

## Imagine

### Non-Profit Society: Utopia or Necessity

### By Sašo Tomažič

English translation by Manca Gašperšič

Cover page by Studio Hunan1st

Copyright 2017 Sašo Tomažič

Smashwords Edition

Smashwords Edition License Notes

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### Contents

Foreword

Part 1 Profit of Capital

Chapter 1: Introduction

Chapter 2: Profit, earnings, and surplus

Chapter 3: Private property

Chapter 4: Shares

Chapter 5: Money

Chapter 6: Interest

Chapter 7: Financial sector

Chapter 8: Indebtedness

Chapter 9: Austerity

Chapter 10: Unemployment

Chapter 11: Population ageing

Chapter 12: Feedback loop

Chapter 13: Propaganda

Chapter 14: Conclusion

Part 2 Non-Profit Society

Chapter 1: Introduction

Chapter 2: Changes in the collective consciousness

Chapter 3: Monetary reform

Chapter 4: Money as a medium of exchange

Chapter 5: Redefining property

Chapter 6: Stable and ecologically sustainable economy

Chapter 7: Strengthening social security

Chapter 8: Motivation for work

Epilogue
Foreword

You may say I'm a dreamer  
But I'm not the only one

John Lennon

People in the developed Western world certainly lead a far better life today than our ancestors did one hundred, five hundred, or one thousand years ago. The overall standard of living has increased dramatically. The average person can now afford a host of comforts that not even kings previously enjoyed, such as bathrooms with hot water, central heating, air conditioning, and vacations on the other side of the globe, among others.

Regrettably, this statement is only accurate for the developed world or the so-called "golden billion". What about the rest of the world, where poverty and hunger remain rampant, and wars continue to rage? Something must be wrong.

However, not even a high overall standard of living can make the Western world conform to our ideals. Anxiety, stress, and fear of the future are all widespread. Financial and economic crises only contribute to this fear. Such crises cause unemployment rates to rise; hunger and poverty then occur, and the wealthy grow disproportionately richer. Something must be wrong.

All developed Western countries are in debt; most companies and individuals in these nations are in debt as well. These debts can no longer be serviced; however, indebtedness continues to grow. Funds for social security, health care, and pensions are all dwindling. Something must be wrong.

Pollution that continues to worsen contributes to global warming and the melting of polar ice caps. Floods are threatening. Ozone holes continue to open. The weather is becoming increasingly unstable and unpredictable. Ecological disaster is imminent. Something must be wrong.

Bloody wars are being fought in various corners of the world. The threat of terrorism is growing. The number of refugees and economic migrants continues to increase, as well as the number of demonstrations and protests. The number of people who resort to alcohol and other drugs to escape from their problems continues to grow. Organised crime is on the rise. Something must be wrong.

This topic and similar subjects often come up in conversations with my friends and colleagues. We all agree that change is necessary and that the current situation cannot continue. We must be mindful of the future of our children and the future of our planet.

Admittedly, we have often philosophised over fine food and drink. After all, we are in the Western world's middle class, which has a fairly good standard of living. Refusing good food and wine would probably contribute nothing towards improving the world. Something must be done. Something must change. However, what—and how?

Change is in the hands of politicians, but I have neither sought any political role nor ever felt competent to do so. The only thing that I can do is vote for politicians who best represent my values and vision by providing programmes of measures that lead in the right direction, towards a better, more just and stable society, and hope that these politicians will successfully implement their programmes. However, in this respect, I have always ended up disappointed. People vote for politicians who have promised the impossible, aspired to maintain the existing socio-economic system, and/or proposed reforms that have simply led in the wrong direction. How could such politicians have been elected? Was it not obvious that they would not be able to deliver on their promises? Was it not obvious that their proposed reforms made no sense?

During my conversations, it struck me that all of these considerations were not as obvious as I had once thought. Most people do not devote much thought to the aforementioned problems because they trust distinguished economists, professors and Nobel Prize winners who create strategies. Why should they not trust such individuals? A Nobel Prize is not awarded without good reason. Nevertheless, these individuals' theories have often proved to be wrong. For instance, the theory of the self-regulating market economy was disproved long ago but continues to have many supporters. The term "economist" has become something of a catchword for experts who are able today to explain why the events they predicted two days ago did not occur yesterday.

There is a widely held belief that the current socio-economic system (democracy with capitalism) has been the best system to emerge to date and that we can overcome crises via the implementation of small corrections but we cannot avoid them altogether. I do not ascribe to this view. Throughout history, advances in science, technology, and the collective consciousness have transcended the limits of the existing socio-economic system. Change is and has always been inevitable: societies have shifted from slavery to feudalism, from feudalism to capitalism, and from capitalism to socialism. In my opinion, a change from socialism to capitalism represents a step backwards. Granted, socialism had flaws, but those flaws did not necessitate such a step; the socialist system merely required an upgrade that would eliminate these flaws. Communist regimes, which (aside from their names) had nothing to do with the idea of communism, inflicted great damage because they sparked considerable resistance and even hatred of the socio-economic system, which was actually highly progressive, perhaps overly so, and long before its time.

Under capitalism, we cannot avoid crises because their causes are built into the very foundations of the system. The capitalist system was outgrown and outflanked by scientific and technological developments long ago. For real change to occur, it should be outgrown in and by the collective consciousness. Personally, I do not believe in rapid changes. I am more partial to evolution than to revolution. People should first understand why changes are necessary and what types of changes must be implemented to avoid future crises, new wars, global pollution, and ecological disaster. Only then will politicians be elected based on policies that lead in the right direction, namely, towards building a better, more stable and just society.

When I shared my thoughts regarding why crises are an integral part of capitalism and what should be done to prevent such crises with my friends and colleagues, I was mostly met with surprise. They found my views on these issues, which reflect the perspectives of a natural scientist and engineer on finance and economics, to be highly unusual. However, all of them unanimously thought that my views were understandable, reasonable and logical. I often heard them say, "Interesting, I've never thought about it that way."

Comments similar to that statement encouraged me to write this book. Although I am not a politician, I can nevertheless change the world a little. Perhaps I can provide a small contribution to a better understanding of the issues above, at least for a handful of people who might happen to read this book. Many readers, particularly economists, will dismiss this book as naïve because it offers oversimplified and generalised explanations. However, I believe that these matters really are quite simple and are only rendered complicated by individuals who seek to obfuscate the essential aspects of these topics.

The book is divided into two parts. The first part focuses on the current socio-economic system and aims to shed light on the deeper reasons behind crises, wars, all types of inequality, and pollution. I regard profit of capital, which is incorporated into the very foundation of capitalism, as the main reason underlying these problems. Therefore, in this part of the book, I describe how profit of capital, which is the main driver of progress and growth under capitalism, inevitably creates crises, wars, and ecological disasters. Under capitalism, progress is contingent on the extremely negative human trait of greed: the desire to have as much as possible and to have much more than others.

The second part of the book is dedicated to various measures and reforms that could gradually transform the current socio-economic system into a new system that is more progressive and more stable; I call this system the "non-profit society". The terms socialism and communism have been too often misused and abused. The most important aspect of reforms that are designed to transform society is that they should lead in the right direction rather than postpone addressing issues that are bound to grow worse with time.

I am grateful to everyone who has contributed useful comments during the course of my work. I would particularly like to thank my wife Sonja for her constant support and my friends Vanja, Alenka, Zdenka, Miriam, Franci, Tadej, and Miha, as well as everyone else whose remarks and advice have in any way helped to make this book better and easier to read. I am also grateful to my current and former colleagues in the Laboratory of Information Technologies of the Faculty of Electrical Engineering of the University of Ljubljana, with whom I have exchanged many opinions and tested the validity and comprehensibility of my theories.

### Part 1  
Profit of Capital
Chapter 1: Introduction

Built into the foundations of the capitalist system, crises are an inevitable result of its underlying demand to accumulate profit. To prevent crises in the future, profit should be abolished and the world steered towards a non-profit society. However, such a transition can only take place gradually and in conjunction with understanding the deeper reasons behind crises and changes in the system of values.

The period of the end of the twentieth and early twenty-first century was marked by a pace of change and technological progress that were unparalleled in the entire history of humanity. The first technological advances in prehistoric times aimed at improving the quality of human life. Early men devised different tools to help them hunt and work the fields. They learned to make fire to keep warm and prepare food, and invented the wheel to facilitate transportation. Every bit of progress that had been achieved served the purpose of making life better or easier.

What about the technological advances at the turn of the twenty-first century? Is the current progress also intended to make our lives easier? As matters stand today, this seems not to be the case. Most people work just as much, or even more, to earn a livelihood now than they did one hundred years ago. On the other hand, there is not enough work for all and some struggle to make ends meet.

Major technological progress has been achieved in the sphere of communications, which allows us, among others, to follow the daily events in any part of the world. Unfortunately, the news is rarely uplifting. Most media coverage focuses on unemployment, corruption, poverty, hunger, wars, refugees, pollution, global warming, etc. And, of course, there is also weather forecast, which can sometimes also be good.

In light of everything that is happening around us, we have to ask ourselves where the world is heading. One economic crisis is followed by another, a war here is followed by a war there, a significant portion of the population is malnourished, while discontent grows and terrorism proliferates. And even in brief periods—if any—when there happen to be no economic crises and wars, the world is facing the threat of depleting natural resources, pollution, global warming, and ultimately, ecological disaster. In other words, rather than use advanced technologies to tame nature and prevent natural disasters as effectively as possible, humanity mostly exploits them to deplete natural resources, cause global warming, and head towards environmental catastrophe. Such a mindset is best portrayed by Louis XV's phrase: "After me, let the Deluge come".

Throughout the entire history of humanity, periods of peace were followed by periods of war, periods of prosperity were followed by periods of poverty, and periods of economic expansion were followed by periods of depression. Albeit marked by democracy and capitalism—the best possible systems according to most—contemporary world, too, has witnessed alternating periods of abundance and crises. But from time to time, as Yannis Varoufakis writes in his book The Global Minotaur, a big one with a capital C comes along, by which he is primarily referring to the Great Depression of 1929 and the financial and economic crisis of 2008. According to Varoufakis, Crises bring about a major global change, which prompts governments (especially in the US and Europe) to pass various measures and introduce mechanisms to prevent them from occurring in the future. However, despite all the measures adopted after World War II, which put an end to the Great Depression of 1929, a series of crises of varying magnitudes ultimately led up to the Crash of 2008. Governments are once again adopting various measures to overcome the current Crisis and prevent similar Crises in the future.

This raises an array of questions. Is this a natural and hence inevitable course of things? And conversely, if all this could be averted through appropriate measures, the logical question would be: Are governments taking correct steps? Are these steps effective in preventing future crises, wars and ecological disasters?

To be able to take appropriate action, it is first necessary to understand the deeper reasons behind continual crises, depletion of natural resources, global inequality and hunger, and consequently terrorism. Full understanding of these reasons provides the key to taking appropriate measures in addressing the causes rather than consequences, since only such actions will have a long-term effect. The problem, therefore, must be addressed at its roots.

Unfortunately, the vast majority of people are unfamiliar with the root causes of the current situation. It is universally held that the current socio-economic system is a sound one and that its rules are sacred and fixed. What is more, having become ingrained in the collective consciousness of contemporary and especially Western society the opinion above has led to a generally held belief that the existing system, at most, only requires minor corrections. Therefore, since crises cannot be averted, the only thing that we can do is to alleviate their effects. Such is the majority opinion today.

There are certainly individuals who are fully familiar with the root causes of all the problems that plague contemporary world, but their knowledge is far from general consensus. Many members of the global political elite have a clear understanding of the causes as well, but use the current situation to their advantage. Or at least, they believe that they will gain an advantage, led by their short-term thinking epitomised by Louis XV's phrase: "After me, let the Deluge come". These representatives of the elite will do anything in their power to prevent the deep-rooted belief from changing and to maintain the status quo in the future.

In the very distant past, crises (scarcity, hunger, disease, etc.) were caused by natural phenomena. Scarcity was usually a consequence of droughts, floods, and other natural disasters or demographic growth. They fuelled tribal conflicts in which stronger tribes took the spoils of war and new territories.

In contemporary world, crises occur for very different reasons. The Crash of 2008 was not caused by a natural disaster. The number of floods, droughts or other natural disasters that year was no greater than in the years preceding it. There was likewise no sudden surge in population growth to jeopardise food security; quite the opposite, every single day the Western world throws away enormous quantities of food. Moreover, there was no sudden change in employment rates or education levels, and there has to date been no shortage of raw materials and energy resources. In short, there was no natural cause for the crisis.

As I will explain in the continuation of the book, the reason why crises continue to plague contemporary world, in which humanity is capable of producing enough to sustain itself, lies at the very core of the existing economic system, i.e., capitalism.

The basic assumption of capitalism is that capital should generate profit. This economic premise is equivalent to mathematical axioms or religious dogmas. In mathematics, an axiom is a proposition whose truth is so evident that it requires no proof. All mathematical theorems can be derived from axioms with the use of formal logic. Different axioms also define different mathematical systems. Let us take, for example, Euclid's axiom that two parallel lines never intersect. The said axiom distinguishes between what is called Euclidean and non-Euclidean geometry, which differ in many aspects.

With mathematical axioms being selected not to contradict each other, mathematics can be used to describe physical phenomena or material world. Religious dogma is a truth revealed by God, which must not be doubted or explained. Different dogmas form part of different world religions.

The premise that capital should generate profit is more reminiscent of a dogma than an axiom. Economists take it as the sacred truth, which must not be questioned or doubted. According to general consensus, the profit of capital is indispensable, because the system cannot function without it. Without the profit of capital there is no interest in investments; without investments, there is no progress; and without progress, the existing infrastructure starts to crumble, which inevitably leads to recession.

However, the fundamental reason for recurring crises lies precisely in the profit of capital, as well as all the mechanisms that make it possible and all their consequences. As we will see in the continuation of the book, the thesis on the inexhaustible profit of capital does not withstand theoretical analysis. Therefore, mechanisms that ensure it inevitably lead to crises. No matter what measures are taken to maintain the profit of capital, they cannot prevent new crises in the long run. Even if some measures prove effective in averting minor crises, a big one with a capital C is bound to hit sooner than later.

The abolishment of the profit of capital would entail an alteration in the very foundation of the capitalist system, a radical change, a shift towards some other, more advanced socio-economic system. Why do we say socio-economic rather than just economic system? Because contemporary democracy and the capitalist economic system are inextricably entwined. Changes in one affect changes in the other. Capital now has a tremendous influence on decisions passed by democratically elected politicians.

Winston Churchill once said that, although not perfect, democracy is the best form of government. There is, indeed, nothing wrong with the idea of democracy itself, but a great deal can go wrong with many of its by-products. The word democracy comes from the Greek words demos (people) and kratein (to govern), and means "government by the people". Democracy as we know it today is a far cry from that. With capital governing every aspect of social life, it might as well be called capitocracy.

Socio-economic systems have undergone many changes throughout history. Once a given socio-economic system no longer kept abreast of the developments in technology and social awareness, it gave way to a new one. For the most part, transitions were not easy; quite to the contrary, they could be extremely painful and even bloody. No new socio-economic system has ever proved perfect either. These are the main reasons for our fear of thorough changes or radical overthrows and our insistence on maintaining the existing system, even though it drags us from one crisis to another.

Nevertheless, we should bear in mind that, without a radical systemic change, the world is veering towards a Crisis that will unleash ecological disaster or a global war and destruction, from which it will be impossible to recover.

An abrupt change to the current socio-economic system is neither possible nor reasonable, as it can only be brought about by a violent revolution. In the past, revolutions have failed to deliver the change they had promised, despite perhaps the best intentions of their leaders.

A splendid explanation as to why violent revolutions are ineffective was provided by G. I. Gurdjieff in Beelzebub's Tales to His Grandson. In the book, published at a time when the Bolshevik Revolution in Russia had not even started, the author concluded that a revolution could in no way bring the anticipated results. Revolutions are violent and require violent people. Once a revolution succeeds, the power is transferred to the same violent people and hence becomes inherently violent itself. Moreover, the new ruling class needs a great deal of time, sometimes several centuries, to learn the ropes of ruling as well as to find how certain measures affect society and through it the ruling class. Revolutionaries who come to power have no experience of government. They usually start by completely dismantling the old system, without discriminating between its good and bad features. History is replete with such examples.

Changes that lead towards a new and stable socio-economic system that would meet the challenges of today's world should be introduced gradually and with a sound understanding of social and economic processes. That is what this book is about. It has been written in the hope to contribute, if only slightly, to a better comprehension of the complex developments and in this way facilitate changes in the right direction, namely, towards a society that will not face crises, poverty and hunger, except as consequences of natural disasters over which mankind has no control.

The broadest possible understanding of the root causes of crises, inequality, and the depletion of natural resources is a key prerequisite for the introduction of changes that will lead in the right direction. The goal of this book is therefore to provide a comprehensible explanation as to why and how the basic premise of capitalism—i.e., that capital should generate profit—inevitably leads to crises, wars, and ecological disaster.

The ideas here are presented on very simplified, but no less valid or generally applicable, examples. Complex examples often only distort our view. If we look at one tree at a time, we can't see the forest. So, in order to see the forest, we have to take a step back and look at the full picture.

Let me illustrate this with a simple example. Several marble collectors gather in an empty room to exchange their marbles by trade or some other method. The collectors may play various games where the winner takes all the marbles. They may swap marbles of different colours. They may conceive arbitrary, even incredibly complex rules under which the exchange takes place

However, looking from a distance, we don't need to know what kind of and how many games are played, under what rules or what values are ascribed to specific marbles in the exchange to arrive at certain independent conclusions. If we know that no one in the room can produce new marbles, we may safely claim that all players end up having the same or a smaller number of marbles than at the beginning of the exchange; smaller only in case they lost or destroyed any. If in the end, one player keeps a greater number of marbles than at the beginning, we may conclude with certainty that some other player has ended up with fewer. This has nothing to do with the rules under which the marbles have been exchanged. Rather, it is a consequence of the simple fact that marbles cannot be created out of thin air.

In a similar vein, the current economic system is governed by a number of highly complicated rules and employs a multitude of financial instruments and derivative financial instruments which completely obscure the full picture. The purpose of this book is neither to expound nor to understand these mechanisms, as some are not even understood by those who devised them. Instead, it proposes to take a look at the problem from a slightly greater distance to reach a few general conclusions by drawing not on these rules but natural laws.

