Transfinancial Economics
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Transfinancial Economics,or TFE is a concept for economic and financial reform developed by Robert Searle. It is concerned with the possible introduction of a Non-Debt Based Economy replacing the present Debt-Based Economy of Taxation, and Interest on Credit. TFE can be seen as a very advanced form of Heterodox Economics. It may well one day replace out-dated Neo-Classical Economics which still dominates academia, and the policy making of many governments in the developed world, and elsewhere.
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Basic Summary of TFE
Transfinancial Economics or TFE believes that taxes, and interest on loans are no longer necessary in the 21st century. It believes in two types of capital "flows" or rather electronic transmissions of money in the economy.
A. New Non-Repayable Money:
This is created, and transmitted into the economy to replace taxation of the government, and grants which could partly, or fully fund NGOs, and similiar type organizations. It like the non-orthodox method known in economics as Quantitative Easing notably used in the credit crunch.
Since reformed banks of the future would have a highly accurate scientific understanding of the workings of the entire economy they would also be able to produce enough new non-repayable money to ensure that serious inflation cannot in the main occur. Thus, any direct price controls would probably be largely superflous as the equilibrium, or balance between supply, and demand would on the whole be maintained. Hence,the Free Price System continues to exist.
However, as prices gradually rise the value of peoples money would also do likewise. This national adjustment to inflation would be achieved easily, and electronically via the banks computers.
It should be clearly indicated again that there is a measured creation of enough new non-repayable money which cannot, and does not lead to hyperinflation (eg. the Russian Revolution,the Weimar Republic, the French Revolution,et al). In other words, it cannot, and does not flood the economy way beyond its rate of growth which is obviously insane.
B. Earned Money;
This is simply money which is in circulation or saved in the economy. This is received by business people, and their employees as profits, and/ or wages through productive commercial activity, and work. Both new non-repayable capital, and its earned equivalent exist together in the economy.
It is interesting to point out here to that there is a huge amount of non-repayable money already in circulation. Here, we are referring to funding given by government in rich countries.This ofcourse is earned money. But, interest bearing loans which exist in todays economies are created largely out of thin air electronically by banks via the process of fractional reserve banking. This is not earned money but is like non-repayable money of TFE except ofcourse it is repayable over a period of time. Huge donations too exist as well for NGOs. These can be seen as being non-repayable but they originated as earned money.
What we are trying to say here is that it is clear that the last paragraph indicates that if enough new-non repayable money is created it would lead to some inflation but to nothing more serious (ie. hyperinflation). Incidently, cash ould still exist, and as in todays world it would make up a near non-existent portion of the entire money supply.
Here, is how Transfinancial Economics in brief works.
i)Most self-employed people, and entrepreneurs would have to register their businesses with the inflation authority (replacing the taxation authority, and ofcourse, its legislation).
ii) Each product, and/or service has to be registered with special ID codes, and accounting procedures by law would have to be undertaken ideally on a daily basis. This would involve the use of a number electronic devices (eg. cash registers, laptops etc)which could transmit accounting data, and in certain cases money to the inflation department of bank.
iii) The bank monitors the incoming the electronic info of the ID codes of registered products, and/or services. This happens on specially programmed computers which would have powers to instantly compare the market prices.
iv)In the unlikely event that there are serious prices rises in part of the economy electronic intervention maybe necessary via an array of super-flexible price controls targetted at certain registered products, and/or services.
There are a number of key implications in Transfinancial Economics
a) New non-repayable money (largely monitored or otherwise, and possibly paid in instalments electonically) would be able to successfully increase productivity, and prosperity more quickly for businesses in a continous fashion. As such economic growth within a sustainable context would be able in the main to deal with the possible increase of consumer demand. Interest free loans would also exist but play a far lesser role in business.
b) Special financial incentives or schemes where necessary would ensure that businesses become genuinely sustainable, and environmentally friendly. Those projects which are commerciallly unviable but vital to the world would receive the necessary subsidies, grants, and interest free loans created ofcourse out of new non-repayable money.
c) Charities, or NGOs concerned notably with high ethical issues,(eg. transparency in government, and business, human rights abuses, direct democracy,fairer wealth distribution, etc) and humanitarianism (eg.food relief, AIDs research, heart disease, etc) would probably be partly, or fully funded without the need for fundraising.
