts many times the original loans. Also, because of interest, much frenetic activity is engendered and poor people without material security cannot be expected to moderate their claims on material prosperity unless they have a fair deal like everybody else.  But binary economics gives the fair deal  it spreads productive (and the associated consuming) capacity so that all individuals in the population (including babies, carers and those not normally in conventional employment) have at least some form of secure, independent income. 
 
    Moreover, at present, virtually everyone has either had a scarring experience of poverty or has a perception or fear that they might fall into poverty. In short, people feel insecure and that is one of the main factors in explaining greed. The insecurity  and the associated aggressive consuming attitudes  will only disappear if ALL people have material security and, at the same time, all people in some degree earn in exactly the same way as do others (i.e. at least part of their individual income should come through capital ownership). Only then will there be hope of people voluntarily minimising their greed. Moreover, as between individual countries, fairness between populations is essential if there is to be willing co-operation.
 
     Greed is also caused by the present financial system which creates sufficient money for the principal of interest-bearing loans to be repaid but does not create sufficient money with which to repay the interest. The result is that more interest-bearing money has to be created (with more inflation and more people going into debt) and more frenetic activity in the endeavor to try to make repayment. Worse, the system favors the short term destruction of natural wealth rather than its long term maintenance. Unless the role of interest in the financial system is substantially diminished not only is the environment at risk but so is the stability of the world financial system.
 
    It is also the case that populations stabilise when there is a reasonable standard of living, good education and health and at least some status for women. Binary economics provides these things and is essential if the present growth of the world’s population is to be moderated.
 
 

   Lastly, there is now an extraordinary range of ‘alternative’ green technologies capable of generating clean electricity but which cannot be used because, in the present system of interest-bearing money, they are not financially viable. Examples include tidal barrages, tidal lagoons, and large-scale solar structures. However, with interest-free loans they will become viable. The world must have clean electricity generation and that means the use of interest-free loans to introduce the technology.

  
 
Solution to financial and environmental crisis
 
The fundamental cause of the global financial crisis now manifesting itself in various ways is a banking system which:-
            a) creates money out of nothing
            b) adds interest (as distinct from administration cost)
            c) directs it at anything except the development and spreading of the ownership of productive (and the associated consuming) capacity so as to achieve a Say’s Theorem balance of supply and demand with producers and consumers being the same people while, at the same time, forwarding social and economic justice.
 
    Because only enough money is created for the principal of a debt but not for the interest which must be paid, more and more interest-bearing debt must be created if the system is not to collapse. But, as the amount of interest-bearing debt continually rises, not only is the debt hugely increased (with consequent massive systemic instability) but inflation is continuously created.
 
    The instability is compounded by the newly-created money not being put into the development and spreading of productive capacity. Thus the USA, putting the interest-bearing money into anything except productive capacity, has in practice hollowed out its economy which, of course, exacerbates the effect of the huge, mind-boggling, debts.
 
     The solution can be summarised as the issue of national bank-issued interest-free loans (administered by the banking system) for the development and spreading of productive (and the associated purchasing) capacity to all individuals in the population. All environmental capital projects, all governmental capital projects, micro-credit, small business, student loans and the private sector if wide ownership is involved are covered by the solution.
 
    NB At the same time as the national bank loans are issued, the banking system must be curtailed in its present ability to create money out of nothing and lend it for any purpose except the development and spreading of productive capacity. The curtailment can be done by a rise to 100% banking reserves.
 
    At the core of the solution is the use of interest-free loans issued by the national bank for the purpose of productive capacity. Such loans cannot be inflationary, indeed, they are counter-inflationary  when the loans are repaid, they are cancelled leaving behind in the economy productive, income-generating capital assets. Thus productive assets always back the currency.
 
    Crucially, the loans originate with the national bank. By originating the money with the national bank (rather than the banking system) society’s ownership of the money supply is established and so the money can be interest-free and focused on the purposes of productive capacity and the real economy so as to achieve a Say’s Theorem balance of supply and demand while, at the same time, forwarding social and economic justice.
 