### Chapter 2: Profit, earnings, and surplus

_One man's profit is another man's loss. Any unearned profit is therefore unjustified. Earnings are the pay we receive in return for the work we do, be it physical or intellectual. Surplus is the part of our earnings which is in excess of what we need and remains above of what we utilise. We can give it away to those who are unable to meet their basic needs._

As already mentioned in the introduction, the profit of capital is the cornerstone of capitalism as well as the root cause of crises, inequality, and the depletion of natural resources. Let's take a look at the basic mechanisms that enable capital to generate profit and how they destabilise the economic system.

But first, let's see what we understand by the word profit and how it differs from earnings and surplus.

Profit

Profit is what remains after we deduct all business expenses, including costs of material, physical and intellectual work, and the depreciation of production means. In this context, a clear distinction should be made between profit and earnings—i.e., remuneration for what we have produced, and hence earned, through our work. In the same vein, a clear distinction should also be made between profit and surplus—i.e., what we have produced in excess of what we need or utilise.

Profit is an unearned income obtained at the expense of someone else.

To gain a better understanding of the assertion above, let's take a look at a simple case where a farmer gives three kilograms of potatoes to a hairdresser in exchange for a haircut. Which of the two makes a profit? If it is the hairdresser, this means that the three kilograms of potatoes are worth more than a haircut. The farmer therefore pays too much and loses out on the exchange. And vice versa: if the haircut is worth more than the three kilograms of potatoes, the farmer makes a profit and the hairdresser suffers a loss.

One man's profit always inevitably entails another man's loss.

Because they are based only on rough estimates, the profit and the loss above are not problematic. Sometimes it is hard to say which of the two has more value, the three kilograms of potatoes or the haircut. What we should also bear in mind is that values are subject to fluctuation. For instance, sometimes the potato yield is high and its production simple; at other times, the yield may be severely decreased by disturbances such as drought, regardless of the work and machinery the farmer has invested in the production process. From this point of view, the profit and the loss indicate that the work is slightly overvalued at one time and undervalued at another, which may be balanced out in the long run. Therefore, it is very hard to say which party to the transaction will make a profit and which will suffer a loss.

The profit of capital represents something very different, for not only does it not constitute the return to one's labour, but it is also accumulated solely at the expense of those who create surpluses. This assertion applies in particular to financial capital, which in contemporary information society represents nothing more than a piece of information, a figure in banking information systems. Even though these figures have no physical basis whatsoever, they are expected to generate profit, which in the end enables their owners to pocket surpluses—and not only surpluses—at the expense of those who have created them.

The profit of capital is inherently based on exploitation.

Earnings

Earnings are what we have created—or contributed to—through our physical or intellectual work. Our earnings are therefore something that we have not achieved at the expense of others. We can make an earning on our own or in collaboration with others, through equal distribution of labour and its fruits. When the distribution above becomes unbalanced, some will make a profit and others a loss. We may earn more or less than we need. If we earn less, we are not able to meet all our needs on our own, but at the expense of others. And conversely, if we earn more than we need as well as more than we use, we create surpluses.

Surplus

Surplus is the amount of assets or resources created in excess of what we need or utilise. The term surplus used here does not refer to the excess amount of a certain product or service, e.g. potatoes exchanged for a haircut, but to overall surpluses that remain unutilised after all the necessary exchanges have been made and all the needs have been satisfied. Surplus is the part of earnings that exceeds what we need or utilise.

Due to the enormous progress in technology used in the production of goods, we are now able to produce significant surpluses. However, the question is what we can do with them. There is no sense in throwing away what we cannot consume, even though this is precisely what we are doing every single day by discarding enormous quantities of food, while a considerable part of the world population suffers hunger.

The only reasonable thing to do with surpluses is to give them away to those who, for a number of reasons, cannot provide for themselves. This group most certainly includes children, the elderly, the sick, etc.

Once the needs of those who are unable to provide for themselves have been satisfied, the creation of surpluses will become meaningless. Furthermore, by renouncing surpluses, we will also be able to preserve the integrity of nature and natural resources.

In Bhagavad Gita, Krishna explains to his disciple Arjuna that stealing doesn't only mean taking something which is not yours, but also taking something which you don't need. Even though we create surpluses and earn them as the fruit of our labour, in doing so, we often deplete natural resources and thus indirectly steal from future generations.

### Chapter 3: Private property

_Private property was known to humanity well before the age of capitalism. In feudalism, lords earned their income leasing out parts of their holdings to peasants. Profit arising from private property, however, only became critical with the advent of capitalism and private ownership of factories. Ownership of the means of production enabled capitalists to forge profits at the expense of wage labour._

Private property was the first profit-facilitating mechanism. It was already in feudalism that lords leased out parts of their holdings or fiefs to peasants in return for a certain fee, which usually amounted to one tenth of the crops.

The feudal lord's profit arose from the surpluses generated by peasants and was partly used for the maintenance of the lord's army. The troops provided both him and his serfs with the much-needed protection from enemies and therefore served the interests of both.

In feudalism, profit was spent on a rolling basis; however, rather than being invested in ever new parcels of land and ever new peasants to increase the wealth, the entire profit was utilised to accommodate the daily needs of feudal lords, armies, and the nobility. That explains not only why there was no continuous accumulation of private capital and profit, but also why feudalism was not punctuated by such crises as the current economic system. Most peasants readily paid their tithes. Peasant revolts only flared up once the imposed levies became exorbitant. Unlike the current socio-economic system, crises that plagued feudal society were primarily caused by natural disasters, such as drought, floods, epidemics, etc. Other factors that contributed to food shortages and many wars of conquest were population growth and ineffective production.

With the advent of the industrial revolution, the notion of private property expanded to include ownership of productive assets, i.e., "means of production". A factory owner hired his workforce and paid it weekly or monthly wages. The entire surplus created by labour was expropriated and transformed into the company owner's profit. During the early stages of capitalism, factory ownership was clearly defined and the identity of the business owner well known. The owner took care of his business. Acting as a manager, he made certain that all operations ran smoothly, ranging from investment and purchase to the manufacturing process and sales. In this way, the owner was also an employee in his own factory. His total income was therefore not solely profit, since in part it also represented his earnings.

The type of profit described above does not raise serious concern, as long as the demand for profit maximisation and constant production expansion does not become excessive. Admittedly, the capitalist's profit automatically entails workers' loss, which equals exploitation. Nevertheless, as long as surpluses generated by labour suffice to cover the owner's profit and as long as wages are high enough to sustain workers' needs, the situation remains more or less contained. The problem arises once the demand for profit maximisation leads to wage cuts and layoffs on the one hand and the production of unsellable surpluses on the other. In the following chapters, we shall see how such developments lead to crises.
Chapter 4: Shares

Shares are securities that represent an ownership interest in a (joint stock) company and entitlement to the company's profits in the form of dividends and increased stock valuation. Constant increase in stock valuation is contingent on constant economic growth—a process that is theoretically impossible.

Shares and other securities are a form of private ownership that is characteristic of developed capitalism. By buying shares, people invest their money in one or several companies they consider promising and expect to derive profit from them. They may also invest in companies indirectly through mutual funds. Fund managers then invest into promising companies or other securities and various financial instruments to maximise investors' profits.

Apart from private individuals, shares may also be bought by companies. The latter may already be owned by other companies which, in turn, may be owned by yet other companies, and so forth. Circular ownership is another possibility where, for instance, company A owns company B, company B owns company C, and company C owns company A. In this way, a given company may become its own owner or someone (a private individual) may become the hidden owner of all three companies by holding a single share in one of them.

Ownership in developed capitalism is no longer strictly defined. It is very difficult or nearly impossible to know who the actual owners of a corporation are, just as owners of shares or units of ownership in mutual funds do not know what it is that they actually own.

Moreover, ownership and management have become two separate functions. Rather than by their owners, companies are now run by managers, whose primary task is to maximise the owners' profit, either in the form of dividends or increased stock valuation.

In the case of dividends, profit is derived from the surplus created by the company's employees, who most often do not get to draw the line between their needs and a surplus in their earnings. This decision is made by managers who aim to push this line as low as possible, often at the lowest level for which the employees are still willing to work. This is how managers reduce labour costs and increase profits. Where the line is drawn depends on the situation that prevails in the economy and labour market. During an economic crisis, this line may plummet, forcing employees to live at subsistence level.

An increase in dividend yield requires an increase in production efficiency, which translates into every individual producing more without raising his or her minimum needs. In other words, the same amount of work is performed by a lesser number of employees, which again reduces labour costs and increases shareholders' profits. However, this trend also results in a declining demand for work and a rise in unemployment.

Since in addition to dividend yield shareholders also expect to profit from increasing stock valuation, companies must continuously grow and expand their business—a process that also requires a constant growth of the economic system as a whole. Every drop in annual economic growth below 2% rings the alarm bells. What is also important to understand is that economic growth is contingent on the growth in consumption. In other words, consumption is the engine that drives economic growth. The capitalist system must therefore artificially induce ever new needs and seek ever new markets to sell surpluses in consumer goods that have been created thanks to economic growth.

However, another important consideration to bear in mind is that a constant 2% real economic growth per year is theoretically impossible. At this rate, the economy would grow exponentially and very soon reach the point where the world would run out of energy and natural resources as well as markets in which producers would be able to sell their goods.

In exponential growth, the economic growth factor, indicating the number of times by which the economic output has grown over a given period, can be calculated with the use of the following formula:

Fg(n,p) = O(n,p)/Oo = (1+p/100)n,

where _Fg_ ( _n,p_ ) denotes the growth factor by _n_ years, _O_ o the initial economic output, _O_ ( _n,p_ ) the economic output after _n_ years and _p_ annual economic growth, expressed as a percentage. If we took into consideration a constant economic growth of 2% per year, the economic output would grow according to the following formula:

Fg(n,2) = 1.02n.

Although such growth seems fairly moderate in the short-term, it becomes unsustainable over the long run. This is evident from the table below, which shows the economic growth factor at a constant economic growth of 2% per year over various periods of time.

0 years: 1

100 years: 7

200 years: 52

500 years: 19,956

1000 years: 398,264,652

2000 years: 158,614,732,760,371,275

Let's do a simple mental experiment and assume that we might be able to establish a sound and stable socio-economic system that would not be plagued by crises and wars, but one that would still be founded on the profit of capital and a constant annual economic growth at a 2% rate. According to the formula describing the exponential growth, the economic output would be seven times greater than that of today in 100 years, fifty-two times in 200 years and as much as 398 million times greater in 1000 years, accompanied by a corresponding growth in consumption and exploitation of natural resources. If it is possible to imagine that such growth could be sustained over the next 100 years at seven times greater energy consumption without causing the same increase in pollution, which has already reached critical levels, this surely would not be possible over the next 200, let alone 1000 years. It's hard to imagine that a family that now makes do with one car will need seven cars in 100 years and 398 million cars in 1000 years. A corresponding rise would, of course, also be expected in terms of consuming all other commodities.

It is perfectly clear that a constant economic growth of 2% per year will not be possible in the future, just as it has never been possible in the past. With an annual growth rate of 2% since the beginning of the Common Era, the current economic output would be 217 quadrillion times greater than that during the Roman Empire, which has evidently not been the case.

The only constant growth to have been seen since the beginning of the Common Era was that of the population, which has increased from the estimated 300 million of the world's population at that time to the present 7 billion. This represents a mere 0.16% annual growth, which is significantly lower than the required economic growth at a 2% rate per year. Despite the very low annual growth, however, the number of population is rapidly nearing the critical point set at 10 billion or 20 billion according to more optimistic estimates. Interestingly, however, most politicians today give serious consideration to the problem with the population growth, which amounts to no more than 0.16% per year, and pass a number of measures to curb it, while still expecting the annual 2% rate of economic growth.

To attain the rate of economic growth necessitated by the profit of capital, the world needs sporadic periods in which economy sharply contracts in order to grow again. These periods are marked by economic crises and wars. A good example is the Great Depression in the United States, which started in 1929 and only ended with World War II, which first created a major boom in the arms industry and then instilled growth in other economic sectors as well. The truly deplorable fact is that it took a war with millions of casualties to end the crisis and revive the economy. In a similar vein, the economic recovery can follow in the aftermath of natural disasters, provided that the material damage is significant enough. The Japanese economy, for instance, has rebounded strongly after the earthquake and tsunami of 2011, which claimed tens of thousands of lives:

To attain the rate of economic growth necessitated by the profit of capital, the world needs sporadic wars or natural disasters of major proportions.

After World War II, the United States tried to make sure that no crisis of such magnitude would ever repeat or, rather, that the fateful events of 1929 would ever happen again. Since the arms industry, which had revived its economy, was no longer essential, the United States had to find new outlets for its greatly expanded productive capacity and decided to build a new world order with itself at the centre. The Marshall Plan was devised to strengthen the German and Japanese economies, as well as enhance the economic growth in Western Europe and part of Asia. It enabled the increase of consumer purchasing power, while the US secured itself a market in industrial products. The Cold War against the Soviet Union, which lasted from the end of World War II in 1945 to the disintegration of the Soviet Union in 1990, served as a justification for renewed armament and consequently for maintaining the arms industry. A great number of other measures that were adopted to prevent the year of 1929 from happening again included the establishment of the International Monetary Fund (IMF) and the European Coal and Steel Community (ECSC), and the adoption of the General Agreement on Tariffs and Trade (GATT). Every effort was aimed at ensuring a sufficient level of consumption and thus preventing a new recession.

However, none of those above measures addressed the fundamental postulate of capitalism, namely, the profit of capital, which still necessitated constant economic growth. Yet, it was naïve to expect an unlimited number of new markets, just as it was naïve to expect that consumption would grow beyond all bounds. Seventy-nine years after the Great Depression of 1929, the same naivety prepared the ground for a new crisis with a capital C to strike in 2008. The Crisis did not necessarily have to happen at that precise point in time, but it was unavoidable, because the need for constant economic growth inevitably leads to crises, and sooner or later the big one with a capital C.

Apart from the need for continuous economic growth, two other major underlying causes of recurring crises are the existing monetary system and the system of money lending. Both are described in some more details in the following two chapters.
Chapter 5: Money

Money is a medium of exchange with no value of its own. In capitalism, money has been assigned the role of profit-generating capital. Today, 95% of the total money supply comes from commercial bank loans. Commercial banks create this money out of nothing. Even though these are merely figures in bank information systems, the entire global society depends on them, because they act as the DNA of society. When the money supply runs out, everything comes to a halt, and a crisis erupts.

Generally speaking, money is a means of exchange; that is, a medium that facilitates the exchange of different goods by eliminating the problem of direct exchange, as described in the case of trading potatoes for a haircut. The drawback of direct exchange is that needs are not always mutual and coincidental. Perhaps the hairdresser has no need for potatoes, because he doesn't eat them or because he has a sufficient supply of them. Therefore, the farmer cannot directly trade his potatoes for a haircut and, instead, sells them to someone else. With the money he receives from selling his potatoes, he pays for the haircut, and the hairdresser can spend this money on something else that he wants or needs.

As we can see, money is a very useful medium of exchange. However, the problem occurs once money assumes the role of capital and no longer serves exclusively as a means of exchange; in other words, once money turns into capital that must generate profit.

In former times, when money had intrinsic value (i.e., gold money) and constituted a commodity in its own right, the problem it posed as capital was less pronounced than today when it is practically worthless. Now, money is nothing more than a piece of paper or a set of figures in bank information systems. And yet, even though it is created out of thin air, the current economic system expects it to bring profit.

As a rule, money is issued by central banks, whose responsibility is to make sure that there is always the right amount of it in circulation—i.e., an amount that ensures the smooth exchange process. As for the modern financial system, however, that is not entirely the case. The bulk of money in circulation (about 95%) is created by commercial banks as loans. And since this money, too, serves as profit-generating capital, problems that arise from money-as-capital grow even worse.

One particular issue concerning money-as-capital is that it is no longer viewed strictly as a medium of exchange. We have begun to ascribe it its own value, even though it has none. If anywhere, the recognition that money has no intrinsic value will surely hit home on a deserted island, where a bag full of banknotes will become worthless. These banknotes might prove valuable in lighting a fire—or not, since paper money is known to burn rather poorly. Money featured as a mere figure in bank information systems, however, is worth even less.

The worth of money is therefore only an indirect one, by representing the value that can be purchased with a certain amount of money or, rather, the value we believe we can receive for a certain amount of money. The value above rests on a general agreement and trust in the existing financial system. In the past, money often lost its purchasing power very quickly, when central banks were compelled, for one reason or another, to excessively increase its supply, causing hyperinflation, or because people stopped recognising a certain form of currency. In an attempt to avoid paying the reparations for the damage it had caused in World War I, Germany printed enormous quantities of mark banknotes during the 1930s, sinking the value of its currency at an unprecedented rate. For various reasons, hyperinflation was also experienced by many other countries and currencies.

Apart from its purchasing power, money is also attributed another, equally important value. Those who have money also have power; power to influence others as well as pass decisions about and on behalf of others. In addition, money represents a status symbol. Rich people are viewed with a mixture of respect and envy.

Money gives people a sense of security; security for their future and the future of their children. However, this sense of security is only an illusion, as has been shown time and again, when money lost its value and people became impoverished overnight, with a heap of banknotes and coins stashed away in socks.

A safe future does not depend on money, but rather on the future socio-economic system and people who will live in that time.

If there is no one to grow food, no savings will matter.

Because money serves as profit-generating capital, because we ascribe value to it, because it accords power and represents a status symbol, as well as because it gives us a sense of security, we have a strong urge to save and accumulate it. However, our drive to accumulate has now been carried to great extremes. Money is being poured to tax havens, and its supply is gradually running thin. With an insufficient amount in circulation, money can no longer perform its primary function as a means of exchange.

Albeit a mere piece of information or a mere figure in bank information systems, money sways a decisive influence on the workings of the global economy. Practically every single thing depends on money, which has seeped into every pore of contemporary society. We could say that money, in a way, acts as the DNA of society. The information inscribed in the DNA of an individual determines all his or her inherent traits and abilities, be it physical, intellectual or emotional. In the same vein, the information stored in bank information systems determines the possibilities that are given to individuals as well as companies and, more broadly, countries. These figures determine who among us will live in prosperity and who will live in destitution or who among us will eat and who will starve.