There are other positive implications in TFE which are discussed in brief in the text of this p2p foundation entry.
It should be said that some people believe that there is more than enough financial wealth to change the world. This may well be true. But since fairer redistribution is unlikely to happen then the best, and easiest way forward is to create new non-repayable money in a responsible manner, and allowing legal access to it whenever there is a genuine need.
What follows now is a more detailed enlargement of what has been stated here along with other relevant information.
Please also note that the kheper essay on TFE is out of date ,and should be replaced as its understanding on inflation controls is no longer fully relevant, or authorative in the light of new understanding, and research.
Please also note at present this p2p entry is being updated giving clearer insights..
Key Decision-Making Bodies
Here, we shall briefly explain who, and what does the decision making as far as the creation, and transmission of new non-repayable money is concerned.
a. Open Democratic Governments:
In TFE exists in the context of an open democracy. Future national governments, and local governments could order the creation, and transmission of new non-repayable money from an independent public authority, or from banks, or indeed, the Central Bank. Relevant electronic checks would among other things be necessary to see what the short term, medium term, and long term potential effects of inflation. Moreover, overspending would be curbed to a high degree.
b. The Banks:
It is expected that banks, and banking will remain largely in private sector in spite of the credit crunch. They could be nationalized in full, or in part but this is not a serious issue in TFE. However, they would have powers to create, and transmit new non-repayable money to various businesses and at a decreasing extent interest free credit. The interest would not be paid for by customers but by the Central Bank, or some independent public authority.
A business model could be created to ensure enough high profitability in other commercial schemes which would replace the former charging of interest to loans to customers. In other words, banks could become more powerful than before but with better regulation but not "over-regulation". Incidently, the creation of new non-repayable money would be at cost. The cost like the interest would be paid for by the Central Bank, or some independent authority.
c. Independent Grant Giving Bodies to NGOs.
These, like the above already exist. They notably come in the form of trusts, and foundations. Their job is to decide which NGOs get new non-repayable capital as grants. Their efficiency in doing this could be reformed where necessary.
Thus, donations, and fundraising will be largely unnecessary for most NGOs as they would receive the vital funding to continue their work.
Basic Ethical Arguments for the Creation of New Non-Repayable Money.
There are a number of key points which make the concept of new non-repayable money acceptable along with its earned counterpart.
i) All money originates from an unearned source of creation. As such from an objective viewpoint it has equal value to its earned counterpart as it would be legal tender.
ii) So-called Free Money already exists to a limited extent (eg government grants, donations, wills leaving money).
iii) Critics would like to point out that if new non-repayable money could be created, and transmitted without uncontrolled inflation it would mean that earning it in the first place would no longer be necessary. This ofcourse would lead to the collapse of the economy, and social chaos.
TFE though sees itself as a transitional, or evolutionary process in which we should have the mental maturity to realize that earning money is still essential until the time comes when "full"automation exists, and society becomed "jobless" in a traditional economic sense. It is then that new non-repayable money could play a vital role by helping to bring into existence "leisure-like employments" which would be possible either in a profit, or/and non-profit context. Ultimately, in some future time money itself would be abolished altogether. In other word,a hi-tech gifting economy similiar to proposals as the Venus Project developed by Jacque Fresco who notably draws his direct inspiration from Technocracy.
iv) Some critics would say that new non-repayable money is Funny Money. Yet, they fail to realize the fact that it already exists as most of the banks create it out of thin air as a loan which is repayable...
v) TFE should be seen as a kind of ethical economics because it sees money as having a High Human Value other than just a medium of exchange because its social, economic, and political implications are huge, and all-encompassing.
Important Moral Arguments for Non-Taxation.
