1.0 Introduction: Defining Issues and Outline of a  Solution      last revised 2/2012

1.0.1 Outline of issues:
1.0.2 Recent economic disasters; defining the problem:
1.0.3 Outline of a solution:
1.0.4 Further considerations regarding a solution:

1.0.1 Outline of issues:
Economics, as ethics, deals with people's decisions that affect others. Who does what for whom and why? and how are actions, things, environments and people to be valued?
     Productive adults work for 1. themselves, 2. the next generation and 3. the older generation. The most essential economic activity is bearing, raising and educating children. Caring for old people is a matter of reciprocity, but limited resources must first be allocated to pregnant women, young adults and children.
     Money developed with two primary functions: 1. to represent the value of work between production or earning and consumption or spending, 2. to measure value, i.e. compare values of different goods and services. These two functions made economic transactions much more efficient compared with people relying on future reciprocity or directly bartering goods and services.
    Money represents the productivity of a people but does not hold value.  Since maintaining the value of money depends on the future productivity of the younger generation, retirement or pension funds are not meaningful. The funds' collecting and investing large amounts of money distorts the economy.
     Money is addicting since it represents any good or service available in an economy. Unearned money, money that is not received in return for sold goods and productive labor, is particularly attractive, earlier gained through warfare and slave labor, today mainly by gambling, organized crime and as profits.
     Cultures evolve because people want to be different from their "inferior" neighbors, and people want to do better than the previous generation. Parents want their children to do better, and since situations change, e.g. with population pressure, people seek adaptations. Unless unable to experiment because of extreme poverty and insecurity, or held back by conservative traditions and religions, most people have some drive to make improvements, to be inventive and entrepreneurial. With or without the incentive of profits, most talented people want to create better products and services; they may want to compete; it feels right to do one's best.  However, goals benefitting individuals and families may be detrimental for society as a whole. Additionally, people in leadership positions usually fear progress.
     People in power invariably distort the value of work, and throughout history, rulers mandated property rights that were and are unethical. Property included slaves, domesticated and wild animals, virtually all land, animals in the seas, minerals, wives and children. People in highly specialized and managerial occupations, particularly men, generally overvalue their part in an economy.  Indigenous people value men's hunting higher than women's gathering the staples of their nutrition. Work that women tend to prefer, such as working with children, the underprivileged, disabled, sick and old, is universally undervalued. In virtually all civilizations, widespread discrimination leads to major inefficiencies.
     Education may shorten a person's productive years and for that reason, a somewhat higher income may be justified. Today, highly specialized professional groups usully limit competition through complex educational requirements, licensing procedures, etc. However, the work of less educated persons is often a condition for the value of most sophisticated work, e.g. a surgeon is worthless unless anesthesiologist, nurses, infection control specialists and cleaning personnel do an excellent job. Civil engineers depend on 'blue collar workers' for their plans to be realized. In addition, educated, talented people would chose intellectually challenging and gratifying work over menial labor, even if the pay would be equal.
     For meaningful improvements, our civilization needs major reforms with a focus on broad educational efforts, teaching ethics, and incentives for positive developments. Economies must work on increasing quality of life in ecologically responsible ways, rather than on material growth.