Incredible as it may sound, only a change to the figures in information systems of banks and/or stock exchanges will have a decisive impact on individuals and society as a whole. This subject has already inspired many films showing the ways in which malicious yet competent hackers cause the financial collapse of some company, a stock market crash or even a global financial meltdown. All that it takes is to change individual figures in particular bank accounts.

Almost none of these films, however, feature a well-meaning hacker breaking into a bank information system to bring an instant solution to the debt and financial crisis. The only thing that the hacker needs to do is to change figures in bank accounts, and all illegitimate debts will be forgotten, up-and-coming companies will have sufficient funds to carry on with their operations, laid off workers will have their jobs back, and people will have enough money to afford a decent livelihood. But only if this hacker were very wise and changed the figures with great caution. Irresponsible changes in the DNA are extremely dangerous!

Apart from functioning as the DNA of society, money also serves as a catalyst. In chemistry, a catalyst is a substance that causes or speeds up a chemical reaction to happen without itself being affected. Similarly, money plays no part in the production of goods, and yet nothing can be done without it, even though we have everything else at our disposal (workforce, material means, and adequate environment). However, when we have enough money, everything becomes possible. People can build state-of-the-art cities, flower gardens or golf courses in the middle of a desert, turn sea water into drinking water, fly to the Moon, or send a probe to Mars.

That's how it goes, even though money is just a set of figures in bank information systems.

Nevertheless, the main problem concerning money is that it is lent at interest, which sooner or later inevitably leads to debt crises, as will be demonstrated in the next chapter.

Chapter 6: Interest

Because all newly created money is lent at interest, the latter can never be repaid, not even in theory. Interest debt grows exponentially. Therefore, interest on loans inevitably leads to debt and financial crises.

Interest on loans is one of the mechanisms that enable money-as-capital to generate profit. It is a result of the core premise of capitalism—i.e., that capital should make profit—as well as the fact that money has lost its basic role as a means of exchange and turned into capital.

Interest is one of the main causes of debt and financial crises. Such crises are underlined by the general shortage of money in circulation, which hinders the exchange of goods and hence the proper functioning of the economy. Debt and financial crises therefore affect the real economy and lead to a general economic crisis, underscored by a downturn in production and the shortage of goods.

Since crises are, among others, a consequence of interest and interest is a result of the core premise of capitalism—i.e., that capital should generate profit—we may claim that debt and financial crises, too, are built into the very foundation of capitalism.

If the assertion above is true, this means that debt and financial crises cannot be avoided in capitalism. In fact, as long as capitalism and its very existence continue to hinge on the profit of capital, such crises are bound to become increasingly severe and ever more devastating.

Let's take a look at why and how interest leads to debt and financial crises. Let's suppose, for the sake of convenience, that there is only one central bank, as our further deliberation may easily be applied to several central banks as well as several different currencies.

Let's first assume that the central bank is the only money-creating institution. The money it creates it lends to commercial banks, charging a certain percentage of interest. Commercial banks, to put it simply, then on-lend this money to their customers and charge interest as well, at a somewhat higher interest rate than they were charged by the central bank.

Now, let's consider that the central bank issues €1 billion and lends it to commercial banks at a 2% interest rate, and commercial banks then on-lend it to their customers at a 5% interest rate.

At a 5% interest rate, the customers' debt to commercial banks increases by twofold in a little more than fourteen years. If all clients wanted to repay their debt after fourteen years, they would have to return €2 billion. The problem is that no such sum exists because the central bank as the sole issuer of money has only put €1 billion into circulation. The accrued interest on debt can therefore never be repaid.

The problem mentioned above is partly solved by writing off a certain amount of debt to less successful companies that go bankrupt, while others can repay their debt, including interest. However, not even these companies can pay more than €1 billion, because the central bank only issued this amount of money and its supply has simply run out.

Although companies repay their debt of €1 billion (corresponding to the total amount of their debt without interest) to commercial banks, these cannot repay their debt, which after fourteen years increases to €1.3 billion at a 2% interest rate. Therefore, some less successful banks should go bankrupt as well.

A growing number of companies and banks wind up failing for this reason, while capital continues to be accumulated in one place.

Central banks aim to solve this predicament by issuing new money and new loans, which then leads to more interest and more overall debt. While inflation causes such debt to decrease, it does not prevent further growth of indebtedness and further concentration of capital.

As the simple example above clearly illustrates, it is even theoretically impossible to repay interest, while in reality, things become even more complex. Apart from the money they have obtained from the central banks, commercial banks are also permitted to lend their customers the money from other clients' deposit accounts, notwithstanding that this money has, in fact, been borrowed from the same or some other commercial bank. In this way, commercial banks lend a considerably greater amount of money than they have obtained from the central bank. Although this sum is limited due to reserve requirements imposed on commercial banks, it nevertheless corresponds to a tenfold amount of money received from the central bank at a reserve requirement of 10%. Moreover, all this money bears interest as well!

Let's return to the example above. When the central bank issues €1 billion, commercial banks lend their customers €10 billion and after 14 years demand a repayment of €20 billion. Since the central bank has only issued €1 billion, there is €19 billion of unpayable debt out there. While this increase has no bearing on the growing indebtedness of commercial banks, it has an enormous impact on the indebtedness of their customers, indicating that an unacceptably greater number of companies must go under for the cancellation of debts to take effect. Sooner or later such situations lead to crises in which unpayable debts are ultimately written off, but at a potentially excruciating cost, which, in the worst case scenario, may be measured in human lives, lost to hunger, epidemics, and wars.

There is yet another fact pointing to the long-term unsustainability and crisis-proneness of the system of interest-bearing loans. Namely, interest is added to the principal sum of the loan at regular intervals. Since the principal amount is increasing, so is the interest at the same interest rate. This is the so-called compound interest. As a result of compounding, the debt increases according to the following formula:

D(n,p) = L (1+p/100)n

where _D_ ( _n,p_ ) is the debt after _n_ years, _L_ is the amount of the loan, and _p_ is the annual interest rate, expressed as a percentage. This is, as the economic growth at a constant rate, exponential growth. The debt growth starts rather slowly and then increases at an ever faster pace. At a 5% interest rate, the growth is significantly faster than at the 2% growth, which we considered in relation to the economic growth.

If we, for instance, borrowed one euro at a 5% annual interest rate, our debt would grow according to the following formula:

D = €1.05n

The amount of the debt after a given number of years is shown in the table below.

0 years: 1

100 years: €132

200 years: €17,293

500 years: €39,323,261,827

1000 years: €1,546,318,920,731,952,414,720

2000 years: €2,391,102,204,613,630,227,835,447,334,778,809,213,779,968

Given that all the money has been borrowed from central and commercial banks, which have created it, all the money in circulation should be subject to the same interest policy. However, as we can see, this makes absolutely no sense in the long run. If one had borrowed a sum equivalent to one euro in the ancient Rome 2000 years ago at a 5% interest rate, his or her debt would have increased to €2,391,102,204,613,630,227,835,447,334,778,809,213,779,968! Even if their descendants were now allowed to print unlimited amounts of banknotes for €1 million, they could still not repay the debt, because the mass of paper required to print such a quantity of banknotes would exceed the mass of a billion suns.

In light of the above, it is apparent that the debt incurred from interest is unpayable and should be written off every once in a while. There are two ways about it. If we had agreed to write off debts incurred from interest the easy way, or on a voluntary basis, we would have most likely denounced interest from the start. However, given our reluctance to do so under the current system and because it is not in accordance with the basic premise of capitalism—i.e., that capital should generate profit—the status quo will inevitably lead to crises during which debts will eventually be written off the hard way.
Chapter 7: Financial sector

The financial sector is a special type of industry that generates profit without producing any goods whatsoever. Instead, it invents ever new mechanisms to achieve the highest possible profit at the expense of investors. Although these mechanisms are not the root causes of crises that confront us, they certainly aggravate them.

The financial sector, including banks, brokerage companies, investment funds, hedge funds, mutual funds, insurance companies and other financial institutions, has evolved into a particular economic sector that appropriates enormous (unjust) profits without manufacturing anything or, rather, without producing any new goods. The word unjust is placed in brackets, because, as we have already noted, every profit in itself is unjust by being always generated at the expense of someone else's loss. The financial sector's profits are made all the more unjust by its failure to create new value.

Apart from profits in the form of dividends, increased stock valuation, and interest-bearing loans, the financial sector has also devised a wide range of mechanisms, the so-called financial derivative instruments, to drive its profits even further. Financial derivatives are securities exposed to various levels of risk and generating different amounts of profit. A greater risk implies higher expected profitability, but also a higher probability of loss.

The financial sector functions like a casino where players invest their money in various gambling games that entail different degrees of risk and different potential profits. Investment in securities is similar to the game of Texas Hold'em poker, where players must check their odds before placing their bets. They can assess the risk based on the combination of their hold cards, the community cards, which are dealt face up, and the reactions of other players. Players who best assess the risk are winning and those who don't end up losing.

What is of particular importance from our vantage point is that, regardless of which players are winning and losing, the casino always generates profit by collecting a percentage fee—the so-called rake—directly from the pot. The casino thus makes a profit by taking from the players who are losing and by reducing the earnings of those who are winning. This is why only a small percentage of the best players make money, while everyone else walks away empty-handed.

The financial sector extracts profit in the same vein, regardless of whether the value of securities increases or declines and no matter whether investors gain or lose their money. The only difference is that its profit is not achieved solely at the expense of investors (gamblers at the casino) who take their risks knowingly, but above all at the cost of those who produce new goods and have not voluntarily found themselves in this "financial casino". It is only that they are undervalued and underpaid, with the better portion of their earnings being converted into the financial sector's profits. However, since the producers of goods are not only exploited by the financial sector but also squeezed dry by a multitude of investors, the percentage of those who lose in the "financial casino" is much lower than the proportion of those who lose in the game of Texas Hold'em. Everything seems fine until the crisis comes along. Then investors begin to lose, along with the financial sector as a whole, causing many financial institutions to go bankrupt.

Given the generally held belief that the financial sector is indispensable for the proper functioning of the economy, governments intervene with financial injections to prevent it from going bankrupt. Thus, during crisis, governments step in to rescue those that have created it in the first place. The king is dead, long live the king!

That is how the financial sector passed through and even emerged stronger from the Crisis of 2008, and continued to reap enormous profits while placing the burden of the crisis squarely on the shoulders of the economically productive part of the population. Many were driven out of work and out of their homes, and many more were plunged into poverty.

What kinds of financial derivatives were devised by the financial sector, particularly Wall Street, and how everything ultimately culminated in the Crash of 2008 is not of crucial importance to our understanding of why crises occur in capitalism. We have already established that the crisis was bound to hit without them, even if it were merely a consequence of profits in the form of shares and interest-bearing loans. The gaping financial hole was created long before that and mainly as a result of interest. The crisis was, indeed, somewhat delayed by a range of financial derivatives that temporarily assumed the role of new money and briefly plugged the financial hole. However, when the system eventually crashed, it unleashed a more devastating toll.

For the sake of illustration, let's take a look at two financial derivatives (securities) that most identify as the main culprits of the Crash of 2008. These are the collateralised debt obligation (CDO) and the credit default swap (CDS). Having said that, we should still bear in mind that the mistaken risk assessment and irresponsible issuing of the aforementioned securities were merely the last straw that triggered the Crisis of 2008, whereas the underlying causes lie in the very foundation of capitalism, namely, the dogma that capital should generate profit. Readers not interested in details can skip the short description of the two financial derivatives provided in the remainder of this chapter, as it has no significant bearing on their understanding of the real reasons for the occurrence of crises.

In somewhat simplified terms, CDO is a security (promissory note, bill of exchange, or promise to pay) issued by a bank to back a loan it has obtained from another bank—i.e., the bank that has bought the CDO. As a result of the CDO, the issuing bank obliges itself to repay the debt (the value of the CDO) in compliance with the predetermined schedule. The bank secures the repayment of the debt through issuing loans to its clients; hence the name "collateralised debt obligation". To diversify the risk, the bank incorporates various loans into each CDO. Before the Crash of 2008, these were mostly mortgage loans; that is, loans backed by the borrowers' real estate assets.

The bank can buy a CDO with the money deposited in its savings accounts. However, since this type of purchase is not included in the balance sheet, the bank can continue lending the same money to its clients and collecting the interest. Due to the diversification of risk, rating agencies used their financial engineering to arrive at an estimate that the risk of investing in CDOs was very low, even though they incorporated high-risk loans. CDOs were thus given the highest AAA rating, which was equivalent to the score of the US government bonds. Moreover, in this way, CDOs came to act as new private money, which was considered just as good as the money issued by central banks.

To add another interesting twist, banks that bought CDOs secured them with CDSs issued by insurance companies. A CDS is security by which an insurance company obliges itself to pay a certain predetermined sum of money if some loans included in the CDO default. Given that a CDS is a security as well, a bank that owned it was also allowed to resell it. In fact, a bank that bought such a CDS did so in anticipation that debtors included in the CDS-backed CDO would default, in which case the bank would collect the insurance. This is tantamount to insuring a car you do not own, in the hope that the owner will crash, so that you will pocket the insurance money.

Since in the end, just before 2008, most CDOs merely incorporated mortgage loans and their risk was, in fact, not diversified, they should have been downgraded from top-rated securities to high-risk or so-called junk securities. The confirmation that such was, indeed, their status came in 2008, with the crash of the US real estate market. Suddenly, the value of real estate could no longer cover the outstanding mortgage debts from loans included in CDOs. Failing to pay out enormous premiums, insurance companies started to collapse. Banks, doubly burdened by unpaid insurance premiums and non-performing loans, then began to collapse as well. The Crisis had begun.

Let's conclude this chapter by reiterating that the Crisis of 2008 would have occurred even without the CDOs and perhaps even somewhat earlier. However, it would have had a slightly less devastating impact.

Chapter 8: Indebtedness

Global debt continues to grow. All countries have an enormous external and public debt. Most companies and individuals are indebted as well. Everyone owes to financial institutions which make huge profits without creating any new goods.

Given that interest-bearing loans account for the total amount of money in circulation, the overall indebtedness of countries, companies, and individuals exhibits an increasing trend.

According to the CIA's statistics, the total debt of all countries in the world amounted to $79,120 billion at the end of 2014. Out of 206 countries, for which the statistics are available, only three—Brunei, Macau and Liechtenstein—did not have external debt. The US has the largest debt in the world ($17,260 billion), followed by Great Britain ($13,050 billion) and Germany ($5,597 billion). In 2014, the total external debt reached 71.6% of the total GDP of all countries. However, combined with internal debt, which in many countries significantly exceeds the GDP (amounting to 226% of GDP in Japan), the total debt is much higher.

Another form of debt that is highly indicative of the financial situation in a given country is public debt, which arises from loans taken on by governments to cover budgetary deficits. Internal debt exhibits an increasing trend as well. According to the CIA's statistics, it amounted to 57.9% of GDP at the end of 2014. Japan leads with 227.9% of GDP, followed by Zimbabwe with 205.3% of GDP, Greece with 171.3% of GDP, Lebanon with 138.8% of GDP, and Italy with 135.8% of GDP. Clearly, Greece is not the only country struggling with the debilitating public debt. Public debt exceeds 50% of GDP in as many as 81 countries. In light of its continued growth everywhere, we may safely assume that many more countries will soon be confronted with similar problems as Greece is facing today.

As we can see, all countries are indebted, as are their governments and the majority of their citizens. When someone incurs a debt, we generally assume that he or she spends more than he or she produces. Such a view appears logical and reasonable. If one spends more than he or she produces, then obviously someone else has to produce more than he or she spends. The same consideration applies on a state level. If a country is indebted, its citizens spend more than they produce and the difference is apparently covered in another country. Yet, the very same logic fails once we consider the world as a whole; given that all countries are indebted, each and every of them should spend more than it produces. So, it seems worth asking how precisely this situation came about.

The impossibility of spending something that has not been produced on this planet makes it evident that debt cannot be a consequence of excessive spending. And yet all countries are indebted. However, for every debtor, there must be a creditor. Who are these creditors? To whom are we all to the last one indebted?

The answer to this question is relatively straightforward. Creditors are banks and other financial institutions, such as the International Monetary Fund (IMF), the European Bank for Reconstruction and Development (EBRD), the World Bank, the European Investment Bank (EIB), and so on. In September 2016, the IMF published a statement that the non-financial sector (households, companies, state organisations, etc.) owed $152 thousand billion to the financial sector at the end of 2015. This debt continues to grow, moving from 205% of the global GDP in 2005 to 225% of the global GDP in 2015.

Banks and other financial institutions do not produce new goods; companies or, better, their employees do. However, to produce new products, companies must first borrow from banks to finance their investments. Interest-bearing loans fuel debt growth. And interest, as we have already established, can never be repaid.

A unique paradox of the current socio-economic system that is very hard to miss is that those who produce goods are indebted to those who produce nothing.

Chapter 9: Austerity

Austerity is a set of economic measures that governments take or are forced to take to reduce the state deficit during a financial crisis. Although the rational use of natural resources presents a reasonable solution, austerity measures alone cannot provide a way out of the crisis.

Austerity in itself—if we are to understand it in terms of cutting excessive consumption and rationalising the use of natural resources—seems a very reasonable measure in terms of fostering environmental protection and reducing pollution. However, austerity as a policy adopted during a recession may have extremely negative consequences.

After 2008, when some EU Members States found themselves on the verge of bankruptcy, the so-called Troika (the European Commission, the European Central Bank, and the International Monetary Fund) made the granting of financial aid contingent on severe austerity measures. Greece was one of the first countries to be hit by the crisis, followed by Ireland, Portugal, and Cyprus.

Austerity measures imposed on countries in exchange for financial assistance required the dismissal of workers, as well as cuts in public wages, pensions, social benefits, investment in infrastructure, and so forth.

However, all these measures have had just the opposite effect than intended. The dismissal of workers, as well as cuts in public wages, social benefits, and pensions have caused unemployment to rise and the purchasing power of the population to decline. These restraints have also indirectly affected the real economy: the drop in demand forces many companies to reduce production, which, in turn, leads to layoffs in the real economy as well. Moreover, the state is the biggest contracting authority for many companies. When the state decreases investment, companies lose their business, which causes them to lay off workers or even go bankrupt. As a result, the state's tax revenues take a turn for the worse as well.