There are a number of key arguments for the abolition of direct, and indirect taxation. They are;-
i)Tax raising is absurd especially as it is very possible for new non-repayable money to be created, and transmitted safely into the economy using advanced computer programming.
ii)Everyone should be entitled to all their earned money as a human right.
iii)It is highly unethical to finance any misuse of government spending.
iv)People should be rewarded by a policy of Non-Taxation as they are the actual creators of real wealth.
v)Evidence suggests that many rich, and super-rich people are finding loopholes to escape the taxman notably off-shore accounts. This means that people on lower incomes have to "subsidize" the well off so to speak which ofcourse is unfair.
Moreover, it has become very easy to transmit bank accounts to other countries thus making the investigation by tax inspectors difficult in extremis.
vi)Quite a number of wars, and revolutions were caused directly, or indirectly by unfair taxes.
Electronic Business Accounting, and Regular Capital Transmissions.
Inflation legislation would replace taxation regulations. The former would involve by law highly accurate electronic accounting by most businesses. One common form of it are checkouts at supermarkets (ie. EPOS/ Electronic Point of Sales).
Business people would have ideally on a daily basis to report their accounts electronically to the inflation department of the bank which would also be overseen by the public National Inflation Authority. Moreover, putting money from profits emanating from registered products, and/or services into the bank would require declaring their relevant ID Codes, or else it cannot be processed.
In certain cases, the actual electronic transmission of such data can be legally interpreted not only as an accounting communication but also as money simultaneously. The latter it should forever be remembered is at the end of the day electronic data though we hate to think of it as such.
The business accounts in the banks are closely monitored to avoid false accounting, and fraud. This could involve a number of electronic checks, and if any company is found wanting it could be directly fined electronically. This in the main would be largely an automatic process run by advanced bank computer programming.
An Electronic Profile of the entire Economy.
As accounting data, and profits are received together or separately as electronic transmission at the bank from various businesses a highly accurate electronic macroeconomic picture of the entire economy of a country can be built up. Thus, future economists would have far better data to forecast trends unlike the Economic Indicators of present day Neo-Classical Economics. All this is ofcourse revolutionary. Such an electronic profile of the entire economy could include a whole host of other things apart from identified transactions of specific goods, and services...notably the electronic monitoring of fluctuations in wages, and many other forms of income in peoples electronically identified bank accounts. Admitedly, all this raises questions of privacy, and disclosure. Thus,good thought-through legislation would be necessary to deal with such issues.
Advanced Computer Programming
With the influx of accounting, and transaction data of registered goods, and services the banks banks computers would be well-programmed to include the following:-
1. Instantly compare prices of registered goods, and services.
2. Be able to monitor changes in the monetary supply that are seen as inflationary in parts of the economy due to registrated transactions, and accounting data received electronically by the bank.
3. Be able to detect higher risk inflation changes, and be able to target the relevant prices of the registered goods, and services concerned which may be causing "problems". After informing the relevant bank customers an instant temporary electronic control, or controls may be used to alleviate the situation. This is discussed a little later.
Apart from the above the computer programmes should be able to do the following whenever there is need for the creation, and transmission of new non-repayable money.
4. To electronically work out from existing data to see the sort of inflation levels which could take place in relation to specific transmissions of new capital for businesses, and other concerns. A set of low, high, or higher risk assesments on inflation could be given automatically due to the computer programming. In other words, an electronic model could be used to "stress test" the robustness of the economy.
Whether to create, and transmit new non-repayable money to the relevant bank accounts could be decided by computers, or by the human decision-making process, or ofcourse a bit of both.
The Importance of the Free Market Price
TFE is not to be confused with command/control economics as used notably in the old Soviet Union. We are ofcourse discussing a capitalist system in which most of the time the market price is set freely.To what extent this remains depends on the quality of the computer programming to ensure that only enough new non-repayable money is created responsibly. Thus, elasticity of supply, and demand will probably continue, and ensure steady efficiency in the market.
However, the prices of registered goods, and service will start to slowly rise mainly because taxation, and interest on credit (though taxation, and interest would be slowly phased out to zero at the transition phase)would no longer exist. In order to accomodate this the value of peoples money would also rise correspondingly via an instant electronic adjustment to inflation of the entire country.
