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  • Nelson Guedes

The Nature of Wealth and the Flaws of Neoliberal Economic Systems


Wealth resides in the inherent value of existence rather than the representative value of currency. Contemporary economic, monetary and financial systems are deeply flawed because they tend to focus and rely on the representative value of currency to the detriment of real wealth. Real wealth only exists due to the time and energy we spend working modifying resources and helping each other. We are the source of wealth. In this respect, wealth is not only the resources we possess, but the value we add to them through our work. By focusing on intangible derivatives of wealth, the current system neglects the wealth it relies on and, by extension, all of us.

By focusing on the acquisition of capital, the economic system neglects the workers who use the capital to produce goods and provide services. The private acquisition of capital, through the hoarding of currency, concentrates the means of production and decision-making in anti-democratic corporations, thus decreasing efficiency and access to capital. The argument in favor of this flawed system is that those who can acquire more economic control are more equipped to make better decisions, but that argument is flawed because the capitalist is not aware of a number of factors that the workers are aware of and they are unable to maximize the utility and benefit of the capital. In addition, the concentration of capital makes it harder to distribute resources according to merit and need. By decreasing access to capital, capitalists also make it increasingly harder to acquire resources, thus decreasing its distribution and therefore decreasing aggregate economic activity. Ultimately, the concentration of capital always leads to economic stagnation. The solution is to distribute the ownership and control of capital in order to maximize the distribution of wealth and always attach the ownership and control of wealth to those who actually use them. Resources, then, are utilized by those who control and benefit from the wealth of society, individually and as a whole. This increases the accountability and legitimacy of each individual and society as a whole.

The focus on currency and perpetual economc growth also leads to a system that is prone to inflate the value of its currency. Monetary policy is flawed because it concentrates on currency, rather than wealth. It concentrates on the volume of currency rather than on actual production and consumption of tangible resources. By concentrating on currency and economic output, the system artificially inflates or deflates the value of currency because it always assume that the same population will be able to produce and consume more. Monetary policy tends to be reactive because it never focuses on reality but, rather, on speculations of reality The solution is to focus on wealth, rather than the volume of currency. The value of currency is relative to the wealth of the economy. The wealth of the economy is measured by the amount of raw resources, minimum consumption per capita and the potential economic output per capita. Therefore, through a smart market system, the monetary system should focus on measuring these factors in real-time and maintaining the volume of currency based on these factors. The key is that the volume of currency in circulation must match current or expected economic output. The system can only be safely inflated by issuing interest free currency to pay for the construction of needed infrastructure, increasing the capacity of economic output and, thus, making the increase of currency in circulation viable. This lead us to the topic of financing.

The financial system is split into equity and debt. On the equity side we have the traders of Wall Street selling representations of present and future wealth on the value of the economy's assets. These assets are spread, in ownership and control, throughout all the economic producers of the economy. On the debt side we have the banks selling representations of future wealth based on the economy's current assets. Both the bankers and traders have an incentive to inflate the value of their holdings in order to increase their access to currency. As a result, the value of the economy is constantly inflated, making it increasingly harder to produce enough to offset the overvaluation of assets, equity and debts, thus crashing the economy. Crashing the economy leads to borrowers who are unable to pay their debts, thus causing the bankers and traders to claim back the assets of the economy, thus increasing their holdings. As this process continues, bankers and traders gain control over more and more wealth, which is not utilized effectively and beneficially, thus causing further economic and social problems.

There is also a special type of debt which is issued by private banks - currency. This is not done visibly, because this currency is issued as debt in the form of loans and mortgages rather than paper currency. On the private side we have banks issuing mortgages and loans to people. Because of fractional reserve lending, the banks can loan more money than they have, thus inflating the volume of currency beyond its carrying capacity. This inflation is caused because the debt that is circulating in the economy represents future wealth that grows exponentially because the bank charges compounding interest. The total amount in circulation, then, is always greater than the capacity of society to service the debt. This is particularly troubling on the public side, when the government borrows the money, because it borrows based on the current population and productive output capacity, which grows linearly or stagnates while the debt compounds exponentially. The whole system is irreparably flawed because it is not even mathematically sound, let alone socially and economically feasible and sustainable in the long-term.

Financing is very important because those who make the decisions about what is going to be financed are the ones who are really making the decisions, not the governments. For example, if the private banks are only interested in investing in oil, because they have a vested interest in the industry, they will resist investing in renewable energy. This is why private banks should be illegal, because, through their financing, they can shape society. They are inherently anti-democratic. We need to have banks where people in the community share on the ownership and control of financing, so that we decide where our money is going to be invested. This also makes it more likely that we invest back in our community and that we invest in real wealth generation rather than profit generation through intangible derivatives. It leads to a financial system that is stable and sustainable in the long-turn.

Therefore, when taking all of the above into consideration, we need a system where the financial decisions are democratized and left in the hands of the communities that will be affected. Communities can, then, decide what they are going to invest in. A smart market can be established where production and consumption is tracked in real time, thus giving the community an accurate picture of supply and demand, which helps avoid inflation and enables the community to make well informed decisions in what capital to invest in. Finally, the community can allocate financing and resources in democratically owned and controlled local co-operatives, distributing the ownership and control of capital and maintaining the flow of wealth throughout society.


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© 2015 by Nelson Guedes

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