Austerity measures, therefore, fuel unemployment, erode on social security and at the same time eat away the state's revenues. Combined with the fact that the state is granted financial assistance via loans rather than grants, these measures only further aggravate its indebtedness. Such a turn of events has already taken place in Greece, where the first economic adjustment programme (conditioned financial assistance in the form of a loan) in 2010 was followed by the second one in 2012, and the third one in 2016. All these programmes will ultimately only deepen the indebtedness of Greece, which is currently not even the most indebted country in the EU. The same course of events will likely take place in other countries that have applied for financial assistance.

Austerity measures, which should aim to reduce a country's indebtedness, in fact, only increase it in the long run and thus exacerbate the overall economic crisis.

As it has been shown in the past, major crises have called for precisely the opposite approach, namely, to increase government spending and provide a fresh boost to production. One such example was the "New Deal", a set of economic policies taken as the President Franklin D. Roosevelt's response to the Great Depression of 1929. With a significant number of highly beneficial and fruitful programmes (public works, social transfers and agreements with trade unions, just to name a few), the "New Deal" alleviated some of the problems caused by the economic downturn. However, as already mentioned, the crisis did not truly end until after World War II.

Until a proper reform of the monetary system is implemented and as long as the total amount of the newly created money continues to be lent at interest, the indebtedness of countries and budget deficits will continue to grow. We certainly will not eliminate this problem through austerity measures and the so-called lean state. Austerity slows down the circulation of money and thus curtails the money supply while simultaneously raising the demand for new money. Lending the newly created money at interest completes the vicious cycle of growing indebtedness.

Chapter 10: Unemployment

Due to the increased efficiency of production, the demand for labour is steadily declining. However, rather than reduce working time, decision-makers prefer to lay off workers, which causes a further rise in unemployment and a further decline in the population's purchasing power. The drop in consumption entails the fall in production, which leads to new layoffs, and the cycle is complete.

People need different goods for their sustenance. I use the term "good" in reference to everything that an individual has created with his or her work, ranging from primary commodities, such as food, housing and clothes, to a multitude of other products and services necessary to lead a quality life. However, to have all that, we need money, and to earn money, we need a job.

Drastic improvements in work efficiency have led to a significant increase in production, which allows us to produce much more than we need. When the supply exceeds the demand, the market becomes saturated with goods that benefit no one and hence cannot be sold. Production begins to decline, businesses are forced to readjust by downsizing and layoffs, and unemployment rises. Even though goods are in excessive supply, the unemployed cannot afford to buy them.

Here lies another paradox of the current economic system. The more goods that are created, the fewer the people that can afford to buy them.

Let's see how the paradox above relates to the profit of capital. At first glance, it appears to be nothing more than a consequence of the technological progress and increased work efficiency.

While it was already in prehistoric times that men began to make a wide array tools to make their life easier, technology in the twentieth and early twenty-first century has progressed at a much faster rate than ever before. A task that once required a group of people can now be done by one person alone and much faster, too. The Chinese, for instance, have already demonstrated that it takes no more than twenty-four hours to construct a six-floor, fully equipped building with apartments and a full range of facilities, such as shopping malls, conference halls, and so forth.

The demand for labour has therefore diminished. People are now able to work much less than before to satisfy their needs. So, why is this not happening? Why must the majority of people—those who still have a job, that is—work just as much, or even more, than one hundred years ago?

The reason is rather simple. Since the reduction of working time as a result of the increased work efficiency would not generate new profits, managers prefer to cut jobs. The increased work efficiency is therefore not used to improve the quality of life, but rather to maximise the profit of capital, which ultimately leads to the aforementioned paradox.

We do not need jobs, but rather access to goods that will allow us to lead a decent life.

In light of the above, it is all the more interesting to hear politicians fill their pre-election speeches with promises of new jobs rather than access to primary commodities. While goods are, or can be produced, in sufficient supply, we still have to make sure that their distribution is just and reasonable.

The increased production efficiency and the declining demand for labour leave many without employment and income. Their diminished purchasing power results in a drop in the request of different goods, which causes a further decline in the demand for labour as well as further downsizing and layoffs and ultimately sends the economy into a downward spiral.

Let's do another mental experiment. It's easy to imagine that in the next few decades technological advances will reach a stage when robots and computers perform all work. This is almost made possible with the current technology. However, the question that seems worth considering is who can buy goods in a society where robots produce everything. When automation does away with the need for human labour, everyone will be left without employment and paycheck. With no one being able to buy goods generated by robots, the production of goods becomes pointless.

It is quite clear that the current socio-economic system will soon no longer be able to function according to the present principles. Changes are necessary and even inevitable. However, what these changes will be—ones that will veer the world towards a catastrophe or steer it towards establishing a more advanced and stable socio-economic system—largely depends on the decisions that the world leaders will make now or in the very near future.
Chapter 11: Population ageing

The rising life expectancy has caused the ratio between the retired and working population to increase significantly. Nevertheless, the provision of retirement benefits does not pose a real problem. There has been no significant change in the ratio between working and dependent population over the recent years and work efficiency has considerably improved.

An important outcome of the progress in science, technology, and medicine is the much-extended lifespan. Life expectancy in the developed world has risen from approximately forty-five years at the beginning of the twentieth century to about eighty years in the early twenty-first century. Since the ratio between retired and working population has significantly increased, it is very difficult to guarantee adequate pensions for all within the framework of the existing pension systems.

Nevertheless, the ratio between retired and working population is not as important as that between dependent (children, students, and retired people) and working population. In addition to retired people, the workforce must also take care of their children. With the life expectancy of eighty years and forty years of employment, approximately 50% of the population is dependent, indicating that one employed person must on average take care of one dependent person. This ratio changes little over the years; the only variable is the structure of the dependent segment of the population. In the developed world, the proportion of young people is declining, with the percentage of elderly people continuing to rise.

Although that is a very rough estimate, there are no significant deviations if the age distribution is a function that monotonically decreases, monotonically increases or remains constant with age. A notable deviation would only occur where, after a prolonged period of declining (between 20 and 40 years), the birth rate settled or began to rise. In such a case, the age group between 20 and 60 years would leave a gap and the proportion of the dependent population would significantly exceed 50%. On a global scale, such a scenario is not possible, as long as the number of the world population continues to grow. The problem may, however, occur on a local level, especially in the developed countries, where the birth rate dropped considerably at the end of the previous century and then settled at the beginning of the current century, which will cause the share of the dependent population to rise somewhat over the next forty years.

The estimate above seems fairly accurate, according to the demographic statistics. The data published on the United Nations' website (esa.un.org/unpd/wpp/dataquery/) show that the share of the global working population (aged between 20 and 60) was 47.64% in 1950, 53.65% in 2015, and is projected to reach 49.66% by 2060. In Europe and the US, the drop in the birth rate between 1960 and 2000 will cause the percentage of working population to slightly decrease over the next few years. In Europe, the proportion of workforce even rose from 53.35% in 1950 to 55.28% in 2015 but is projected to drop to 45.58% by 2060. In the US, on the other hand, the percentage of working population is expected to rise to 47.64% by 2060. In Europe, where the ratio between working and the dependent population is projected to be the smallest, one employed person will have to provide for 1.19 dependent people. In comparison with 1950, when there were 0.87 dependent people per every person in employment, this will amount to a 26.77% greater burden.

Different governments have aimed to remedy this problem by adopting various measures, from increasing the retirement age, raising contributions for pension benefits and forming various pension funds, to changing the ratio between retired and working population by importing younger workforce. The last approach is also one of the major causes of the refugee crisis of 2015 when workforce was imported in a manner that was utterly inappropriate and unworthy of human dignity.

The roughly 27% increase in the burden that working population will have to shoulder by providing for dependent population seems to pose a severe problem at first glance. However, when we consider it in light of the increasing work efficiency and the significant decline in the demand for labour, the situation does not represent such a serious challenge.

If in the past, one employed person produced enough to provide for one dependent person, one individual is now able to produce enough to provide for ten or more dependent people. Let's consider food production, which is one of the most vital industries for human subsistence. With the use of modern technology and machinery, it now takes one farmer a few hours to complete the same task (e.g. reap the wheat) that took a number of farmers days or even weeks one hundred years ago. Due to the increased work efficiency, working people could provide an incomparably better living standard for themselves and the dependent part of the population than one hundred years ago, even with a considerably lower workload—i.e., fewer working hours or within the framework of a shorter working life.

The problem, therefore, lies not in the inability of working population to provide a sufficient amount of goods for retired people to live in dignity but in the distribution of these goods. A vast portion of surpluses produced by working population that could benefit retired people is, in fact, intended for the accumulation of the profit of capital. The purchasing power of retired people thus continues to decline, weakening the demand for goods and, consequently, also the demand for labour. On the other hand, rising unemployment drives more and more people out of work and into dependency.

The prolongation of working life has been—or is about to be—passed by the majority of EU states as one of the so-called structural reforms. Under the current system, in which the increased work efficiency and the demand for ever-growing profits drive the unemployment rate up, the prolongation of working life cannot provide a solution to the problem of the ageing population. The younger generation is already deprived of employment opportunities and the extension of working life will make matters even worse.

In light of the declining demand for labour, the prolongation of working life cannot solve the problem of the ageing population.

Neither can the problem of the ageing population be solved with the pension reform, which the EU is imposing on its member states. The older generation will always be dependent on the younger one, no matter what kind of a pension system is in place. First, parents provide for their children, and once parents grow old, the children provide for them. It has always been this way, and it always will be. Whereas in the past, care for dependent people was provided for within families, it has now become part of a wider social framework. In the spirit of the principle of solidarity, the entire younger generation must take care of the older one. Without solidarity, no investment in pension funds or savings will matter. If the younger, working generation fails to produce enough food or refuses to share it with the older, dependent generation, the latter is left with nothing to eat, no matter how much it has saved or invested in various funds. One cannot eat money and shares.

As a result of the increasing work efficiency, a vast part of the active population still does completely unproductive jobs that do not produce any new goods and in no way contribute to improving the quality of life. Let's only mention people employed in financial and propaganda sectors. In reality, they, too, constitute the dependent population, alongside the retired people and children. If all pointlessly employed people produced new goods, the problem of the ageing population would be significantly alleviated. What is more, in light of the surpluses that we currently produce, there is also an urgent need to further decrease the retirement age and reduce working time.

Chapter 12: Feedback loop

A feedback loop is established when an effect affects its cause. A feedback loop is positive if the effect amplifies its cause. Positive feedback loops are not stable. The capitalist system incorporates multiple positive feedback loops which cause its instability. Periods of prosperity are followed by periods of crises. To avert crises in the future, we should eliminate positive feedback loops from the system and replace them with negative ones.

In the previous chapters, we have established that the increasing work efficiency leads to layoffs, which diminishes the population's purchasing power, reduces the demand for goods and hence labour, and, in turn, leads to further layoffs. To summarise, layoffs result in the diminished purchasing power and the diminished purchasing power, again, results in further layoffs. The mechanism that allows an effect of some process to affect its cause is called a feedback loop.

A feedback loop may be either a negative or positive one. A negative feedback loop is one in which the effect of a process reduces its cause and a positive feedback loop is one in which the effect amplifies its cause.

The feedback loop in the case described above is a positive one, since job cuts and the resulting drop in the purchasing power lead to new job cuts, a further reduction in the purchasing power and so forth. The positive feedback loop also works in the opposite direction; that is, the newly created jobs increase the purchasing power, which, in turn, boosts the demand and the creation of new jobs, which, then, increases the purchasing power, etc.

When a process aims at creating new jobs, the positive feedback loop seems to bear healthy and beneficial effects. This part serves as the argument for the advocacy of the existing socio-economic system. Unfortunately, however, the process cannot go on indefinitely; sooner or later, natural resources will run out, or the market will become saturated because the demand cannot grow infinitely. When this limit is reached, the process is reversed.

The capitalist system contains multiple positive feedback loops. Apart from the one described above, we should also mention the positive feedback loop linked to capital. Capital generates profit. This profit is added to the initial capital, which grows and generates more profit, which is, again, added to the original capital and increases it. The positive feedback loop thus enables the rich to get even richer. And since one man's profit always entails another man's loss, the poor become even poorer. The difference between the rich and the poor therefore steadily increases, while concentrates in fewer and fewer hands. This, however, is only possible as long as the poor are still able to make ends meet and continue to create surpluses that bring profit to the owners of capital.

The systems theory teaches us that a system with positive feedback—i.e., when its output is routed constructively back to its input—is unstable. In the economic system, the initial capital is input and the profit is output, the loan is input and the interests are output, the labour is input and produced goods are output. The output of an unstable system increases at a steadily accelerating rate until it reaches a limit that cannot be exceeded due to obvious limitations. In creating new jobs and hence raising the purchasing power and consumption, this limit is, for one thing, determined by the limited amount of natural and energy resources at our disposal. When this limit is reached, At this point the effect of positive feedback is reversed. In the example above, the said reversal may be translated into job cuts, weakened purchasing power, further job cuts, and so forth. That is when the crisis hits.

We can conclude from above that, according to the systems theory, the capitalist system is inherently unstable, due to its built-in positive feedback loops. To restore and maintain its equilibrium, the system should incorporate negative feedback loops. An adequate negative feedback loop enables its output to settle at a precisely determined value. Once the output exceeds the set value, it affects the system's input in such a way as to reduce the output. Conversely, if the output fails to reach the set value, it changes the input in such a way as to increase the output.

The only negative feedback loop that some countries have built into their economic system is the progressive tax, in which the tax rate increases with increasing income (profit and earnings). Due to the progressive tax rate, the increase in revenue becomes unreasonable and stops at some point. However, as long as revenue remains low, so will the tax rate. For this reason, people have a strong incentive to increase their earnings, but only to the point when that still seems reasonable in light of the progressive taxation.

The second—and not necessarily successful—negative feedback loop comes in the form of multiple government regulatory measures, including anti-monopolist and environmental legislation, community work placements, and social standards. While aiming to reduce the effect of the positive feedback loop, these actions function as a negative feedback loop with a delay. First, it takes governments quite some time to realise that action must be taken; then, it takes them more time to decide what must be done, and, again, more time to take action. Meanwhile, the process they try to reverse continues to go in the wrong direction. Even though the adopted measures do bring about the desired reversal, the time-consuming adoption of further actions causes this phase to drag on for too long in the new direction, and the whole system begins to oscillate. That is the reason for which periods of growth are interrupted by periods of crisis.

Let's now return to the systems theory, which teaches us that systems with a delayed feedback loop may be subject to oscillations at certain frequencies. One example of such a feedback loop in physics involves the phenomenon of microphonics, which we can also encounter in our daily lives. If we place a microphone close to a loudspeaker which is connected to it through an amplifier, we hear a high-pitched noise. This sometimes happens at public events where a person on the stage moves too close to the loudspeakers or in TV show calls when a caller moves too close to the TV set. The sound from the loudspeaker comes back to the microphone with a certain delay since sound travels through air at the final speed of 340 m/s. Reinforced by the amplifier, the delayed sound travels back to the loudspeaker and then, with a delay, back to the microphone again. This process creates an oscillation that we perceive as a high-pitched noise. If the microphone stands one meter away from the loudspeaker, the sound can travel this distance 340 times in one second, at a frequency of approximately 340 Hz. The shorter the distance between the microphone and the loudspeaker, the higher the frequency and pitch of the sound; and vice versa, the greater the distance between the microphone and the loudspeaker, the lower the frequency and the pitch. By lowering the volume on the loudspeaker, the high-pitched noise stops, as the sound weakens travelling to and fro and the amplitude drops quickly. And vice versa, by increasing the volume on the loudspeaker, the sound grows stronger on each return, and the amplitude rises rapidly until the loudspeaker becomes overloaded.

In the economic system, the delayed measures cause oscillations between periods of prosperity and periods of crisis. Owing to the very complex nature of the current socio-economic system as well as the diversification and unpredictability of measures that take effect with various delays, the frequency and amplitude of these oscillations are irregular and hence highly unpredictable. For this reason, it is very difficult to predict when the next crisis will hit and how big it will be. All we know for certain is that crises will persist, for as long as the system continues to incorporate positive feedback loops and delayed measures.
Chapter 13: Propaganda

To preserve its status quo, the current socio-economic system requires effective propaganda. Covert political propaganda aims to influence the collective consciousness and formation of values. Overt propaganda, however, is used to feed the consumer mentality through advertising products and services. In capitalism, consumerism must be maintained, so that capital can continue to generate profit.

For the current socio-economic system to survive, it urgently requires effective propaganda with which to shape the mentality of people and influence the system of values.

History has already shown that people are quite susceptible to manipulation. Joseph Goebbels, the propaganda minister in Nazi Germany, postulated that a lie repeated often enough becomes the truth, thus establishing the guiding principles of contemporary propaganda.

Socio-economic system is not a natural phenomenon, but rather a human invention and as such a reflection of human mentality and values. The aim of propaganda is to shape people's mindset and values to uphold the existence of a given socio-economic system. Even though all socio-economic systems throughout history have used propaganda to sustain themselves, propaganda has never been as nearly as efficient as it is today.

Propaganda may be overt or covert. The overt type of propaganda primarily consists of advertising products and services. Political propaganda, too, may from time to time employ overt tactics, especially during election campaigns.

The main part of political and socio-economic propaganda, however, remains covert and is implemented via the education system, namely, the use of corresponding primary and secondary school curricula. These are mostly decided by governments with the aim of promoting the interests of the existing socio-economic system. Since capital strongly influences most current governments, school curricula are subjected to the interests of capital as well.

It is in the interest of capital to create a belief that capitalism is the best possible socio-economic system and that any interference with it is extremely dangerous. Every idea of establishing an advanced socio-economic order that does not build solely on profit is associated with communist dictatorships. Historical revisions and selective historical memory serve precisely this purpose, by emphasising the failures and crimes against humanity committed by communist regimes, while ignoring the failures and crimes of the so-called democratic world.

Equating the ideas of establishing a welfare society that promotes prosperity for all with communist regimes is just as erroneous as equating Christian ideas with the medieval inquisition. Many ideas have, indeed, been abused throughout history, but that does not make them wrong.