If any problems do occur there is a number of temporary super-flexible electronic inflation controls which can electronically target monetary, or accounting transmissions ( or alternatively ofcourse accounting data + monetary transmission = one transmission to the bank). This is explained in brief in the following section of the p2p foundation entry on TFE.
Possible Electronic Controls Over Inflation if Necessary.
The following gives us some insight as to how registered products, and/or services could be subjected to instant inflation controls if necessary ofcourse. These measures are like price controls of the past but are far more advanced because
a)they are super-flexible,
b) they do not require a huge bureaucracy
c) they can give instant compensation, and/or instant subsidization
d) they can correct anything instantly if necessary, and thus any money lost as a result can be re-created by electronic means as money itself is essentially electronic data
e) they could if necessary fine people, and companies directly, and electronically from their banks accounts to ensure compliance to some aspect of inflation legislation.
Please note that what follows is still subject to further development, and more detailed treatment. This would require the help of relevant experts.
There are a number of inflation controls as described below:-
i) Selective Inflation Adjustment.
This is when the inflated portion of a specific registered product, or service has been electronically targetted as being "over-inflated". It is subjected to an instantaneous, or late inflation check either at the point of sale, or at the bank. If whatever has been bought happens to be over-inflated to say 10% this amount is instantly created electronically into a subsidy which goes straight into the account of the customer.
ii) The National Inflation Adjustment.
This has already been mentioned but not by name.Here, virtually all bank accounts are indexed-linked electronically to the changing value of money during inflation. Something like this already exists to a limited extent(ie index-linked products, or services).
In TFE new non-repayable money could be created electronically for the bank accounts of customers. This would give rise to what Keynes referred to as the "money illusion" that one has more to spend, and buy. Yet, the bank account has been adjusted to take into account inflation,and thus, ones purchasing power remains largely the same as before.
iii) Automatic Inflation Deduction.
This is when the inflated portion of a registered product, or service is subject to an instant inflation check in which it is reduced to its real value relative to the entire economy of a nation. In other words, the "inflated portion" is destroyed. This can be seen by some as a "tax" but it is not because money in real terms (ie.its real value as opposed to its inflated value) retains its purchasing power as if nothing had happened to it at all.
iv) Electronic Price Capping.
Price capping usually comes in the form of Price Floors,and Price Ceilings. In mainstream Neo-Classical Economics they are not highly regarded as they have potential to distort the pricing system, and interfere with the free hand of the market.Furthermore, they should be used only as a last resort. TFE has a like view but because of the super-flexible nature of the inflation controls it is not really a problem.
Bank intervention rather than government intervention in many cases could be involved if temporary Price Floors, and Price Ceilings are absolutely necessary for any part of the economy. This would come in the form of instant subsidies created electronically out of new non-repayable money by the bank (or government).
Price capping can lead to artifical shortages (ie Price Ceilings) and surpluses (ie.Price Floors), and the balance can be easily redressed with the right planned intervention, and financial incentives. This can involve price subsidies, and where necessary instant compensation for any business concerned (eg. if a control price goes below the level of profitability it can ofcourse be subsidized by new non-repayable capital from the bank so the commercial operation(s) involved does not go out of business). In other words,it should be said again that such temporary price cappings are not really a problem but TFE in the main is keen to maintain a Free Price System..as this is the natural way of the market.
Furthermore, apart from the Registered Economy of registered prices, and services discussed here there is also an Unregistered Economy. The latter only makes up a very small part of the entire economy. It is made up of products, and services which are difficult to price exactly, and Code with electronic IDs necessary in the business accounting process. However, if inflation adversely affects them in any way they too could be subjected to temporary electronic price controls (with flexible price ranges), and become permanently, or temporarily part of the Registered Economy.
The benefits of a Non-Debt Based Economy compared with the Debt Based Economy of taxation, and interest on credit are a real marvel for businesses as the following points reveal because it is...
a)free of taxes
b)free of interest on loans though they would largely be phased out quickly, or slowly.
b) The greater possibility of commercial grants.
c) There are no "boom" and "bust" cycles but rather a continous process of growing prosperity. Thus, businesses benefit enormously in a Transfinancial Economy.
The Vital Importance of Sustainability.
