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Profit Definition

The First Step: Letting Go

Before people can truly embrace change they must be willing to let go of the past. Moving forward is too difficult if you are always looking behind you. Most people probably don't want to believe that it's impossible to fix Capitalism. It's too unsettling to accept that the very cornerstone of our society is cracked. It is much easier to believe that just a few bad eggs, occasionally get a little too greedy, and spoil it for the rest of us. But the evidence that is presented in the Profit and Debt section of this web site clearly demonstrates that it is the core idea of Capitalism itself (that everyone can and should take a little bit of profit for themselves) that gets us into trouble. The truth is that there is simply no such thing as "a little bit of profit" in Capitalism. Little profits accumulate and compound into giant ones as goods and services move along production and distribution chains.

People who earn profits from their investments believe that profits increase their financial security. Obviously their income is higher if profits are a part of it. What is not obvious, however, is that if the cost to them of all the profits in the economy is greater than the amount of profit they receive, then they are actually more insecure financially than they would be if profits were abolished. If the profits you earn increase your income by only 50% but the profits you pay raise prices by 75%, then clearly you would be better off if profits were eliminated. The vast majority of people earning profits in this world fall into this category. Unless approximately 75% of your income is derived from profits, you would be more financially secure if profits were removed from the price of everything you buy.

If we live in a truly democratic society, and 80% of the people stand together to demand a better economic system from their government, then a better society is certainly possible. It is easy to sit back and complain, but democracy requires more from its citizens. It's time to wake up and let go of Capitalism. There is a better way.

The Dynamics of A Better Way:

With only three significant changes, Capitalism could be civilized and true personal freedom could finally be achieved. Most of what we need to operate a better society is already in place and our daily routines wouldn't really change all that much. Living would just get a whole lot easier.

First, we would need to create a new medium of exchange with a fixed, understandable, universal value. Second, we would need to provide an interest-free system of credit that accurately represents and adjusts to the amount of real wealth in society. Third, we would need to adopt a new non-exploitive method of rewarding talent and productivity.

Creating a New Medium of Exchange:

There are only two sources of wealth on this planet, natural resources and human resources. Natural resources include land, minerals, energy, life forms, and raw materials that we harvest from the earth. Human resources include human labour and knowledge. Everything else of value on this planet was created by bringing these two primary sources together. Buildings, machinery, and all objects of value are simply different combinations and forms of stored human and natural resources.

There are only two types of wealth on this planet, potential and manifest. Potential wealth is the reserve of human and natural resources that we have not yet utilized. Manifest wealth is the tangible inventory of objects that we have already produced. Money, itself, is not wealth. It is merely a claim on wealth. It should not be treated as a commodity (although it currently is).

The purpose of money should be to facilitate exchange, to make it easier for people to trade and co-operate fairly. A medium of exchange must have a fixed, permanent value that is universally understood and accepted. Measures of weight, volume, length, etc. would be useless if they varied from day to day. There are always 2.2 pounds in a kilogram, regardless of the laws of supply and demand. Money must be no different. Its increments of value must also be tied to something constant. There is no other way to make it a reliable store of value.

Since we do not pay mother nature for the natural resources and life forms that we extract or harvest from her, human resources are the only true costs that we incur in the creation of wealth. Human labour is always structured using time, so time is the most logical increment of value to apply to money. Time has a fixed, permanent value that is universally understood and accepted. Everywhere on earth, there are always 24 hours in a day and 365 days in a normal year, regardless of the laws of supply and demand. A currency denominated in days, hours and minutes cannot be distorted or manipulated by human greed without it becoming obvious to others. Trying to measure value using dollars is like trying to use an elastic tape measure to calculate lengths. The harder you pull the tape, the shorter the measurement you get. A consistent, objective reading is not possible because the unit of measurement itself can be stretched and distorted by how hard you pull. A dollar is not tied to anything in our physical world that is fixed or concrete. A dollar is simply a notion in motion, with no consistent value of its own. One day a dollar buys 3 apples, another day it buys only one. Is it really any wonder that we struggle with inflation?

Labour hours are already measured in our economy, so nothing new would be required here. Everything sold would be priced in increments of time ...raw materials, natural resources, energy, transportation & distribution costs, wholesale & retail expenses ...everything. Prices would accurately reflect the total amount of human labour that was necessary to provide the good or service. Nothing more, nothing less. No profit or interest would be added to prices. Price stability could finally be achieved.

Creating a New System of Credit:

All wealth is created by bringing natural resources and human resources together. If the necessary resources are available, and there is a demand for new wealth to be created, a lack of money should never be allowed to stand in the way of achieving the possible.

Each time new wealth is created, new money to represent and distribute that wealth must also be created. Ideally, the total amount of money in existence should match the total amount of existing wealth as closely as possible. Money that is created to represent wealth should remain in circulation until consumption extinguishes the wealth that it represents. Money is simply a claim ticket on wealth, that enables workers who produce wealth to defer their consumption of wealth until a later date.