Similarly, the terms socialism and communism have been severely abused in the recent past, so much so that resistance against them has become deeply ingrained in the collective consciousness. Therefore, we shall avoid using them in the continuation of the book and try to replace them with a more fitting designation of a stable and just socio-economic system that will successfully rise to the challenges of today's world. Namely, it is imperative to draw a clear distinction between the positive ideas and the negative connotations associated with these words. Only in this way will progressive ideas become acceptable to a wider circle of people.

Propaganda has also crept its way into higher education institutions. Schools of economics and social sciences, in particular, have promulgated theories in support of the current socio-economic system. Economics theories developed at the most prominent universities, such as Harvard, have often not been based on facts and merely served the daily interests of capital. For a long time, the most renowned economists have advocated the theory of a self-regulating market economy. Even though the said theory has all too often—and especially during economic downturns—proved utterly wrong, it continues to garner support among many distinguished professors. In their opinion, stable economy rests on a constant (exponential) growth which, as we have seen, is not even theoretically possible.

It is very unlikely that the authors of the theories mentioned above fail to fully understand the effects of the positive feedback loop created by the market economy or that they are completely unaware that exponential growth is even theoretically impossible. It is far more likely that these theories have been devised under the influence of capital, in congruence with its current requirements, and are merely part of the propaganda, which aims to preserve the current socio-economic system.

Furthermore, capital and its owners also aim to feed the consumer mentality, because only a high propensity to consume will ensure an adequate economic growth and more profit of capital. Once our actual needs are satisfied, new ones are artificially created, and new products are introduced that differ from previous ones in their appearance more than in their functionality.

The market thus becomes saturated with a multitude of goods, each advertised as the best, special, and one-of-a-kind. An average hypermarket in the US now holds about 50,000 different products, including hundreds of kinds of toothpaste to choose from. If we are to believe their ads, each single brand of toothpaste is better than the rest, the ultimate choice for removing plaque, preventing gingivitis, providing relief from tooth sensitivity, or making our teeth whiter. Consumers are confronted with a baffling array of products, but provided with very limited information on which to base their decision. Several consumer satisfaction studies have shown that consumers feel most comfortable when deciding among three to six products intended for the same purpose, whereas a growing selection increases the customers' dissatisfaction and stress.

Many technical products tend to be manufactured so as to wear or break down after a certain time and be replaced with new ones. In this way, demand and consumption are artificially stimulated to generate an apparent economic growth.

To boost consumerism, all sorts of propaganda are mobilised to create a general conviction in line with the catchphrase: "The more you own, the more you're worth." Money is increasingly becoming the sole criterion of value. Top athletes, who once experienced competitions strictly as a challenge and the Olympics as a great honour, now earn disproportionately large sums of money. Their performance is measured in terms of how much they make. Players of the European Professional Golf League, for instance, are ranked according to the sum of their tournament rewards. The best golfer is the one who has made the most money.

Multiple attempts to establish some other system of evaluation are persistently hampered. Let's look at the example of "likes" on Facebook and YouTube. Initially, the members of the said portals sought to attract the greatest possible amount of likes as indicators of appreciation and relevance of their posted contents. However, this type of social exchange quickly turned into a money-based evaluation, according to which users who collect a sufficient amount of likes get paid. Collecting likes has thus become another way to make money.

Chapter 14: Conclusion

So far, we have established that the root cause of recurring crises is the profit of capital, which is not only unjustified and unjust but, moreover, also destabilises the socio-economic system as a result of multiple positive feedback loops.

In order to continually generate profit, capital requires constant economic growth, which, however, is not even theoretically possible. Namely, such growth is exponential and may quickly lead to the depletion of natural and energy resources, excessive pollution and ecological disaster.

Money has been assigned the role of profit-generating capital in the form of interest-bearing loans. Since all the newly created money is put into circulation as interest-bearing loans, the debt arising from interest can never be repaid, which inevitably leads to debt crises.

Even though the immense financial industry does not create any new goods, it makes the highest profits by merely transferring money from one account to another and by creating new private money.

Owing to technological progress, the demand for labour continues to decline. To maximise company owners' profits, managers prefer to lay off employees rather than reduce their working time and improve the quality of their lives. This, in turn, gives rise to the problem of unemployment, which is one of the positive feedback loops incorporated into the capitalist system.

To maintain the current socio-economic system and enable capital to continue reaping ever greater profits an enormous propaganda machine has been set in place to create new needs and stimulate consumption while maintaining the general conviction that the current socio-economic system is the best and that any significant changes would be potentially extremely dangerous.

With the profit of capital used as the core premise of the capitalist economic system, we may claim that crises are built into the very foundations of capitalism. Therefore, preventing crises in the future will require fundamental changes in the structure of the socio-economic system.

What those changes are and how we may implement them in the least painful way possible we shall discuss in detail in the second part of the book.

### Part 2 **  
Non-Profit Society**
Chapter 1: Introduction

If we want to prevent crises in the long-term future, we must urgently eliminate the profit of capital and abolish the capitalist system. However, such a transition requires time and numerous reforms that will gradually pave the way towards a non-profit society.

As we have seen so far, the cause of the instability of the current socio-economic system and recurring crises lies at the core of capitalism; that is, its underlying assumption that capital should generate profit. A variety of measures taken by governments will not prevent crises in the long-term future for as long as they continue catering to the demand for such profit. To put it more specifically, rather than tackle the underlying issue, such measures merely eliminate its symptoms.

To avoid constantly recurring crises, wars and ecological disaster in the future, the world urgently needs a transition from the current socio-economic system, which is based on the profit of capital, towards a new system that will be based on different foundations, to a non-profit socio-economic system or, shortly, a non-profit society.

To ensure a stable economic system and hence society governed by prosperity (but not wastefulness), the world must reject the underlying dogma of capitalism; that is, the profit of capital.

By stating the above, we are not trying to deny the benefits that capitalism brought at a certain stage of social development. In times of great want, it, indeed, proved to be very effective by promoting production, innovation and technological progress, without which it would have been extremely difficult to provide the growing population with food and other goods and even harder to achieve the standard of living that the Western world or the so-called golden billion currently enjoys.

Unfortunately, however, the remaining six billion people can only dream of the golden billion's standard of living. What is more, it is largely to their detriment that the golden billion can afford to lead a life in prosperity. Even though the latest technology could help us put an end to global poverty, the profit-driven economy stands as a major obstacle to this objective.

Now that we live—or even wallow—in affluence, that we have the capacity to produce much more than we can consume and that goods are more easily manufactured than sold, capitalism is no longer a viable socio-economic system by insisting on relentless economic growth and consumption as well as by failing to keep abreast of the technological progress and the awakening spirit of a new era. We need an economic system that will be inherently stable, a system that will be based on low or zero economic growth and ecologically sustainable development by promoting renewable energy consumption. Although the abolishment of the profit of capital is surely not a sufficient condition for the creation of such a system, it is, by all means, a necessary one.

The idea of a non-profit society seems utopian and, given the current state of consciousness and established values, it, indeed, is. Without a proper understanding and gradual changes made in the system of values, a transition towards a society that will not be based on profit but human values, a transition towards a more stable as well as more just system will certainly not be possible.

Human consciousness is the only stumbling block to a stable socio-economic system that will not be based on profit.

The utopianism of the idea above stems from the extreme unlikelihood, or even impossibility, that the elite—which makes enormous profits of capital as well as leads this society and controls all key segments of the system, from energy, healthcare and food, to the media and armed forces—would ever willingly renounce its profit and privileges. As a last resort, this would only be made possible through a violent revolution which, as we have already noted, cannot bring the anticipated results. In other words, a violent revolution is just another in the series of Crises, which is precisely what we would like to avert.

Is there any hope left, then? So long as there is a thread of hope, we should cling to it. So long as we have faith, we will also find the will to turn our dream into reality. Only if we believe that we can make a change for the better, will this change become feasible. The greatest obstacle to change is in thinking that we cannot change anything and that the current system is the best possible system, in spite of all its shortcomings. So long as this conviction prevails, changes, which are so urgently needed to prevent crises in the future, simply cannot take place.

The reforms of the current socio-economic system should, first and foremost, lead in the right direction, namely, by mitigating the negative impacts that the basic premise of capitalism—i.e., that capital should generate profit—has on the system as a whole. The abolition of profit cannot be accomplished overnight. Firstly, it would meet with overwhelming resistance and, secondly, it would shake the foundations of the current economy to the extent that might have unpredictable consequences. Changes may only take place progressively and concurrently with appropriate shifts in the collective consciousness.

Because money wields such a decisive influence on all social processes, it is absolutely necessary to restore it to its primary function as a medium that facilitates the exchange of goods. In this way, we would be able to avoid problems posed by money-as-capital, such as lack of money and excessive indebtedness, on the one hand, and accumulation of money, on the other.

The full potential of technological progress and increased work productivity should be harnessed to improve the quality of life rather than merely increase capitalists' profits. Thus, we would be able to ensure a significantly higher social security while simultaneously reducing the workload. Moreover, we would be able to avoid the need to generate economic growth and increased consumption, as well as disproportionate differences between the poor and the rich, the depletion of natural resources, and excessive pollution.

In the following chapters, we will take a look at possible changes which could reduce the negative impacts that the profit of capital has on the socio-economic system while positively affecting the collective consciousness and gradually paving the way towards a non-profit society.

Rather than the final solution, the proposed changes are therefore stepping-stones of transitioning towards a non-profit society. By reducing the adverse effects of the profit of capital, each of these stepping-stones is expected to assist our progress in the right direction.

We are in no way trying to say that these are the only possible steps towards accomplishing the objective, nor are we claiming that these measures alone will ensure the transition towards a more stable, advanced and just socio-economic system. There will, no doubt, be many unexpected obstacles along the way that will require our immediate attention. Whereas the book at hand merely provides guidelines, many details will still need to be worked out before the implementation of some of the proposed reforms can actually take place.
Chapter 2: Changes in the collective consciousness

A gradual transition towards a non-profit society requires a change in the collective consciousness. A non-profit society cannot be based on negative values, such as egoism, greed, envy, and competitiveness, which are the key drivers of progress in capitalism. To replace these human traits with such positive values as solidarity, cooperation, honour, honesty, mutual respect, understanding, tolerance and personal integrity, we must first understand that such a shift is urgently needed for the well-being of every individual and humanity as a whole.

Socio-economic system is a human creation and as such a reflection of the state of our consciousness: our understanding, ideas, beliefs, values, as well as fears. Any change in the socio-economic system therefore first necessitates a change in the collective consciousness—i.e., a dominant set of ideas, beliefs and values within a given environment. This conclusion is all the more accurate when it involves changes in the very foundations of a given socio-economic system.

To be ready for change, we must first realise that the existing system, with crises built into its foundations, is no longer adequate and sustainable in the long run. In the first part of the book, we have considered why the current socio-economic system is long-term unsustainable as well as why it inevitably leads to crises, inequality, wars, and ecological disaster. However, being aware is not enough. Nor is it enough to merely criticise the system, which is currently in place. Criticism can only be constructive when it is backed with proposals for improvement; otherwise it will do nothing but add more fuel to the widespread discontent.

A successful transition towards a better, more advanced and more stable socio-economic system requires a clear vision of what kind of a system we want to have, as well as what we need to change and how.

A system that a vast majority (probably) wants should build on such moral values as solidarity, cooperation, honour, honesty, mutual respect, understanding, tolerance, and personal integrity. Moral values have developed along with the evolution of humanity. Communities that abided by moral principles, ones that built on cooperation, solidarity and mutual trust, were stronger and more resilient than others.

The current socio-economic system is based on different human traits, including selfishness, greed, competitiveness, envy, the desire to dominate, to be better than others and to have more than others have. These very traits fuel the drive for relentless profit-making. They boost consumption, rivalry, and competition, which are the key elements that uphold the current system.

If we have enough, why would we want to have more than others? If we are good (beautiful, intelligent, and strong) enough, why would we want to be better (more beautiful, more intelligent, and stronger) than others? Must our satisfaction really come at the expense of the dissatisfaction of others?

These are the questions that each and every one of us should consider if we want to transform our values and lay the ground for a more advanced socio-economic order that will be governed by solidarity, one in which we will be willing to share and care not only for our success but also for the success of others.

Only with such awareness will it be possible to create a non-profit society that will be free from profit and everything that it stands for, and hence free from recurring crises.

However, change in the collective consciousness cannot take place overnight. On the contrary, it is a long process that starts with individuals who develop new insights, promote progressive ideas, and view the world and society from a slightly different perspective. A considerable amount of time may pass before a new worldview is universally embraced and becomes ingrained in the collective consciousness. A major obstacle to such a process is both political and commercial propaganda, which strives to maintain the current system as well as the set of ideas and beliefs that uphold it.

However, that does not mean that change is impossible. In the ancient Rome, as well as much later in the US, slavery was taken for granted and in no way controversial. Owing to the gradual shift in the collective consciousness, slavery came to be deemed unacceptable and was ultimately abolished, although it did not disappear overnight. The change was also inevitable with regard to women's suffrage. And lastly, a growing focus is now being placed on human rights and environmental awareness, of which only few would speak one hundred years ago.

In the past, the right of the strongest constituted a fundamental principle, according to which a physically stronger person could exert dominance over a weaker one. Today, however, those who are physically stronger have no right to abuse their power over those who are physically weaker. In the modern consciousness, such conduct is considered an abomination, because the ability to develop physical strength is an innate characteristic that not everyone has. Nevertheless, there is an overwhelming consensus that a cleverer, more knowledgeable and intellectually superior person prevails over a less smart, less knowledgeable and intellectually inferior person. What is more, today's society even encourages such traits as rivalry, competitiveness, and elitism. Just like physical strength, intellectual ability is an innate characteristic that not everyone has in an equal measure and, just like physical strength, intellectual ability does not create the right to dominate others.

Changes in the collective consciousness take place in particular when, for one reason or another, they become urgently needed. And the need for change has never been more acute than it is today.

Because changes in the socio-economic system are left mostly in the hands of politicians, their awareness plays a crucial role in this process. Moreover, given that politicians in democratic societies are elected, it is all the more important whom we vote for. Before casting our vote, primary consideration should be given to the values promoted by individual political candidates and parties, as well as programmes they promulgate during election campaigns. Consideration should also be given to their integrity, particularly the extent to which they have lived up to their pre-election promises. Whoever has failed to follow through on their pre-election pledges in the past will most likely do so in the future.

To make a well-informed decision in the election and thus contribute to positive social changes, we first need to have a clear understanding of whether changes that political candidates promote during pre-election campaigns, indeed, lead in the right direction. Namely, changes often merely serve to support the existing socio-economic system or constitute empty promises that cannot be delivered and whose sole purpose is to lure more votes.

We should not allow ourselves to be deceived by politicians who pledge tax breaks and a stronger welfare state, given that the social policy implementation clearly necessitates higher taxes. Nor should we trust those who speak in favour of austerity and cuts in public spending, while promising economic growth and new jobs, as austerity and economic growth are clearly incompatible. We should not vote for candidates who advocate relentless economic growth because the economic system based on constant economic growth inevitably leads to crises and ecological disasters. We should likewise not support those who endeavour for longer working life, increased work productivity and a pension system that is not based on solidarity. All these measures merely aim to maintain the profit of capital, as well as further exacerbate inequality and widen the gap between the rich and the poor.

Given that each political candidate must receive a majority vote to be elected, it is necessary that the majority of voters are able to identify changes that lead in the right direction, towards a more stable, just and ecologically sustainable socio-economic system. Only in this way can we elect politicians who will, indeed, follow through with these changes. To put it differently, to change the socio-economic system, we must first bring about a change in the collective consciousness. Only in this way will it be possible to accomplish a major shift without a violent revolution.

Apart from average voters who make up the majority of votes, the elite—the wealthiest segment of the population that wields a substantial influence on the policy-making process—need to acknowledge that changes must be made as well. The elite does not want crises, revolutions, climate change, and ecological disasters either. Even the wealthiest care—or at least they should care—what kind of world their children will live in. All their wealth will do them or their descendants no good if there is no one left to create new value. If excessive pollution or some other ecological disaster render Earth uninhabitable, all the money in the world won't matter. Therefore, this book is also well worth the consideration of the elite.

"A horse, a horse! My kingdom for a horse!" Richard III cried out in Shakespeare's homonymous play. His interjection clearly reminds us that in certain situations, no wealth in the world and no royal title can save one out of the morass in which one has found himself.

The lion's share of responsibility to bring about a proper change in the collective consciousness should be placed on schools and teachers, as childhood years are the most formative period in the development of our personality, worldview, and moral values.
Chapter 3: Monetary reform

One of the first steps towards a more stable system should be in changing the method of issuing money. Central banks would take over the right to create new money from commercial banks and have a high degree of independence from governments in controlling the amount of money in circulation. New money would no longer be issued as loans, but transferred directly into the state budget as grant funds. Such a framework would put an end to the perpetual indebtedness of countries and relieve their economies of the tax burden.

Money has a pivotal role in contemporary society. It is a means and an end at the same time. Money-as-capital is one of the most important mechanisms enabling the accumulation of capital. Monetary reform is, therefore, one of the first and most crucial steps in the transition towards a non-profit society. Because money has a tremendous sway on society as a whole by acting as its DNA, the reconstruction process should take place in a prudent and phased manner. Rapid and reckless changes may cause major damage.

While introducing the common European currency, the euro, its planners neglected the issue of surpluses, on the one hand, and deficits, on the other. The intra-EU trade is unbalanced, with some member states running a foreign trade surplus and others a foreign trade deficit. As long as every state retained its own currency, these issues were resolved through changes in the currency conversion rate or, rather, the devaluation of currency in a member state that exhibited a foreign trade deficit. The products from the weakened state became cheaper and more attractive to its trading partners, which contributed to a surge in its exports and improving its foreign trade balance. With the introduction of the euro, the mechanism described above was lost and its planners regrettably unable to envisage some other mechanism to ensure equilibrium in the foreign trade balance. This failure brought some EU member states to the verge of bankruptcy, and it was only the decisive intervention from the so-called Troika (European Commission, European Central Bank and International Monetary Fund) that saved them from complete collapse. However, the Troika made its bailout programmes contingent on austerity measures and structural reforms—i.e., cuts in wages and pensions as well as social and health benefits, the prolongation of working life and, consequently, the rise in unemployment. What is also worthy of note is that the Troika's bailout packages did not come in the form of cancelling debts but through issuing new loans to the already over-indebted countries. Instead of being resolved, the debt crisis in these countries has, on the contrary, only worsened and is expected to become an even more severe problem in the near future. The situation is best described by quoting the Nobel Prize winner Milton Friedman, who said: "There's no such thing as a free lunch". Everything comes at a cost; at least in the current socio-economic system.