    Thus it is proposed that a country’s national bank should create interest-free loans. On repayment, the loans (like the principal of normal bank loans) are cancelled leaving the capital projects in existence. The money for repayment of loans is collected and repaid as it is at present except that the capital projects would cost, roughly, half, even a quarter or less of what they cost today.
 
    NB While the supply of interest-free loans (originating with the national bank) increases, there needs to be, at the same time, a decrease in the present ability of the banking system to create money out of nothing. This would be done by, over time, a gradual rise eventually to 100% banking reserves (which effectively ends the ability of the system to create money out of nothing). The banking system would, of course, still be able to lend its own capital and (with permission) the deposits of customers.
 
 
Fifty three false assumptions of mainstream neoclassical economics
 
Below are listed fifty three false assumptions which underlie mainstream neoclassical economics. These false assumptions are basic things believed to be true or taken for granted as inevitable or sensible, but which, in fact, are false and it should be noted that it only needs one, or perhaps two or three, assumptions to be false for  the whole structure of mainstream neoclassical economics to become invalid.
 
The false assumptions of mainstream neoclassical economics are that:-
1. Scarcity is an inevitable part of the human condition.
2. Labour creates most, if not all, of the wealth.
3. The ‘free market’ is free.
4. The ‘free market’ is efficient and allocates resources efficiently.
5. The outcomes of the ‘free market’ are always just.
6. Homo economicus is an accurate description of human psychology.
7. Conventional economics is an all-encompassing science of objective process and universal value and further improvement to economics is impossible.
8. It is a matter of small importance that the banking system creates money out of nothing sufficient for the repayment of the principal of a loan but not of the interest.
9. The ‘free market’ consists of states of equilibrium; when there is disequilibrium there will always be a return to equilibrium.
10 There Is No Such Thing As a Free Lunch (i.e., any improvement for the poor inevitably involves a detriment to the rich).
11. The ‘free market’ upholds private property for all.
12. It does not matter who owns the capital, particularly productive capital.
13. The ‘free market’ implements Say’s market Theorem (Law) that producers and consumers should be the same people.
14. Somebody who voluntarily looks after a sick child does no work in the economic sense.
15. Interest is inevitable and always necessary.
16. Ethics/morality is not part of economics.
17. The poor are poor because of lack of effort and lack of skill (rather than lack of capital and lack of access to capital credit).
18. Inflation is not caused by the banking system.
19. Financial savings are necessary before there can be investment.
20. Physical savings are necessary before there can be investment.
21. Labour and welfare payment will always suffice.
22. It is not necessary for every person to have an independent income.
23. The level of interest rates is all that is necessary to manage an economy properly.
24. Wide ownership is not necessary.
25. Student loans should bear interest.
26. Public capital projects should be funded by borrowing interest-bearing money.
27. Micro-credit lending should bear interest.
28. Environmental capital projects should bear interest.
29. An economy requires two lots of financing – one for production and one for consumption. (NB Only one lot of financing is necessary if it is simulfinancing as in binary economics).
30. There is no such thing as society.
31. Personal debt is healthy for an economy; as also national debt.
32. There is no power imbalance between actors (participants, including individuals) in an economy.
33. Social and economic justice on the one hand and efficiency on the other are incompatible.
34. Economic history is irrelevant.
35. Outdated economic theory (Adam Smith, 1776) basically conceived before the industrial revolution had got under way, suffices to guide modern economic theory and practice.
36. The important things in economics are anything except the development and spreading of productive capacity so as to make producers and consumers the same people thereby enabling a Say’s Theorem (Law) balance of supply and demand and also enabling the forwarding of social and economic justice.
37. Banks should be able to offer mortgages.
38. Economic inequality is desirable; the greater the ratio between top earnings and bottom earnings, the better.
39. ‘Trickle down’ economics works.
40. Rising house and stock market prices are necessarily a sign of genuinely increased wealth.
41. Economic cycles are inevitable.
42. Individual greed is good and institutionalised greed is even better.
43. Countries should raise money at interest on the international markets.
44. Countries should not be autonomous; they should be controlled by others.
45. A country’s assets should be owned by outsiders.
46. A country’s money supply should originate in the banking system rather than the national bank.
47. Employee shareholdings and involvement do not improve efficiency.
48. Political democracy does not require economic democracy.
49. Even though today’s banking system money is created out of nothing there is a time value to borrowed money.
50. Environmental matters are extraneous and impose extraneous cost.
51. Not only ethics but belief in God should be eschewed.
52. Economics is essentially a separate subject which does not have to take account of other subjects.
53. The creation of money out of nothing and the addition of interest do not require even more creation and even more debt
 

NB Binary economics becomes easily understood if the fifty three false assumptions of prevailing economics are one by one, and simply, reversed.