1.0.2 Recent economic disasters; defining the problem:
All people should be able to efficiently participate in the economy, with reasonable access to goods and services, education and jobs. Economic institutions are to reach this goal by issuing and properly allocating money and by establishing rules for the interactions between private individuals, private enterprises and governmental bodies. The U.S. congress and the federal reserve system ('Fed') keep failing. After a major recession at the beginning of this century, a deeper and broader recession started in 2008. Many people have been marginalized, lacking access to training and education, and unable to find stable employment or niches for self-employment.The European governments and financial institutions have been failing in a similar way.
     The central problem in modern economies is a misconception regarding the nature and function of money.  Money developed as representation of the temporarily saved value of work, value that has not yet been converted into consumer goods, services and durable goods. People, enterprises and government agencies should always own an adequate money supply to bridge the time between income and use of money.
     Today it is broadly assumed that money for economic activities is borrowed from banks and investors; credit is the central issue in modern capitalism; scores of people try to manage others' assets and productive potentials.  People and enterprises are willing to pay a tax (interests) to financial institutions for the convenience of a money supply. By default, banks and investors were given the power of allocating money as they see fit, and to withholding money from the economy when seeing no likelihood of profits. Issuing money is formally a government monopoly, but our financial institutions are allowed to multiply the money supply, lending the same money to many persons and enterprises¹.
     Banks create artificial wealth by "generously" lending with the premise of real estate or stock values rising; and banks shrink the money supply and the nation's wealth when foreclosing, rather than adjusting, bad loans, and when refusing to lend at appropriately lowered interest rates. The banks reactions cause much suffering, unemployment and a drop in the economy's productivity. Ethically, when home buyers or Third World enterprises are unable to make payments, banks should admit to, at least partial, culpability and accept losses, forgo interests and possibly reduce the principal, rather than destroy foreclosed homes and create a credit crisis. The financial institutions bear considerable responsibility for the economic 'bubbles', recessions and all the financial crisis in the Third World² that lead to the devastating International Monetary Fund interventions. Financial institutions' activities have been described as "gambling with others' money, the rule being, 'I win, you lose';" governments are expected to cover catastrophic losses.

1.0.3 Outline of a solution:
The solution consists in creating a stable money supply that is owned by people, enterprises and government agencies.  Governments must introduce large amounts of money into the economy. Even if no major changes in economic institutions is planned this is essential during a major recession or depression³. If 'injecting' much money into a depressed economy leads to inflation, it is due to banks multiplying the money while poorly allocating it, giving credit where no jobs are created.
     To prevent the fluctuations in the money supply, banks must be prohibited from lending money of checking accounts, which people use like cash, and to avoid the rapid transferring between savings and checking accounts, assets in savings accounts must also be kept in reserve until they have been left idle for over one month. The large majority of economic interactions should consist in people earning, saving, then spending savings, and enterprises saving profits to be utilized for expansion and for research, development and improved production processes.  When people are dissatisfied with available products and save rather than buying them, banks may lend the savings to enterprises to improve their products.
     Government issued money may initially be entered into circulation by paying out one time subsidies for poor and middle class people. To promote growth, newly issued money may be used for education and research, to improve the infrastructure, e.g. building comprehensive rail systems, and supporting broad use of renewable energy. Speculating and the creation of complex investment instruments should be limited and discouraged through taxation.
     Areas of low income tend to lose their money when people buy products from industrialized areas, creating a negative trade balance with the rest of the country. The unemployment problem may then be alleviated by introducing local currencies that serve as barter coupons, used for locally produced goods and services. Retailers may determine that goods must be paid for partly with local, partly official currency. For a safety net, poor unemployed and partly disable people may always receive subsidies while studying, working part-time and/or doing unpaid community service work.
     Much international trade has been transacted in dollars, and U.S. dollars (particularly U.S. treasury bills) have largely replaced gold as main reserve of Third World national banks. Other 'hard currencies' play a similar but much smaller role. This arrangement is extremely costly to poor nations. It caused the U.S. to build up huge trade deficits and debts, paying very low interests, and benefitting from vast quantities of cheap consumer products. A UN related international bank⁴ should establish an international currency⁵, we may call 'international monetary unit' (IMU): for any transnational trade, the buyer buys IMUs and these can be converted into any currency. The  ratio of any currency to the IMU would be determined by supply and demand: there is a targeted amount of each currency in the international bank; if the bank has too much or too little of any currency for some time, that currency's value is decreased or increased.