Since the entire global society depends on money, the reconstruction of the monetary system cannot be accomplished overnight. The role of money in society should be recast in stages. A number of measures should be taken to gradually and painlessly strip it of the function of profit-generating capital, reduce the interest in the accumulation of money, and prevent having too much or too little money in circulation.

One of the first steps in this direction should be a reform of the monetary system. In their book titled Creating New Money, Joseph Huber and James Robertson propose a set of fairly simple and feasible measures they call the "seigniorage reform". The term 'seigniorage' originates from the old French and denotes a sovereign right to print new money. Let's summarise the proposed reform and take a look at its positive effects on the socio-economic system.

The implementation of the proposed reform would require only minor modifications to the existing legislation regulating the money-issuing and banking sector. Primary emphasis is placed on the following two measures:

1. The new money that central banks create to control its circulation should be deposited directly into state budgets as grant funds rather than loans. Governments would then put this money into circulation by spending it for the purpose of covering part of their obligations.

2. Commercial banks would no longer be able to issue loans that are not based on money received from central banks. In other words, commercial banks would be prevented from issuing new money as loans, which now makes up about 95% of the total amount of money in circulation.

It would be for central banks to decide how much new money to put into circulation and when. They would make their decisions in congruence with the previously laid down and published provisions of the monetary policy and with a high degree of independence from governments, which would have no power to intervene in their decision-making. On the other hand, central banks would have no influence on government spending. The decision how the money would be spent would be made by governments, by their commitments and priorities; for instance, some might tend to invest in tax reductions, unburdening the economy and strengthening social security, whereas others might prefer to invest in infrastructural projects. As part of the state budget, this money might be spent in the same manner as the money entered into the state treasury through other channels. The responsibility for sensible spending would remain with governments.

As for the eurozone, the basis for the distribution of the newly created money among member states is yet to be decided. This revenue could be used to finance European projects and thus reduce member states' commitments to the EU budget, while at the same time enabling the introduction of new mechanisms for improving the foreign trade balance.

Commercial banks would only be allowed to lend money they actually have; that is, money issued by central banks. Also, they would only be able to loan their own money and money from their customers' savings deposits. Banks would not be able to write a certain amount of money into one account without deducting the same amount of money from another account. In this way, they would keep the total amount of money in circulation. Adding a certain sum of money on one account without deducting the same amount from another would constitute forgery, tantamount to paper currency counterfeiting. However, this principle does not apply today. The amount of loans issued by commercial banks significantly exceeds the amount of their own funds or funds in their clients' savings deposits. When a bank issues someone a loan, it merely increases the figure on one account without reducing the value on another. This is how commercial banks create new money. The only barrier to the unlimited creation of new money is the reserve base which, however, constitutes a fraction of all the money that banks issue as loans.

Sight deposits, which can be withdrawn immediately without notice, should not be included in banks' balance sheets. Banks should not be able to lend this money; for if they do, they should deduct the same amount in sight deposits, which is contrary to their purpose of serving day-to-day use. This would be the only way for banks to strictly separate money intended for saving (capital) from money intended for day-to-day use.

The seigniorage reform would have multiple benefits. Currently, the creation of new money as loans imposes on commercial banks a minimum cost, significantly lower than the interest on loans. The interest, therefore, implies a net profit that is diverted into private hands, a profit that is created out of thin air. As we have already established, one man's profit inevitably entails another man's loss. The proposed seigniorage reform would deprive commercial banks of the possibility to create profit out of nothing. However, they would still be able to charge their services as well as pocket the difference in interest rates on money they borrow (savings deposits) and money they lend (loans). The newly created money issued by central banks would, admittedly, still be money created out of nothing; however, by being transferred into the state budget, which belongs to all citizens, it would not constitute profit.

Another advantage that the proposed reform would have is the method of spending the new money. Unlike commercial banks, which invest this money (95% of the total amount in circulation) solely by their risk and profit assessment, governments would spend it by their priorities—which are, or at least they should be, to the benefit of all citizens. What these priorities might be, however, depends on the elected politicians and their programmes, as discussed in the preceding chapter.

Furthermore, the new money issued in the form of grant funds would lead to a drastic decline in national indebtedness. Interest on this money, which governments are currently obliged to pay, constitutes the main portion of national debt.

A more detailed explanation of these improvements as well as other advantages of the proposed seigniorage reform is provided in the aforementioned book Creating New Money.

Unfortunately, however, it is doubtful that the said reform, or any other like it, will happen in the EU. To begin with, it would require the consensus of all eurozone member states, an agreement that will be near impossible to reach, without a proper shift in the collective consciousness. Currently, most elected politicians vigorously support the current socio-economic and monetary system. Every single measure (structural reforms, austerity, the prolongation of working life, boosting economic growth, and so forth) proposed by political leaders aims to maintain the status quo.

Many of its potentially beneficial effects notwithstanding, the seigniorage reform still fails to provide a solution to the fundamental problem of money acting as profit-generating capital. Its aim is to merely prevent commercial banks from generating profits out of thin air. Nevertheless, the proposed reform would undoubtedly be a step in the right direction by at least minimising the impact of problems related to money.

If we want to solve problems related to money, we must first bring money back to its primary role, which is the role of being a means of exchange.

In the following chapter, we will take a closer look at the workings of a monetary system in which money would no longer serve as capital, but merely as a means of exchange. One advantage of such a system is that it could be introduced on a local level, in parallel with the existing system, so that its introduction would not require the consent of the entire monetary union.
Chapter 4: Money as a medium of exchange

A system in which money is used strictly as a medium of exchange rather than capital may be established in parallel to the existing monetary system. Being based on mutual interest-free loans, such a system does not lead to problems that result from interest-bearing loans. Since money is issued by the users themselves in the form of promissory notes, there is neither insufficient nor excessive amount of it in circulation.

To gain a better understanding of how money should function as a medium of exchange, let's take another look at the simple example of the farmer and the hairdresser, which we already considered in the first part of the book. The farmer needs a haircut, but he hasn't yet harvested this year's crop of potatoes to offer them in exchange. Instead, he gives the hairdresser a promissory note, stating that he owes him three kilograms of potatoes for the haircut. When the farmer's harvest is due, the hairdresser can "buy" the three kilograms of potatoes by returning the promissory note to the farmer, who can then destroy the promissory note.

The said promissory note acts as money, as the farmer uses it to "pay" for the haircut and the hairdresser uses it to "buy" the potatoes. However, this money is issued by the farmer himself rather than the bank. Once the hairdresser spends the money, the farmer "destroys" it and removes it from circulation. The money, therefore, exists only for the duration of the exchange process.

If instead of issuing a promissory note, the farmer took a loan for the haircut from the bank, he would be obliged to return it with interest, once he sold his potatoes. However, the money he could earn by selling the three kilograms of potatoes would no longer suffice to cover the cost of the bank loan.

Although the bank merely provides a notarial service by recording a negative balance on the farmer's account and increasing the balance on the hairdresser's account by the corresponding amount, it charges not only for the service rendered but also for the interest on the loan. While the bank is eligible to receive remuneration for the notarial services rendered, it by no means eligible to receive the payment of interest, calculated as a percentage of the loan. The bank performs the same work, regardless of the amount of the loan and regardless of whether the farmer has borrowed €10, 100 or 1,000. In short, for the same service, the bank charges very different fees, which grow exponentially on outstanding loans.

In addition to recording the debt, the bank also secures the loan that the hairdresser has given to the farmer. The hairdresser can use the money obtained from the farmer, even if the farmer fails to repay his loan. The bank is therefore also eligible to receive an insurance premium, which is calculated as a percentage of the loan and must be proportional to the level of risk. The bank would also make an unjustified profit by charging a disproportionately high premium.

In real-world, the process of exchange is not that simple. Direct swaps are rarely possible because the needs rarely coincide. If the hairdresser does not need potatoes, the farmer cannot get a haircut from him. The case above can also be expanded to exemplify a more complex process of exchange. Even if the hairdresser does not need potatoes, he can give the farmer a haircut in return for a promissory note. The hairdresser uses this promissory note to "pay" for the repair of his hair trimmer and the repairer then uses the promissory note to buy three kilograms of potatoes from the farmer. The exchange process is thus complete and the farmer can destroy the promissory note.

In the age of information society, it is quite simple to set up an information system to facilitate the exchange according to the above-described principle between any given number of participants. More than five hundred local exchange trading systems (LETS) are already in place across the world (http://www.lets-linkup.com/). Although most of these systems operate on a local level, covering small geographical areas, they may also be established on a national or international level.

The only such system that currently operates on a national level is the privately-owned Swiss WIR Bank (http://www.wir.ch/), which was founded as early as 1934. It obtained the Swiss banking licence in 1936 and operates on similar lines as regional LETS schemes. Its task is to facilitate the exchange of goods among its members. The currency in which exchange transactions under LETS take place is called the WIR franc (CHW). Initially limited to companies, the system now also serves private individuals. Currently, it comprises about 45,000 small and medium-sized enterprises and around 15,000 individuals.

The WIR Bank was established in response to the money shortages and a failing economy. Its annual turnover now exceeds 6.5 billion CHW. During economic downturns, the turnover in CHW drastically increases, facilitating regular operations as well as survival of small and medium-sized enterprises, despite money shortages. For this very reason, Switzerland has been far less affected by financial crises than any other European country.

The WIR Bank also has its online market (https://marktplatz.wir.ch), where one can find goods provided by a variety of companies, either wholly or partially, in CHW. In addition, the bank organises WIR trade fairs to expand the network of businesses that operate in WIR francs.

In the previous century, a similar method of exchange was introduced on an interstate level. For instance, the then Yugoslavia and the Soviet Union traded their goods in clearing US dollars, which were a new currency used for recording a current transaction. In this way, when Yugoslavia's exports to the Soviet Union exceeded its imports from the Soviet Union, the difference was registered in clearing US dollars, which Yugoslavia could use at a later date. And vice versa, of course. Transactions in clearing US dollars, therefore, successfully alleviated the shortage of the US dollar as a global currency.

Now, let's take a closer look at the functioning of LETS. The basis for the system's operations is the LETS bank, which neither issues nor lends money, but merely performs a notarial role by entering all transactions into its information system. The essential features of LETS are:

1. The system only serves its members.

2. Membership includes both natural and legal persons.

3. This being a system of exchange, each member has a dual role in every transaction: that of a buyer and that of a seller. LETS members cannot act solely as consumers.

4. Each member has an account with the LETS bank.

5. The funds in each member's account are managed in the local currency and recorded in the equivalent value of commodities. The local currency has its name and id. For the purpose of this description, we shall call it the equivalent of exchange and id it as EM.

6. For practical reasons, the purchasing power of one EM unit is adjusted to the purchasing value of the monetary unit issued by the central bank (e.g., 1 EM = 1 EUR or 1 EM = 1 USD).

7. The equivalents of exchange are not necessarily exchangeable for the money issued by the central bank. While the exchange is not guaranteed, it is nevertheless allowed. Therefore, money under this system acts as a commodity that can be sold or bought like any other commodity.

8. When a user opens an account, the latter is empty, or rather, it has a zero balance.

9. On purchasing a commodity or service, the counter-value in the EM is transferred from the buyer's account to the seller's account. The balance on the buyer's account is reduced by the corresponding amount and the balance on the seller's account is simultaneously increased by the same amount.

10. The balance on the account may be positive or negative. A negative balance represents debt and a positive balance represents buyers' promissory notes kept by the seller.

11. The sum of all EMs on all accounts in the system always equals 0, because in every transaction, the amount that is deducted from the balance on one account is added to the balance on some other account.

12. All transactions within the systems are strictly non-cash transactions. They may be performed either through online banking or with the use of special payment cards.

LETS may be regarded as a system of organised exchange or as a system of mutual crediting. Members who have a positive balance on their accounts credit those with a negative balance. The LETS bank merely records the current balance of credits. Mutual credits are interest-free. Each member of the system can act as a debtor at one point (when having a negative balance on his or her account) and as a creditor at another (when having a positive balance on his or her account).

Creditors under LETS do not seek to make a profit on interest, but rather to make a turnover by trading in a variety of commodities. Many sellers are already deciding to offer interest-free credits to their buyers, even though they themselves must pay interest for a loan obtained from the bank.

LETS is incredibly easy to build on the existing infrastructure, which provides everything necessary for its proper functioning. The appropriate infrastructure is ensured by banks and other financial institutions issuing payment and credit cards, as well as supermarket chains which try to win the loyalty of their customers by providing them with various bonus cards.

The upside of such a system is that it may be set up on a local level, within a regional framework, as well as for a limited number of users or a limited assortment of goods and services. Another upside is that it may operate in parallel with the existing system, which hence does not need to be changed or abolished. This particular factor greatly facilitates the creation of LETS. To set up LETS on a local level, it suffices for one supermarket chain to introduce a local currency (EM) on its bonus cards and enable its customers to buy and sell in this currency.

For starters, the supermarket chain could set up separate sections offering commodities priced in EM. These commodities could include local produce purchased in EM. The introduction of LETS would benefit both local producers by facilitating their sales, the retailer by increasing its turnover, and customers by providing them with the opportunity to choose from a wider selection of local produce. Once the system becomes fully operational, the retailer could gradually expand the consumer choice in EM as well as partially remunerate its employees in the local currency, which would enable it to employ more people.

Even greater benefits would accrue from establishing a national exchange trading system that would serve all citizens and all companies in a country, thus enabling them to perform part of their business in a traditional way, using the existing currency, and transfer part of their operations under the system of trade exchange.

The role of the LETS bank would be assigned to the central bank itself or a special bank set up for this purpose, along the lines of the Swiss WIR Bank. The advantages of introducing LETS on a national level would be as follows:

1. Domestic turnover could gradually be shifted to operating in EM, which would mostly solve the problem of money shortages.

2. Companies would save themselves the expense of taking interest-bearing loans.

3. Business operations carried out under LETS would be completely transparent. Completed via the central information system, all transactions would be recorded and therefore impossible to hide, as is currently done in cash transactions.

4. Thanks to financial transparency, which would put an end to tax evasion, such a system would greatly facilitate the state's collection of taxes. Under LETS, turnover tax would seem a more appropriate solution than value added tax. The turnover tax would allow the state to automatically calculate a certain percentage of turnover tax on each transaction. In this way, no transaction could be carried out without real-time payment of tax.

5. The monetary policy in such a system would be very straightforward. By limiting negative and positive account balances, it would be extremely simple to prevent any shortage of money within the system that might occur as a result of the accumulation of money on individual accounts as well as to avoid excessive debt.

6. Improved tax collection would ensure that more money would be poured into the state budget. The revenue from taxes collected under LETS would be spent within the framework of the system—i.e., on the domestic market. The revenue could be used to finance social transfers and investments in national companies. A certain percentage of salaries in the public sector and pensions could be paid in EM as well.

7. Domestic turnover in EM would lead to a substantial increase in the money supply. The need for high external borrowing would decline and at the same time facilitate the repayment of debts to international financial institutions.

8. Private companies would be able to partly remunerate their employees in EM as well. This would provide them with the opportunity to recruit new workers and contribute to reducing unemployment.

However, for such a system to be put in place, many details still need to be clarified, such as collaterals for non-performing loans, the method of limiting negative and positive account balances, ensuring investment funds, and so forth. Luckily, most of these details have already been worked out by the WIR Bank.

If more countries decide to establish a trade exchange system, transactions between them could gradually be carried out in the same manner. Like in the case of clearing dollars, LETS banks of these countries could set up a scheme of mutual debt compensation.

The money as currently created by central banks might eventually become unnecessary and its underlying problem of interest-bearing loans eliminated. Money would no longer function as capital. Yet, the proposed solution would still fail to completely remedy the fundamental problem of capitalism, which is the assumption that capital should generate profit. In other words, profit would still be made by other forms of capital, such as ownership of real estate or means of production. Such a step comes with disadvantages as well as advantages. Namely, with the sole purpose of bringing money back to its primary role without eliminating profits, the proposed system would stir significantly less resistance from the ruling class than the complete abolition of the profit of capital.

However, bringing money back to its primary role is just the first in a series of actions that we must take on the path leading towards a non-profit society. For a successful transition, we will have to take many more steps, but only after we will have accomplished a breakthrough in our collective consciousness.

The seigniorage reform, which was discussed in the previous chapter, would remedy the problem of debts resulting from new-money lending, while the introduction of LETS would also enable us to avoid obligations arising from interest on these loans. On the other hand, neither the seigniorage reform nor the introduction of LETS would settle the problem of old debts resulting from new-money lending and interest on these loans. However, given that creditors will most likely never be repaid, simply writing off all debts on interest might be seen as the only reasonable solution.

A pertinent question in this regard is why the old debts have not been written off during the last debt crisis, as they can obviously never be settled. In reality, no one expects deeply indebted countries ever to repay their debt in full. And yet, the financial sector is using precisely these debts to influence elected politicians' decisions, and thus indirectly interfere with state governance and legislative process. The cancellation of these debts would strip the financial sector of its political power, which would be an urgently needed step for the creation of a stable and sustainable socio-economic system that would not be plagued by crises, wars, and ecological disasters.
Chapter 5: Redefining property

In capitalism, there is nothing more protected than property. To a certain degree, personal property is perfectly acceptable, as is private ownership of the means of production, as long as they are shared among workers who utilise them. All other forms of private property, however, are unacceptable, because they are exploited for profit, despite the heavy cost in economic instability, environmental devastation or the depletion of natural resources.

Property is one of the most protected and most sacred rights in capitalism. Given that the vast majority of laws are dedicated to protecting property, any attempt to bring property into question is considered highly controversial, if not even blasphemous.

However, since private property serves as a means to generate the profit of capital, which is the main cause of economic instability, it seems pertinent to consider what changes should be made with respect to property as well as how it should be defined differently so as not to have any adverse impact on economic stability and so as not to facilitate exploitation.