Quite soon, it becomes apparent that a different picture is emerging and then, long before all the false assumptions have been reversed, it is brightly clear that a totally new landscape ─ the Binary landscape ─ has emerged.

 
Warning. Binary economics promotes new thinking to benefit all individuals, economies and societies.  It has nothing to do with ‘investment opportunities’ and the like purporting to make use of interest-free loans in some way.  Such ‘opportunities’ are only too likely to be ponzi schemes and scams.  
 
.Further information
 
For further information the main internet website for binary economics is www.binaryeconomics.net    
 
Helpful papers are:-
Binary Alternative & The Future of Capitalism (Mark Reiners) 
 
Binary Economics of Louis Kelso – PDF (Robert Ashford)
 
Democratising the Wealth of Nations – from new money sources and profit motives (Shann Turnbull)
http://ssrn.com/abstract=1146062
 
Integrating Islamic Finance into Mainstream (Rodney Shakespeare)
http://www.globaljusticemovement.net/articles/7HUF-IslamicFinance-rs-0603.htm
 
Prices and Money by (Norman Kurland)
http://www.cesj.org/binaryeconomics/price-money.html
 
The Use of Central Banks to spread Ownership (Shann Turnbull)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=277508
 

 

Selected Texts
Ashford, Robert The Binary Economics of Louis Kelso (Rutgers Law Journal, vol. 22. 1990).
Ashford, Robert Louis Kelso’s Binary Economy (The Journal of Socio-Economics, vol. 25, 1996).
Ashford, Robert & Shakespeare, Rodney (1999) Binary Economics – the new paradigm.
el-Diwany, Tarek (2003) The Problem With Interest.
Gates, Jeff (1999) The Ownership Solution.
Gates, Jeff (2000) Democracy At Risk.
Gauche, Jerry Binary Modes for the Privatization of Public Assets (The Journal of Socio-Economics. Vol. 27, 1998).
Gauche, Jerry General Stock Ownership Corporations: Another Step in Broadening Capital Ownership (30 American University Review, 1981).
Greenfield, Sidney M. Making Another World Possible: the Torah, Louis Kelso and the Problem of Poverty (paper given at conference, Colombia University, May, 2006).
Kelso, Louis & Kelso, Patricia Hetter (1986 & 1991) Democracy and Economic Power.
Kelso, Louis & Adler, Mortimer (1958) The Capitalist Manifesto.
Kelso, Louis & Adler, Mortimer (1961) The New Capitalists.
Kelso, Louis & Hetter, Patricia (1967) Two-Factor Theory: the Economics of Reality.
Kelso, Louis (1957) Karl Marx: The Almost Capitalist (American Bar Association Journal, March, 1957)
Kurland, Norman The Federal Reserve Discount Window (Winter 1998, Journal of Employee Ownership Law and Finance).
Kurland, Norman A New Look at Prices and Money: The Kelsonian Binary Model for Achieving Rapid Growth Without Inflation.
Kurland, Norman; Brohawn, Dawn & Michael Greaney (2004) Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security.
Miller, J.H. ed., (1994) Curing World Poverty: The New Role of Property.
Reiners, Mark Douglas The Binary Alternative and Future of Capitalism.
Shakespeare, Rodney & Challen, Peter (2002) Seven Steps to Justice.
Shakespeare, Rodney Integrating Islamic Finance into the Mainstream (paper delivered at Harvard, April, 2006)
Shakespeare, Rodney (2007) The Modern Universal Paradigm.
Shakespeare, Rodney & Proudfoot, Wilf (1976) The Two-factor Nation.
Turnbull, Shann (2001) The Use of Central Banks to Spread Ownership.
Turnbull, Shann (1975/2000) Democratising the Wealth of Nations.

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