1.0.4 Further considerations regarding a solution:
Most economists agree that we need both: 1. entrepreneurial freedoms with incentives for broad research and development activities, and 2. a public sector that organizes or actuates what private groups hardly can do in a comprehensive way, such as creating a money supply with a framework for financial institutions, a comprehensive infrastructure, an educational and health care system, a 'safety net', enforceable laws that correspond with ethical values, and setting priorities when guiding and regulating institutions.
     Economic institutions need goals of production and development. Material growth in itself is not necessarily good, e.g. if it enriches few and leads to misery of many or if it damages the environment⁶. Historically, people spent most time procuring or working for food; clothing and housing was also expensive. The labor needed for producing food, clothing and shelter decreased dramatically, but rather than shortening work hours, people live at ever higher standards. Obviously, relatively more resources are needed for elder care and we consider the greatly improved health care a right. Investments should also be made in education and the prevention of physical diseases, mental disorders and the development of criminal careers.
     Goals for more appropriate production may include:
- Generally building less sophisticated and smaller products with high functionality, reliability, safety and durability.
- Having worldwide relatively short work hours increasing high quality family time, time for artistic enjoyment, etc.
- More investment in parks with natural environments.
- Less but high quality media, to include primarily news, documentary reporting, art, and educational programs.
- Decrease in wasteful and misleading advertisements (which add costs to goods and decrease consumers' ability to make good choices), improved access to relevant information.
- Building densely populated towns and cities with small housing units, small and space saving furniture, etc.
- Building far reaching, comprehensive rail system including high speed, conventional , light rail and narrow track rails.
- Solar panels built as roofing material, used for most building roofs, roofs over passage ways, play and picnic areas, parking lots, etc.
- Broad use of wind generators, water turbines in ocean currents, other forms of renewable energy and conservation approaches.
-  Where there is excess electricity generation, production of hydrogen and installation of high energy consuming industries.
- For quality of life relevant research, particularly prevention and treatment of physical and mental disorders.
- Intelligent people should work in production and research, not speculate and profit from gambling with others' assets.
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1 Money that is lent by a banks is redeposited in some bank or simply changes account within the same bank; it can then be lent to another borrower. Bank reserve requirements, laws that  determine the percentage of checking and savings' deposits that must be kept in reserve, limit how many dollars of credit a deposited dollar may produce. Obviously, checking accounts, used as a safe form of cash during pay periods, should never be lent to borrowers for profit. In the Eurodollar markets, banks often issued as much as $ 30.00 of credit for every dollar that was invested in the bank branch. Since banks always lend deposited money to many borrowers, they will fail when too many people demand cash for their checking and savings accounts (bank runs). One bank failure usually leads to 'bank runs' throughout the area or the industrialized world, requiring massive government interventions to prevent a collapse of the money supply and consequent depression.
2 Compare S. C. Gwynne: Selling Money, 1986
3 The Great Depression was largely due to a collapse in credit with many bank failures. It ended with World War II because previously unemployed people were paid for work; they built weapons, airplanes, etc., that were not useful for the workers, but much money was introduced into the civilian economy. In Germany, the building of highways ('Autobahn'), paid for with newly introduced money, but not directly useful to alleviate poverty, greatly stimulated the economy during the Great Depression.
4 This proposed bank is different from the World Bank or IMF; it is designed to facilitate international trade without involving economies with "hard currencies", not to lend money.
5 John Maynard Keynes, in Proposals for an International Clearing Union 1942, and Joseph E. Stiglitz, in Making Globalization Work, 2006, p. 260ff, proposed the creation of international money for conversion of currencies and for reserves. (The by the IMF creted 'Special Drawing Rights' (SDR) were rarely created and exclusively given to highly industrialized countries.)
     While the USA pays very low interests for its rapidly growing debts, Third World enterprises borrowing to buy U.S. equipment pay at least 10% higher interests. Much more profits flow to Western banks than all the aid to the Third World combined.
6 Poverty often leads to chronic anxiety and depression, but it is the relative material poverty that is associated with depression. Even extremely poor people are usually content and proud if they are not significantly poorer than the average population of their civilization. The most essential economic activity is bearing, raising and educating children. Caring for old people is a matter of reciprocity, but limited resources must first be allocated to pregnant women, children and young adults.