First of all, a clear distinction should be made between personal property—i.e., possession of various goods that we need for our personal use—and private property, which brings the profit of capital. In this regard, personal property is not called into question, even though it might be well worth considering how much personal property is considered justifiable or how much one can earn without appropriating surpluses at the expense of others.

What is called into question, however, is private property—i.e., the property that allows owners to generate profit without taking part in the production of goods that generate this profit. As we have mentioned several times already, one man's profit is another man's loss. In this case, we are specifically referring to private ownership of natural resources, land, immovable property, and the means of production.

Alexander the Great was a formidable Macedonian king and one of the most brilliant military leaders, who never suffered a defeat and conquered most of the then known world. Nevertheless, his final wishes were that on his funeral, the path to his grave should be strewn with all the valuables from his treasury and that his hands should be cut off and left hanging outside his casket. In this way, he wanted to make people see what a futile pursuit and a waste of time it is to accumulate riches, concluding: "Empty-handed I came into this world, empty-handed I shall leave."

Surely, private ownership of natural resources and land is neither justified nor reasonable. How can anyone lay claim to something that existed before they were born and will remain after they die? Just as no one can place a legitimate claim on the Sun, the Moon and other planets, there is no legitimate ground for anyone to place a claim on air, water, oil, and other natural resources. We are given all these things when we are born so that we can use them and we are stripped of them when we die. All these things belong to each and every human being that has been born into this world.

However, whereas capitalism, indeed, protects private property, it does so only to a certain degree. All land and its natural riches that now belong to someone once belonged to someone else. Most territories were acquired as spoils of wars, with their forcible alienation from the previous owners constituting a severe violation of the right to property. The entire territory of the Americas once belonged to the indigenous populations, until the Europeans came and took it from them. The same may be said of the rest of the world. During wars, property passed from one owner to another. It is also from this vantage point that private ownership of land is brought into question. To whom land really belongs? How far into the past we have to look? During the process of denationalisation in the former socialist states, property was returned to its previous owners or their descendants. Why has such a process not taken place in the US as well? Why has the property there not been returned to the indigenous peoples in compliance with the same democratic rules? The same question can be raised about every territory in the world, as there is hardly any piece of land that has not, at one point or another, been forcibly taken from someone else.

As we can see, private ownership of everything that existed before we came into this world and will remain after we are long gone is neither logical nor reasonable. In a similar vein as seas and oceans today, all lands and natural resources should belong to everyone, and each individual should only hold the right to utilise them within strictly specified and reasonable limits, which already govern the utilisation of seas and oceans. Fishers do not need to own the sea to be able to fish in it.

Whereas not so long ago, it was perfectly normal to own another man, slavery is now a thing of the past, universally unacceptable and, like human trafficking, constitutes one of the greatest crimes. So, why could we not also change our attitude towards the ownership of land and natural resources? Why could we not make one step further towards the understanding and pursuit of equity?

A slightly different situation presents itself about the ownership of immovable property and the means of production, which are the result of our work or the work of our ancestors. The question that begs to be asked, however, is whether the immovable property and the means of production are truly owned by those who have created them or whether their owners have truly earned them.

Here, too, the attitude towards property has undergone many changes throughout history. During socialist revolutions, for example, private property was nationalised or, rather, converted into social property owned by all citizens. However, after the fall of the Berlin Wall, when the socialist countries returned to capitalism, the same property passed into state ownership or was returned to its previous owners in the process of denationalisation.

The exact difference between social and state property is not entirely clear; however, they both represent society-wide public ownership under state control. Because the state is generally portrayed as a poor asset manager, there is an overwhelming trend to privatise all state-owned property. State-owned companies are being sold to private corporations whose ownership is completely non-transparent. Instead of being deposited into the state budget, the profits of newly privatised companies are diverted into the hands of anonymous owners of corporations that bought them. Moreover, since the corporations mentioned above often move much of their business into tax havens, the state is also deprived of its tax revenue.

However, the assertion that the state manages its property poorly is at the very least questionable, especially bearing in mind Singapore, which sets an excellent example to the contrary. Whether property is state-owned or social is not of crucial importance. In both cases, it is the property of all citizens and serves—or at least it should serve—the benefit of all. For this reason, it seems very pertinent to stop or even reverse the current trend of privatising state-owned property. The only thing that governments should do is to take appropriate measures required to ensure the sound management of state-owned property in the same way as private owners can.

Private property is characterised by a diversity of ownership: it may be owned by individuals, shareholders or various mutual funds. Given that shareholders also include legal persons (i.e., companies or firms), the ownership structure tends to be non-transparent. While state property is owned by all citizens, the ownership of private property often remains unclear as a result of circular ownership, which we discussed in the first part of the book. In fact, owners, particularly where small shareholders are concerned, have very little say in how their property is managed. The decisions are left to the management, whose task is to maximise the owners' profit.

The state, too, could transfer state asset management functions to high-quality managers, if it only wanted, if it mustered enough political will to do so and if politicians did not assert any personal interest in the decision-making process. The primary difference between managers in charge of private property management and managers in charge of state-owned property management is in their objectives. The objective of the former is to maximise profits at any cost (layoffs, pay cuts, excessive exploitation and destruction of natural resources, pollution, etc.), whereas the latter pursue—or at least should pursue—entirely different objectives.

State (or social) ownership of real estate and the means of production is a much greater benefit to society as a whole than private property because the drive to maximise profits at any cost is not in the best interest of the state. The state should seek to ensure the welfare of all its citizens.

An exception to the above may be employee-owned companies or cooperatives, which have proven to be extremely successful in many parts of the world. Since employees act as co-owners, it is far from being in their interest to maximise the profits through layoffs and pay cuts. Their guiding principle is, quite on the contrary, to build a thriving company with good work. Moreover, because these employees/owners usually live in the same city where their business is based, it is also in their interest to make sure that their surpluses stay in the area and hence for the benefit of the local community as a whole.

Similar changes are also due in the field of personal property, which should be limited to a reasonable degree that is still realistically attainable without exploiting or taking advantage of others. This limitation should, by all means, apply to any form of accumulation of personal property that is not in use or is extremely poorly utilised, because the creation of such goods, too, is based on the depletion of natural resources.

We would achieve a significant step in this direction by imposing restrictions on inheritance. Namely, a reasonable maximum limit should also apply to the value of one's inheritance, either in money or kind, even if this limit is set relatively high. The remaining portion of the decedent estate would be transferred to state ownership. The measure would have a twofold effect. On the one hand, it would significantly reduce the growing gap between the rich and the poor by preventing the wealth from being passed from one generation to another and by considerably curbing the interest in accumulating wealth. On the other hand, it would also contribute to the state revenue, which could be used for the purpose of increasing the general well-being.

To recapitulate: personal property is perfectly justified, but only to a reasonable extent. In a similar vein, it is also considered justifiable and sensible to privately own immovable property and the means of production, as long as they are shared among workers who utilise them. All other types of property should be transferred to state or social ownership, which is the only way to restrain the adverse effects of private property on society and environment.

Chapter 6: Stable and ecologically sustainable economy

Capitalism has built-in positive feedbacks which make it unstable. To restore the stability of the economic system, it is, therefore, necessary to terminate the positive feedback process. Progressive tax on profit may reduce the impact of the positive feedback in capitalism, while progressive tax on earnings may act as negative feedback to further stabilise the system.

As we have already found in the first part of the book, capitalism is inherently unstable due to built-in positive feedback. Periods of economic growth are followed by periods of recession. In times of growth, the real economy expands, new jobs are created, the purchasing power of the population increases, and the standard of living rises. During a recession, however, the economy stagnates, or even shrinks, unemployment increases, the purchasing power of the population weakens, and the overall standard of living declines.

Once labelled a business cycle, this phenomenon has recently become more commonly referred to as economic fluctuation, because periods of growth and recession do not alternate in equal time intervals. Economists most often consider economic fluctuations as natural and inevitable. The first exposition of the phenomenon of business cycles was provided by J. C. L. Sismondi as early as 1819. He identified the root causes of economic crises in overproduction and underconsumption resulting from wealth inequality and advocated government intervention and socialism as the solution. Sismondi's ideas repudiated the existing theory of an automatic economic equilibrium. According to this theory, free market, based on rivalry and competition, regulates itself through the automatic balance between demand and supply, which has all too often been discovered as completely untrue.

Later on, the phenomenon of economic fluctuations was also studied by many economists. Special mention should be made of Karl Marx, who offered a brilliant analysis of capitalism in his book Capital: A Critique of Political Economy (1867). Regrettably, his ideas of socialism and communism were completely misinterpreted and misused by various ruling regimes. Marx proposed that the motivation force of capitalism be in the exploitation of labour, which is the ultimate source of profit in capitalism. The biggest flaw in his theory was in positing that the transition from capitalism to socialism could be achieved through a proletarian revolution. However, we have already discussed why revolutions fail to bring the anticipated results. Moreover, the first such revolution took place at the wrong time and in a wrong place, in the underdeveloped Russia, which was by no means prepared for the introduction of socialist ideas.

Apart from Marx, mention should also be made of J. M. Keynes, who in his book The General Theory of Employment, Interest and Money (1936) provided a systematic research on the phenomenon of business cycles. He opposed free market and advocated government intervention in the economy, particularly through fiscal and monetary policies. Keynes' theory had a profound influence on the macroeconomic policy for forty years, during the so-called golden age of capitalism. The Keynesian era came to an end in 1979, with the resurgence of the free market idea.

The subsequent period witnessed the development of multiple mathematical models which aimed to expound the phenomenon of economic fluctuations, as well as various contributing factors, ranging from interest rates, consumer confidence, prices, rent rates, exchange rates and infrastructure development to human capital, investment, liquidity, money market, labour market, just to name a few. All the factors mentioned above should make it easier to anticipate and avert crises in the future or identify the point of economic equilibrium, which should restore the balance between demand and supply. Unfortunately, however, they were not enough to help us anticipate and avert the Crisis of 2008. Moreover, they will probably fail to do so in the future unless we eliminate the root causes of capitalist crises.

Capitalism has built-in positive feedbacks which make the system unstable. The two most important positive feedbacks are the profit of capital and the interaction between the employment rate, income, purchasing power, and demand.

Why do we maintain that the profit of capital acts as a positive feedback? Profit is added to capital. The capital increases and generates even greater profit, which is again added to the capital. This goes on indefinitely. If capital were, indeed, to continuously generate profit, it should increase exponentially, like debt on interest. Accordingly, the real economy should grow as well. However, such growth is not possible in the long run. Sooner or later, it results in the shortage of money, demand and natural resources, which inevitably lead to crisis.

In the first part of the book, we have discussed the interaction among the employment rate, income, purchasing power, and demand. Let us recall that an increased demand for goods creates new jobs or higher salaries, which, in turn, leads to a further increase in demand. And conversely, a declining demand leads to job cuts and weakens the purchasing power, which, then, results in a further decline in demand.

As already mentioned, economists aim to find a point of equilibrium where demand equals supply and where the unemployment rate is maintained at a low enough level to ensure the proper functioning of the labour market. Such a point can probably be reached, since according to the systems theory, even unstable systems have their equilibrium points. Nevertheless, a distinction should be made between a stable and an unstable equilibrium. Equilibrium in a system with in-built positive feedback is unstable.

Let's take a look at a very simple example from physics. A stick held at one end between two fingers, so that it hangs freely, is in a stable equilibrium. If we shift the stick from its equilibrium position, the gravitational force will act in the opposite direction of the shift and try to bring the stick back to its equilibrium position. The stick may also oscillate around its equilibrium position, where the amplitude of the motion is steadily reduced by the friction between the fingers and the stick until the latter eventually stops and settles down in its equilibrium position. If we hold it firmly enough, the stick can return to its equilibrium position without oscillating.

On the other hand, a stick held upright on the tip of one finger is in an unstable equilibrium. Every shift from this position activates the gravitational force, which amplifies this shift even further. To keep the stick in a vertically standing position, we must continually balance it with the movement of our hand. It goes without saying that this task requires considerable skill.

Now, let's imagine that the stick is composed of two flexibly linked parts. Such a stick, too, possesses a stable equilibrium, when it is suspended vertically downwards, and an unstable equilibrium, when both parts stand upright, one on top of the other. While such a stick can easily maintain its equilibrium, there is hardly any person to possess sufficient acrobatic skills to balance it in an unstable equilibrium. (Meanwhile, scientists have built a robot with this set of skills.) As for a stick composed of three parts, there is not even a robot skilled enough to maintain it in a stable upright position, let alone a human being.

The only way in which an unstable system can maintain its equilibrium is through regulation, which requires both skill and a very intricate knowledge of the system.

Given the highly complex nature of the current economic system, it is—like in the case of the three-part stick—extremely difficult or even impossible to regulate its equilibrium, which is unstable because of positive feedbacks. To ensure the stability of the current economic system, it is therefore absolutely necessary to remove positive feedbacks.

The monetary reform, proposed in the third chapter, eliminates the profit on new money issued by central banks and the introduction of LETS, described in the fourth chapter, would also lead to the abolishment of interest on commercial loans. These two measures alone would vastly decrease the positive feedback effect, which leads to debt crises.

Furthermore, it is also imperative to eliminate profits in the real economic sector. We could accomplish a gradual elimination of profits through progressive tax, where the tax rate increases as the taxable base increases. In the extreme event, it would be possible to impose a 100% tax on profit that exceeds a certain limit, which means that the entire profit would be funnelled into the state budget. Even now, many super-rich individuals are setting up various foundations to donate a large part of their profits to charity. A 100% tax rate would allow people to have a say on how governments use their taxable profits.

Such a taxation policy would terminate the positive feedback based on the profit of capital because it would prevent the growing capital from generating ever-greater profit. Therefore, rather than growing exponentially, capital would increase linearly with time and thus eliminate the need for exponential economic growth which, as we have already established, is not possible over the long run. Admittedly, such a step would not entirely remedy the issue of constant economic growth; however, given that linear growth is significantly slower than exponential growth, the said problem would be shifted far into the future with unforeseeable socio-economic parameters. Most probably, we will eventually need to move towards a sustainable socio-economic system with zero economic growth. Only an economic system with zero economic growth that is based on renewable resources and does not cause increasing pollution can be long-term sustainable.

The limitation of profit would also entail a multitude of other benefits as well. Companies would no longer be able to forge profits over a certain limit, which would reduce the need for salary and job cuts owing to the increased work efficiency ensured by constant technological progress. The increased work efficiency would, therefore, have a direct and beneficial effect on the improved quality of workers' lives, which would be a result of higher pay and/or reduced working time.

However, progressive tax alone will not entirely eliminate the need for constant economic growth. As we have already established, even (justified) earnings may exceed our needs. In other words, the accumulation of earnings may also present an issue, albeit to a lesser degree than profit. Even though the surpluses created are part of the earnings, they negatively affect the economy when they are not utilised reasonably, for instance, when they are not donated to those who are unable to meet their basic needs. Apart from progressive tax on profit, it is therefore also considered appropriate to impose a progressive tax on all other income, as many countries have already done. Progressive tax on all income curbs the interest in excessive generation of surpluses and thus further stabilises the economic system. The increased production efficiency can therefore primarily contribute to improving the quality of products and services as well as reducing the workload and working time.

By eliminating the need for layoffs as a result of the increased work efficiency, progressive tax on profit and income would significantly reduce the effect of the aforementioned positive feedback, that is, the interaction among the employment rate, purchasing power, and demand. What is more, progressive tax on income also integrates a negative feedback into the system, by reducing the interest in increasing the income, which then settles at a predetermined reasonable level.

Moreover, the limitation imposed on profit and revenue through an appropriate tax policy would also curb market competition and relentless promotion of consumption. Namely, both these factors have a profoundly negative impact on the exploitation of natural resources and are a significant source of pollution and global warming, which have reached alarming levels.
Chapter 7: Strengthening social security

Social security has a major impact on the quality of life. Therefore, countries with a high level of social security have far less crime. In this day and age, there should be no difficulty in meeting the basic needs of the entire global population. The amount of food that is thrown in the garbage every day could easily be enough to eradicate world hunger. Social security might be strengthened by minimising profits or, rather, imposing a higher rate of tax on these profits.

Social security has a tremendous impact on the quality of life. In societies with no social security, people live under high stress and in fear for the future. The increase in criminality is, to a large extent, a result of weak social security. In his documentary "Bowling for Columbine", Michael Moore investigates why firearms claim so many lives in the US. He finds the root cause not in the wide accessibility of guns, many violent video games, blood-soaked national history, not even in poverty and inequality. All these factors are also present in several other countries where the number of violent deaths is considerably lower. As it turns out, the number of crime victims in a given country is inversely proportional to the degree of social security. People who do not fret for their future, who do not face the threat of hunger or the threat of losing their homes and their jobs, etc. lead a more quality life, experience incomparably less stress, and show drastically lower proclivity to crime, violence, and drug abuse.

Social progress is therefore crucially based on the strengthening of social security. Regrettably, however, the global trend seems to lead in the opposite direction, as evident from the majority of measures that governments pass during crises. In many countries—particularly those that have transitioned from socialism back to capitalism—the level of social security has been severely eroded under the guise of austerity. These countries have abolished social housing, free provision of healthcare and education, as well as the solidarity-based pension system, leaving every single individual with the responsibility to take care of the education of their children, their health and their retirement.

The right to satisfy one's basic needs, such as food, housing, healthcare, and education should be one of the basic human rights, irrespective of race, gender, religion, and worldview. Contemporary society should use all available options to guarantee this right to all people on Earth. Since, for various reasons (disease, old age, inadequate living conditions, and so forth), not everyone can earn a living wage, the fulfilment of their needs should be based on the solidarity of those who create surpluses or, rather, produce more than they need.

Even today, developed countries would have no difficulty in providing the basic needs of all their citizens, if only there gathered enough political will to do so. There are several mechanisms in place for ensuring greater social security.

Universal basic income

Over the recent years, a groundswell of attention has been given to the notion of a universal basic income (UBI) as an appropriate mechanism for strengthening social security. Interest in basic income also continues to percolate through top-level political and economic debates. The universal basic income would be a guaranteed salary distributed to everyone, regardless of age and employment status. It would have to be high enough to exceed the poverty threshold and at the same time low enough not to act as a disincentive for work among those who can find employment.