The world does not have infinite resources. As such it is vital to encourage businesses with the right incentives (created out of new non-repayable money)to introduce a variety of ways which reduce, re-cycle, and re-use the products, and services they produce. To some extent, all this is being realized. Moreover, a number of businesses recognize the growing reality that green sustainable products, and services can be profitable. Some, like a number of corporations are involved in "greenwash" in which the products, and services are not really as environmentally friendly as they appear.
In TFE there would have to be a huge push to try, and bring change into businesses into becoming green. This would involve bank intervention, and to a certain degree of government intervention. The former could along with credible consultants be able to create a comprehensive array of incentive schemes backed up by new non-repayable money.Any loss of profits could be compensated if necessary. Indeed, if certain projects involving sustainability in whatever form were commercially unviable these could if there were a serious business plan be fully funded.
The banks (or governments) themselves could also be involved in a degree of demand management in which they could have powers to prevent the overuse of certain limited resources.
From Competative Capitalism to more Advanced Socio-Economic Alternatives.
It should be said that capitalists would make much profit in Transfinancial Economics especially in the first few decades of its introduction. But, later on it would become increasingly difficult to find new business opportunities as they would be very thin on the ground (ie. resource scarcity). Thus, take-over bids may become increasingly common for existing commercial enterprises (but special NGOs, and possibly willing governments could buy up such assets as they would now have the financial clout).
At the same time there would probably be extensive education especially of the younger generation. This would notably come about via certain NGOs (better financed ofcourse in TFE)concerned with democracy,sustainability, localization,altruism, fairer distribution of wealth and non-competative/co-operative forms of "capitalism" and other economic alternatives. If the pressure of this becomes great enough it may lead to turning the present system into something far better, and more advanced in a more moral sense. As capitalism becomes more technically advanced, and automated in terms of production it would then possibly be ready psychologically to phase itself out altogether as money would no longer be necessary. In other words, a process of "rapid"evolution.
Hence, the business elite or the super rich would not be overthrown by revolution (as envisaged by Marx), or indeed, ofcourse via a global financial meltdown but simply discarded as a stage of advanced automation, and green technology would be reached making money itself redundent as a means of exchange. In other words, the "unfair" capitalist system could ironically form the Hi-Tech basis for a more ethical kind of economics based on real wealth.
Interest-Free Monetary Reform.
Radical monetary reformers tend to concentrate on banks, and the banking elite.These commercial enterprises create most of the money of the world out of thin air as a loan, or credit with interest of course via a process known as fractional reserve banking. Cash produced by governments only makes up a near non-existant portion of the present financial system. The aim of the monetary reformers in question is to try to bring about interest-free loans which would be beneficial to society, and the economy. Obviously, this is unlikely to happen due to the power of the banks, and the power so to speak of Neo-Classical Economics.
In TFE though banks (along with other "non-financial" companies)could continue to lend at interest but this would not be paid for by the customer but rather by an independent public body, or the Central Bank as mentioned earlier. In a similiar fashion they would receive more money via their daily use of Electronic Inflation Management. They could also benefit from a whole variety of other business investments as never before making profits from interest on loans largely a thing of the past.
Ofcourse, it should be said that banks could create their own wages for their employees via the production of new non-repayable money. This though would be seen as fraud, and prosecution would result. It could also undermine confidence in TFE.
The Central Bank, or an independent public body could electronically track, and monitor a banks activity to avoid anything like this. They can legally pay banks on their behalf with money...which would ofcourse be created "out of thin air".
Some Major Implications of Transfinancial Economics.
These can be briefly listed:-
1. Transnational Corporations especially in the Developing World could be transformed into truly ethical, and sustainable businesses with powerful financial incentives for change including profit subsidization on a massive scale.
2. Universal healthcare would be possible irrespective of whether private businesses are involved or not.
3. Generous pensions would be possible for an aged population without the need of income created by taxes, and/or by private long-term investments in the stock market. However, the latter could continue to a large, or larger extent if desired.