There is always a time delay between the commencement of a project and its completion. Workers, however, must be paid at regular intervals so that the necessities of life can be maintained. Credit is a flexible form of money that can be created prior to production to represent new wealth that has not yet been fully produced.

An efficient money system, then, would simply supply the credit required to make new wealth possible and would reduce the outstanding credit as wealth was consumed. Private capital investment would no longer be required to initiate new projects. Instead, public credit (or public capital investment) would be provided interest free to enable production, trade and government expenditures. Credit, however, would not be issued solely to fuel consumption. Business and government would access credit to initiate new projects, but only their internal labour costs would be financed by the credit bank. Business-to-business purchases of external goods and services would simply transfer production credits, previously created for the seller, to the buyer's line of credit. Workers would use the wage credits transferred to them to purchase the production. The sales revenues of retailers would reduce their account balances at the credit bank. Once all of the wealth from a production cycle was fully consumed, all of the outstanding credit (that originally made the production possible) would have already extinguished itself from the system. To ensure that the provision of credit would always remain fair and completely transparent, the credit bank should be established as a public institution, like the Bank of Canada. Our existing network of retail banks would then simply plug into it.

If people decided to save a portion of their credits, inventories of existing wealth would grow but the employers who originally accessed the credit would not be penalized or pressured in any way for the return of the credit. Until their inventories are consumed, there is no reason to eliminate the credit that was created to make consumption possible. Consumption itself pays back the credits, and without the burden of interest, there would be no loan defaults. If an employer's inventory levels grew beyond his sales level however, he would not be able to access any new credit until his inventory levels were reduced. Declining inventories would trigger new production. Inventories destroyed by age or accident would be treated as consumption and the original credit would be reduced accordingly. No insurance would be required. All credit would be tied directly to existing wealth. No one would profit or lose from the provision or use of credit.

The structure of the new economy would be very simple:

Credit Flows

New credits would only be issued to employers. Wages, salaries & government income benefits would be generated as the new credits are spent into the marketplace. Business and government would finance all of their internal and external costs. As goods and services are consumed, the money (credits) used to purchase them would return to the credit bank and be deleted. The accounts of the original borrowers would be credited with sales revenues in exactly the same way as in our present system. Business and government purchases would be treated as consumption.

Consumption would reduce the amount of outstanding credit. All sales revenues would return to the credit bank. Money would not recirculate. Credit issued - consumption = current wealth. To purchase major assets (houses, cars, etc.) existing commercial loans that were created to enable production would be transferred to consumers. Consumers would only pay the real rate of depreciation for the assets. For example, if a house was designed to last for 100 years, consumers would only pay the credit bank 1/100th of the home's total value per year. As assets age and wear out their value and price would decrease accordingly. The resale price of older homes and assets would be tied directly to the original credit amount that was still outstanding (plus the costs of improvements). Multi-tenant buildings could be owned by the occupants themselves.

In the new economy, interest and profit would be abolished completely. Without interest and profit the price of everything would be at least 67% to 75% less. (see Profit and Debt - Part 2) There would be no risk of debt exhaustion, inflation or deflation. There would be no stock markets or investment schemes to fail. Producers could focus entirely on developing high quality, durable products using only sustainable natural resources. To stay competitive they would have to.1 International trade would still be feasible using industry-specific exchange rates. Foreigners wishing to purchase Canadian exports would pay current world prices, thereby establishing the corresponding current exchange value of an hour of Canadian productivity in that sector.

Government revenues would not depend on taxation. Instead government wages and expenditures, including the amounts paid out as universal education, retirement and disability benefits, would simply be added to retail prices. Replacing taxes in this manner ensures that wages, salaries and government income benefits always equal total market prices exactly.2

Creating a New Way To Reward Talent and Productivity:

One of the most serious problems with our current economic system is that it encourages and supports ridiculous inequalities in incomes. It dramatically overprices the value of some labour and leaves other workers earning almost nothing. Consider the following math. At $10/hr, for a 40 hour week, a person who works 50 weeks of the year is paid $20,000 annually. At that rate, it would take 50 years, or a lifetime of work, for that worker to earn $1 million dollars. Yet thousands of executives, celebrities and sports heroes earn over $20 million each year. Is their contribution to society in just one year really worth the entire lifetime contributions of twenty people?

Another major flaw in our current economic system is that it harbours and rewards many people who are totally unproductive. Welfare and unemployment programs, compound interest fees, shareholder dividends, real estate & commodity speculation, market rents, leveraged trading & investment schemes, all expropriate vast amounts of wealth from the hard working people whose productive labour actually creates the wealth.

In the new economy, everyone must do productive work to earn an income. Even people with disabilities, if they were able, would be expected to contribute to the best of their abilities. If no suitable work opportunities were available, everyone would have an equal opportunity to access public investment capital, to start a productive venture of their own. All labour hours would be valued equally. People's incomes however would vary substantially based upon the amount of time that they choose to work. Skill, risk and difficulty would be rewarded with paid rest rather than more income. Workers performing skilled, stressful, dangerous or unappealing tasks could bargain for shorter working hours, more paid holidays and earlier paid retirement. For the first time in history, workers would have the upper hand over capital.