By being distributed to all citizens of all age groups, such an income would also encourage families to have more children by providing a guaranteed income for every child. This consideration is especially important for highly developed countries that are facing the problem of insufficient birth rate.

Many economists believe that the introduction of a universal basic income would put a further strain on the state budget and consequently the economy, which is already stifled by exorbitant taxes and other duties.

However, the truth of the matter is that the introduction of the universal basic income would not impose any significant burden on the state budget, particularly not in countries that already devote considerable resources to social security in the form of unemployment benefits, benefits for socially disadvantaged, child benefits, etc. The universal basic income could replace all these forms of social assistance. Moreover, the enhanced social security would result in declining crime rates as well as reduced expenditure on police, judiciary, social services, and so forth.

If the universal basic income were implemented, the amount of additional social security benefits would differ from one country to another, and it would depend on the funds that individual countries already devote to this portfolio. A number of projects undertaken in different parts of the world where governments distributed "free" money among the poor and socially disadvantaged have shown that their cost to the state has even dropped. Most beneficiaries have used the money very sparingly, launched a business, and began to pay taxes.

With the introduction of the seigniorage reform, discussed in Chapter 3, the universal basic income could be funded with the new money, which would be transferred directly into the state budget. Moreover, with the establishment of the LETS system, presented in Chapter 4, part of the universal basic income could be funded with the turnover tax, collected within the framework of the LETS system. Additional funds devoted to strengthening social security could be obtained through the imposition of a progressive tax on (unjustified) profits and other kinds of income, as suggested in Chapter 6, for the stabilisation of the economic system.

The greatest pilot project of introducing the universal basic income was carried out between 1973 and 1977 in a small town of Dauphin, Canada. All residents received a monthly cheque in the present equivalent amount of about €350. The guaranteed income was unconditional, with no questions asked and no interference from the authorities. A family of four thus received a monthly amount of €1,400. After four years, a change in government brought the project to an end, without any analysis of the results. Thirty-two years had to pass before the data finally came into the hands of E. Forget, a professor at the University of Manitoba. A comparison with the developments that took place in the neighbouring towns during the same period showed that the project was a complete success. The inhabitants of Dauphin did not work any less than before they received the universal basic income (recording only 1% fewer working hours among men and up to 5% fewer working hours among women), children improved their school performance and, most importantly, the number of hospitalisations sharply declined by 8.5%. A significant drop was also recorded in domestic violence, crime, and mental illnesses.

Even before that, during the 1960s, the US launched a slightly less comprehensive but equally successful pilot project, under which about 8,500 citizens were given a regular and unconditional monthly income. Since the US project showed equally encouraging results as its successor in the small town of Dauphin, it was already in 1970 that President Nixon proposed the Family Assistance Plan on giving a universal basic income to all US citizens. However, while the law received a majority vote in the Congress, it failed to pass through the Senate on the grounds that its implementation would be too costly. In the following year, Nixon made another unsuccessful attempt to pass the law, after which the project of the universal basic income sank into near-oblivion in the US.

Free goods

While the introduction of the universal basic income would undoubtedly be a step in the right direction, it would constitute an even more effective long-term solution in conjunction with a free provision of certain goods to all citizens. By this, we refer, in particular, to essential goods required for a decent standard of living. The provision of free goods would encourage us to consume less and in this way contribute to the preservation of natural resources as well as reduce the burden on the environment.

At first glance, such a proposal might seem naïve and even utopian. Why would life's necessities suddenly become free of charge? Is this even feasible? Why would such a solution be considered more appropriate than the introduction of a universal basic income high enough to allow us to buy these goods?

The idea becomes slightly less utopian, once we realise that quite a lot of goods are already freely available to all. Many countries provide free public education and healthcare, as well as guarantee free civil protection, police, army, rescue services, firefighters, and so forth. Public infrastructure (streets, parks, playgrounds, public lighting, etc.) and many services provided by public institutions (spatial planning, weather monitoring, earthquake risk assessment, flood protection, disaster relief, etc.) are available free of charge as well. Some cities also provide free public transport or free bicycle rentals. And the list could go on and on.

Let's first take a look at a few examples that illustrate why it is more appropriate to (continue to) ensure the free provision of certain goods and services.

Healthcare. Not all people have the same health status. Some are healthy, while others perhaps need extremely expensive medical care, where the universal basic income alone could not cover the cost of treatment. Or, conversely, the universal basic income would be too high for those who have no serious health issues. Similar consideration should be given to activities performed by civil protection, police, rescue services, and firefighters. Not everyone needs their assistance, but then no one knows when one might need it.

Schools. In some countries, education is extremely expensive. If the universal basic income were high enough to cover education costs, its amount would by far exceed the acceptable limit after the completion of the education process. Besides, many would use the universal basic income for purposes other than education.

Public transport. If provided free of charge, public transportation is a preferred option for many over using their own cars, which significantly reduces pollution. Another environment-friendly solution is free rental of bicycles and/or electric cars. Moreover, both alternative ways of fulfilling transport needs require a much smaller number of vehicles, which also implies a significantly reduced exploitation of natural resources for the production of transport means.

It would probably also be appropriate to consider food as a free good.

While many charity organisations, indeed, already provide free food to socially disadvantaged and hungry, these activities are performed within the framework of civic society and left to the goodwill and enthusiasm of individuals who are willing to contribute their money, food and/or work. Unfortunately, such endeavours are not enough to eradicate hunger and other forms of deprivation. What we should also bear in mind is that socially disadvantaged people who are forced to rely on humanitarian aid continue to be stigmatised. Many suffer from the feeling of inferiority and humiliation. There are known cases where people died of starvation because they were too ashamed to seek help from charity organisations.

To achieve the desired results, free food should be systemically made available to everyone (by restaurants and/or stores), using the same methods as in the cases of public healthcare and education. Eating out in restaurants that serve free meals or buying free food in stores should become something completely normal, as it is normal for employees to dine in their company cafeteria. In this way, no one would ever have to suffer from the feeling of inferiority again.

Enormous quantities of food are wasted every day across the world. This food alone should be enough to eradicate hunger on all continents, but only on condition that it would reach those who need it. The introduction of free food would significantly reduce the amount of food waste and give rise to the so-called self-service breakfast effect. Most major hotels around the world have introduced self-service breakfast according to the principle of all you can eat. For what reason? What is the economic logic behind this decision?

Having a self-service breakfast for the first time, we usually take more food than we can eat. Soon enough, however, we see no point in it and start to eat in moderation. The next time, we only take as much food as we intend to eat or even less because we know that we can always have seconds. In this way, we leave much fewer leftovers that end up in the trashcan.

With traditional breakfast, the situation is slightly different. If the portions are too small, many guests are unhappy, but if they are too large, plenty of food gets thrown away. Self-service breakfast is, therefore, a better option for a hotel by using less food as well as for guests by being able to eat what they want and as much as they want.

The introduction of free food would relieve the problem of hunger while significantly rationalising food consumption.

We should bear in mind that food production requires energy and that a significant amount of energy is also necessary for the transport of food commodities. Food production is responsible for about 30% of greenhouse gas emissions, which cause global warming. If we only produce as much food as we eat, we will be able to save energy and at the same time reduce the amount of greenhouse gas emissions.

We would also achieve a significant increase in social security with the provision of free social housing. Every citizen or family that does not own a home would be eligible to rent social housing free of charge. The size of such housing units would be limited and corresponding to the number of family members sharing a common household.

A great many homes are currently vacant. During the property crisis, when real-estate prices plummeted, and their market values could no longer cover the values of the mortgage loans, commercial banks foreclosed on properties and evicted their owners. Families lost their homes, and the homes were left empty because banks either could not or would not sell them at market prices, so as not to spoil their balance sheets.

In Spain, for instance, and probably in many other parts of the world, entire housing estates were foreclosed, and the abandoned properties are now crumbling. On the other hand, after the crash of 2008, governments rushed to save commercial banks by providing them with substantial financial injections they had taken from the taxpayers' money. With the same amount of money, governments could buy all vacated homes from banks and rearrange them into social housing. In this way, the money would have been put to a much better use by preventing the foreclosed properties from falling apart and by allowing evicted families to return to their homes. In Europe, there are two vacant flats per one homeless person and in the US no fewer than five.

Apart from improving the quality of life and reducing crime rates, the strengthening of social security also has a beneficial effect on the stability of the socio-economic system and a more rational utilisation of natural resources.

Gradually, in a process that would most probably take many years, the provision of free goods and services could expand to include, for instance, household energy supply, telecommunication services, public transport, and other kinds of services, until the need for money completely disappears and the world enters into the so-called gift economy, in which people would voluntarily donate their surpluses to those in need. Apart from the fact that we are a long way, measured in decades or even centuries, from our objective, it is also doubtful whether humanity will ever be mature enough to establish such a socio-economic system. However, even if reaching this goal seems a long way off or unattainable, we should bear in mind the gift economies that existed in the past and have in some places been partially preserved to the present day. Two such examples are the funeral rite performed on the Indonesian island of Sulawesi or the Moka exchange system in Papua New Guinea.
Chapter 8: Motivation for work

Due to the increasing technological development, the need for human labour will steadily decline. Therefore, our attitude towards work will need to change as well. Work will no longer be something we are forced to do, but rather something we will want to do. Our motivation for work should no longer be the money we earn, but rather the awareness that we are useful and appreciated members of society.

Thanks to technology-driven automation, the main part of construction and agricultural work is now performed by machines that have replaced a huge number of workers. Routine administrative tasks are now carried out by computers. And not only that: owing to the progress made in the field of environmental sensors as well as artificial intelligence, which enables computers to interpret the data they receive from the sensors, many less routine tasks, too, are now performed by specialised robots—i.e., computer-integrated manufacturing. Based on the sensor data, these robots have the capacity to adapt to their working environment and thus fulfil their tasks successfully. Also given their ability to learn, advanced robots can improve and enhance their skills as well as their performance by learning from their experience.

The sheer magnitude of the progress achieved in the field of computer science and artificial intelligence is evident from the fact that as early as 1997, the supercomputer called Deep Blue accomplished a historic triumph over the world-reigning chess champion Garry Kasparov. Although this victory was enabled by the classic computer programme, the exceptional processing speed of the supercomputer enabled it to anticipate a large number of moves. In addition, the supercomputer integrated a multitude of opening and closing moves that chess grandmasters had played throughout the history of chess. However, despite the extraordinary processing performance and outstanding memory capacity (RAM) of computers, the classic computer programme failed to defeat grandmasters of the board game Go, where the number of possible moves is much higher than in chess. The first computer victory in Go is accredited to the programme AlphaGo, which won against the European Go Champion Fan Hui in 2015 and against the eighteen-time world champion Lee Sedol in 2016. Developed by Google DeepMind, AlphaGo has opened a new chapter in artificial intelligence. Rather than choosing the next move according to some pre-programmed logic, AlphaGo learns from the countless games that have been played by grandmasters and those it has played itself. This computer programme also has the ability to engage in intuitive thinking.

Given that the games of chess and Go require exceptional intellectual capacities from a player to be able to choose the next move correctly, we may safely assume that computers are also capable of making much less difficult decisions that face people in their everyday work. For this reason, computers can completely replace people or at least assist them in making decisions during the performance of a vast number of tasks, including intellectual ones.

Even today, many people perform completely unproductive and senseless jobs or highly routinized tasks that could be done by computers and robots, even without artificial intelligence. Much effort is invested in advertising products we don't need, and yet manufacturers seem bent on persuading us into buying them. A great many companies spend about 30% of their funds in propaganda and only about 5% in development. However, not even propaganda can prevent enormous quantities of unsellable products from ending up in landfills. We should not forget that these products, too, are the result of someone's work. There are also numerous jobs, particularly bureaucratic, that governments create with the sole intention of reducing unemployment rates, even though these jobs have no substantive value and are completely redundant.

If we avoid all the senseless work and simultaneously guarantee full employment, it will take considerably shorter working time to maintain the current living standard. It was already J. M. Keynes who estimated that a fifteen-hour workweek would suffice in the 21st century to get all the necessary work done. However, according to the most radical estimate made by the RAND Corporation, which conducts research concerned with the improvement of society, only 2% of work that we now perform would perfectly suffice to meet all our needs. This, of course, only applies to the developed world, which has all the necessary technology at its disposal.

Despite the fact that the demand for human labour will continue to decline as a consequence of new technological advances, some types of work will still be primarily performed by people. The decision to leave everything up to machines, computers, and robots might have fairly dangerous and unpredictable consequences, as is, for instance, illustrated by science fiction films, such as The Matrix and Terminator.

Even though the need for labour will steadily decline, many of us still wonder who will want to work at all, once a high level of social security is ensured and once all people have enough means to satisfy their basic needs. If not payment, then what could our motivation to work be?

In reality, the problem will not be in people not wanting to work, but in the lack of jobs.

We often view work as something we must to do to earn money and entertainment as something we do for pleasure—and usually have to spend money on it. Such an attitude towards work certainly needs to change. Even today, what some people regard as work others see as entertainment. While professional athletes get paid for their sporting activity, recreational enthusiasts most often have to pay to be able to participate in it.

According to American philosopher John Deway, the most profound need in human nature is to be acknowledged, to receive recognition from others. Once all our basic needs are satisfied, acknowledgement that the work we perform is important gives us great motivation to do it with pleasure while aspiring to do the best we can.

A splendid illustration of how everything depends on our attitude towards work was provided by Mark Twain in his novel The Adventures of Tom Sawyer. Aunt Polly gives Tom a brush and a big bucket of white paint and tells him to whitewash a long and high fence. A bit on the lazy side, Tom believes that his day will be sadly squandered. However, being a resourceful boy, he starts to think of how he can avoid the tedious chore and eventually comes up with a brilliant idea. He starts to whitewash the fence, whistling away happily. When his friend Ben walks by, Tom tricks him into believing that whitewashing is a very responsible and pleasurable task. Ben wants to partake in some of that pleasure and asks Tom to let him try it. Tom is happy to agree, but only after he gets something in return. By the end of the day, the entire fence is whitewashed by Tom's friends. And each boy gives Tom something in exchange for being allowed to do his work!

Given that jobs will become increasingly scarce in the future, work is bound to be seen more as a privilege and honour than an obligation. The feeling that we do something useful, that we are needed and that we are good at something gives us meaning and fulfils us.

The right attitude towards work is also explained by an old Chinese story which goes something like this: during his journey across the Chinese countryside, a traveller comes across a farmer who is lifting water out of a well. The traveller suggests to the farmer that a pulley would make his task much easier. However, the farmer looks at him in astonishment and says: "But what will I do then?"

Many who are set for life are willing to do a bit of voluntary work, for the sole purpose of deriving pleasure from it or benefitting someone else. Since they do not receive any payment for their efforts, they are clearly not driven by money, but rather draw their motivation from knowing that they are doing something good, something useful, as well as something meaningful. Many volunteers join various charity organisations. In cases of natural disasters, people selflessly come to the aid of victims. A growing number of computer software developers make their products freely available to all users as "freeware" or open-code programmes. Experts share their expertise for free on many websites. Travellers volunteer to grade places, restaurants and hotels they have visited to help fellow travellers decide where to go. Everyone feels that they are doing something useful, in particular, when they receive praise, recognition, and positive feedback from those who have, in one way or another, benefited from their efforts.

On a general note, people enjoy working. The problem is that the work we do to earn money is often overburdening. For this reason, it is highly unlikely that a guaranteed social security will act as a disincentive for work. If anything, we will work less, differently, and more efficiently. Work would no longer present a burden, but rather a pleasure. No matter how overenthusiastic it may sound, the pleasure of performing a good job would constitute a reward in its own right.

Epilogue

I hope someday you'll join us  
And the world will be as one.

John Lennon

The reason why I decided to write this book is to give the widest possible readership a better understanding of the root causes of capitalist crises as well as to bring them to the realisation that the time has come for change. If we fail to seize this moment to make the appropriate reforms now, we are bound to face even more devastating crises, pollution, global warming, and ecological disasters in the future. My aim was to demonstrate that the progress made in science and technology has outgrown the socio-economic system in which we currently live and which has made this progress possible in the first place.

The time has come to take a step forward and move towards a more stable, sustainable, and just society. The changes should, of course, be introduced gradually rather than abruptly. However, we will only be able to make a step-by-step transition once we fully comprehend what is wrong with the current situation and what is it that we want to achieve. Moreover, we will only be able to follow through with such a transition in conjunction with certain shifts in collective consciousness. The first step in the right direction is the understanding that money should not and cannot be the sole measure of success, that forging profits should not and cannot be the sole objective, and lastly, that cooperation is better than competition.

Most important changes should be made in educating young generations. In an interview, Nate Bowling, Washington State teacher of the year, said: "[I]f we're going to create a better society, it's going to happen through schools. And if we're going to build a better society through our schools, it has to happen through better teaching."

Everywhere I look, I can see a new global consciousness emerging. A growing number of projects and initiatives are being set to fulfil the vision of bringing a change towards a better and more just society. Systems of local exchange trade are being established as well as time banks using units of time as currency. Many projects are dedicated to free food distribution and many aim to introduce gift economy. More and more super-rich are deciding to donate at least one portion of their wealth to various charities and a host of foundations are being set up to eradicate hunger, improve literacy, and promote sports and healthy nutrition, etc. Social enterprises and employee-owned businesses are mushrooming. Cooperatives are being founded where people pool their resources for mutual benefit rather than compete against each other. The first to use the words socialism and political revolution in their most positive sense during a US presidential election campaign was the former presidential candidate Bernie Sanders, who garnered the support of millions of voters, despite the fact that the two terms have hitherto been utterly despised or treated with suspicion in the US. This only goes to show that things are, indeed, already changing for the better.

Just when I was finishing the final chapter, a splendid book by Rutger Bregman came out, entitled Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek. The ideas expounded therein are very similar to those I presented here, but they do not touch upon the issue of the profit of capital, which is the central theme of my book. Nevertheless, I would warmly recommend Bregman's book to everyone for its extremely inspiring as well as very interesting and informative content that draws on actual cases. It was from Bregman's book where I learned about the successfully implemented projects of introducing the universal basic income, which I included in the chapter on social security.

The more people there are with similar yet somewhat different views, as well as new ideas, the better the solutions we can come up with. I believe—or would like to believe—that we can look towards the future with a considerable degree of optimism.