4. Grassroots NGOs concerned with poverty reduction in the Developed, and Developing World would be better financed as never before to bring about positive change. Moreover, powerful financial incentives could be created for small and large companies (including Corporations)from the Developed World to bring about serious economic growth in the Developing World. Money ofcourse would be supplied responsibly, and would avoid where possible the pockets of corrupt government officials, and their representatives.
5. NGOs concerned with fairer wealth distribution (or redistribution) such as Binary Economics, and Co-operatives and the like would be financed as never before to become a greater influence on society.
6. Small "zero growth" self-sufficient, and high-tech sustainable communities could be initially financed with non-repayable capital if the relevant but financially enhanced NGOs put pressure on banks, and governments.
7. Corporations concerned with oil production, and indeed, the arms trade could be bought up in stages by new non-repayable money via a friendly, or hostile takeover. At present democratic governments plus certain relevant NGOs seem powerless to do much about them but with TFE we have a very powerful solution. This concept is referred to as Ethical Business Conversion, or EBC.
8. A huge, and dangerous problem facing the world is ofcourse global warming. Capping emissions would certainly help but with EBC it would be possible at the sametime to gradually buy up polluting businesses, and replace them with low carbon, or decarbonised ones mass producing green sustainable goods, and services. This could come about by government intervention, and/or banks, under pressure from better financed NGOs.
Of course, there are other implications which we shall not go into here. At the same time, Positive Human Politics could be developed as a global paradigm which brings together as one the best, and most advanced democratic thinking into how a better, and more civilized world could be brought into existence. This subject is not discussed here.
Campaign Activism for Transfinancial Economics
In order to bring about the serious possibility of change from our present debt based economy of taxation, and interest to one which is not debt based a campaign would be necessary. However, a grassroots organization for the masses to challenge banks, and Corporations is unlikely to work though we may be wrong.
To promote this campaign it is suggested here that a professional website would be set up to spread the word of Transfinancial Economics as a serious, and credible proposal if the world is to successfully survive the global problems of the future. It would be sent to people, and organizations that have power, and influence such as government policy makers,academics,financial companies, et cetera. This is probably the way forward.
The TFE website itself would include the following features.
i) A news update about the campaign progress.
ii) Commissioned papers (initially) by willing economists using econometric models to show the efficacy of TFE in technical terms, including detailed studies on Electronic Business Accounting, and the possible super-flexible Electronic Inflation Controls.
iii) An online Journal of Transfinancial Economics.
iv) A powerpoint presentation of TFE for downloading.
v) Any endorsements for TFE by any willing experts.
vi) Possible field trials of the electronic technologies involved in TFE. This could be in part, or fully funded by governments, and/or by Corporations.
Some Similiar Notions to Transfinancial Economics.
It is perhaps suprising to know that the basic idea of a tax, and interest free economy is not new. In America for example just before the Revolution leading to independence from Britain various states were extremely poor, and hit upon the idea of creating their own money. This in certain cases replaced taxation as we would understand it. In some states though they produced too much of it, and caused "serious" inflation whilst others produced enough of it, and thus served the public good without any economic problems.
Ofcourse, LETS or the Local Exchange Trading Schemes, and other similiar projects are strictly speaking free of tax, and interest. Yet, they are very limited when compared with TFE ofcourse.
Abba Lerners Functional Finance seems to indicate in part that taxation is unnecessary except when serious inflation occurs. In other words, it is a way of reducing the money supply to "sensible" levels.
TFE is often misleadingly associated with Social Credit founded by Clifford Douglas. This essentially believed in the idea of the National Dividend which is also very much like the Universal Basic Income, or UBI. It appears that this could be created by what Douglas referred to as debt-free money, or in TFE as new non-repayable money. This would be based directly on certain economic data, and enough of this debt free capital could be produced so as to not lead to serious inflation.
PS A paper on TFE with direct references was actually accepted by a peer review journal. However, due to a dispute with the editor/publisher I withdrew it from publication, and at the time of writing (April 2008) a new version has been sent elsewhere.
Robert Searle email address dharao4@yahoo.co.uk
Intelligent, and constructive dialogue is welcomed from anyone via email.
PLEASE NOTE. Apologies for any errors in the above text if they exist.