Education would be treated as a collective social asset. It should be obvious to anyone that if every person in society had the opportunity to develop and use their natural interests and abilities to the fullest extent possible that society's total productive capacity would be greater than if many are left idle or working below their full potential. Our human and natural resources are the true source of society's collective wealth. If we squander either we collectively forfeit productivity and potential wealth. If education increases wealth, it only makes sense to monetize that wealth as it is being created and pay students a normal income while they are developing their full potential. This, of course, is the exact opposite of the way that Capitalism exploits our desires for self-fulfillment.

Everyone would be entitled to a retirement income that matched their regular working income. Likewise, those who were injured or disabled and couldn't work would be entitled to receive a disability income that matched their regular working income. No one would have to save for an uncertain future. The need for private insurance would disappear. Hospital and healthcare services, including full dental and prescription drugs would be funded by government. Good health is another collective social asset that would make our society stronger and more prosperous than it has ever been before.

At some point in their life, most people begin to really appreciate that their time on this Earth is extremely limited and running out fast. From that moment on, discussing the value of a person's time becomes meaningless to them, for they realize that their time on Earth is actually priceless. Once you realize the true value of your own life is infinite, then a genuine respect for others implies that the same must be true for everyone else on the planet... others' lives must also be of infinite valuable to them. And if the value of an individual's life is infinite, the value of each week or day or hour of that life is also infinite, and thus, the relative value of each and every individual's time can be nothing other than equal. We may all have different talents and abilities, and some may have been blessed with greater gifts than others, but if we are all honestly trying to develop and contribute our very best to society, then don't we all deserve to enjoy the beauty of life and the bounty of the Earth equally?

Some will argue no, that a person who devotes many years of his life to education and becomes more productive by increasing his skill and knowledge deserves a higher reward for his time. But if you are paid to be educated, and the knowledge that you receive ultimately belongs to the society that teaches you, are the superior natural gifts that you have been blessed with not enough of a reward in themselves to satisfy you? Must you take away someone else's right to live as happily as you? No one is given a choice before their birth of selecting their abilities or attributes. We all have to make the best out of what we are given. How is it reasonable then to devalue the worth of another human being on the basis of something that was beyond their control? We all need love and respect. We all have families that we care about. Who honestly has the right, and wisdom, to judge another man's worth?

In Conclusion:

A society that provides everyone with a decent, tax-free income, universal healthcare, universal retirement and paid education is possible. All of the money that is needed to pay for it is already there. It's simply a matter of redistributing incomes more evenly. If you don't believe this, please re-read the information presented in the Profit and Debt section and do the math for yourself.

All that we need to move forward is the absolute certainty that there can be much more to life than just the empty, superficial nonsense that our manipulators keep feeding us. Life could be so much more than just a race to reach the end of our resources. It doesn't have to be this fast and hard and violent. We don't have to step on others to get ahead ourselves. And we certainly shouldn't have to work ourselves to death so that the rich can get even richer. The current economic system is devastating our planet. In just 100 years, the insanity of Capitalism has crippled the Earth's ecosystem and the environmental carnage is accelerating. Are we really going to let our leaders destroy us? How much more will it take before we are ready to stand up together and defend ourselves?

You are now standing at the gates to freedom. Will you simply turn away and say that such a world is not possible? Believe that democracy can work once people are better informed. Believe that people will act in their own best interest. All that you need to do right now is start talking about this to everyone you know. Inform as many people as you can of this web site and help get these ideas circulating. They will only become better as more people get involved. Eventually we may have to vote for the changes in an election, but that's not asking too much of you is it?

The Financial Party of Canada has now emerged to carry these ideas forward. Please visit their web site and get involved in the solution. The alarm clock is ringing... it's time to wake up!

1 A dual component pricing system could be developed for all products and services. One component, priced in hours, would represent the total embedded labour inputs. The other component, priced in some sort of standard resource depletion unit, would represent the amount of non-sustainable resource inputs. Completely sustainable resources like solar or wind energy would be completely free (resource depletion units would equal zero in the price). Scarce resources, however, like oil and gas would be expensive in resource depletion units. Governments could set an annual personal allowance of resource depletion units and consumers could decide for themselves how best to spend them.

2 All credit systems, for a limited time, generate excess purchasing power. If money is borrowed to produce assets which take longer than one pay cycle to complete, then production incomes reach the marketplace before any corresponding assets become available. Capitalist systems simply raise prices (and increase profits) to soak up the extra income. In the new system, since there are no profits, excess demand will likely fuel a resale market for used assets. As there will be no direct involvement from the credit bank, some profiteering may continue to exist. It will however, be restrained by the availability of comparatively low-priced, profit-free alternatives (new items).

Living A Better Way provides additional details about these ideas.