This is another part from my book on a new economic theory.
|The Death of Capitalism
“Good morning to all of you. I am Professor Andrew Wayward, and today I’ll try to explain you why, to all practical effects the capitalism as we know it, is dead. Stone dead.
All of you will remember how it was and how it should have been. The Government is the guarantor of contracts and physical security, while the national banks had reserves held against every money bill that was printed. It was a simple and effective framework for democracy and capitalism. It was a pure Darwinian environment, and propelled the modern society until now. Note that at the time it was impossible to make money without some form of social interaction, as even the more dishonest businessman was discouraged from the fact that he could have been pointed as the source of trouble; in the capitalistic system, the social factor is one of the most stabilizing. As the time goes by, the enlargement of the markets created new opportunities, which in principle is a good thing. Together with market enlargement, the development of technology in terms of communication speed and costs, and information processing capability, advanced to a point not even thought possible. Here is where an evil combination was used to make easy money: Somebody found out how to use the global market while, at same moment, excluding the social interactions. As matter of fact, the “obscure side” of finance was born, with the accomplice - I need to say, of our governments. The majority of financial instruments use a combination of factors to exclude any social involvements from financial transactions; behind this smoke curtain, usually noting good happen for the people. We made good use of simulation software to relate the effect of modern financial instruments to their consequences on the society, and we were horrified. To make a long story short, if you buy any funds who bear the promise of easy monetary gain, you are contributing to hang yourself. This is because the modern computing capabilities were used to exclude any social interaction from the financial process, to hide incongruence and ultimately raising the boundary of the transaction.
If we want to fix this, there is no law or regulation who can do it. To reinstate the social portion inside the capitalistic system will require some effort. Whoever use or manage moneys will always place its own convenience or benefit as first priority; this is the human nature. Whatever rule you may want to force inside the system as it is, will not work. This is why we have developed a system that uses the human nature in favour of the global well being, and it is made of series of small “hints” that progressively direct the sum of all actions toward the right direction.
Now I want to come back to the title of today lesson: why capitalism is dead? Because there is no longer the distinction between the politics and economy. The two disciplines have two opposite targets, as most of you already know.
Politicians closed both eyes when finance people provided an easy amount of money to the local and central administration: the first priority of politicians is to remain in charge of power and they achieve it by receiving consensus from people, both in clear and hidden manner. A quantity of money makes the job extremely easy.
Now, the people who supplied money went bankrupt. The problem is that they did it in a way which would take the economic system down, so to avoid it politicians bought they banks, their financial services, their insurance companies, and the like. By doing so, the economic system will be under control of politicians, out of the hands of economists, and will be used to keep the politicians in charge under the actual power scheme. Here, we call it “social capitalism”, and it is a system fated to a dreadful failure, since will carefully avoid any spontaneous innovation. By definition, scientific and social innovation are never planned, they are born from the capacity of a single person or group of people to invent something new. This doesn’t mean that the world will go bust; but we face a long period of social and economic decay. Politicians crystallize in their role usually, and they are bound to lose it in face of somebody who decide to overturn them with a sudden innovation, not to say a revolution. This is why we say capitalism has failed; it had a built in weakness, and finally it showed up.
How we plan to recover? We have invented the Ethical Finance and Quantum Economy. While the words “Ethical Finance” can be somewhat self explanatory, Quantum Economy deserves a good explanation.
Quantum Physics is the field of human knowledge where we borrowed the concept. The minimum quantity of energy that can be observed is called a quantum. Any “transaction” in the physics world is made of quantum, there is no fractional amounts of energy that can be observed. Depending on the type of “transaction” the quantum energy can increase or decrease. When the light coming from the sun enters the earth atmosphere, it has to deal with air molecules. The visible white light is composed of a number of colours, ranging from red to blue. Every colour represents a quantum with different level of energy, the red being the lowest and the blue the highest. These quantum of energy enter the atoms of air, and stays in it for some time. Since the blue has higher energy, it exits the atom from a position which is much different of the entrance, with the visible effect of scattering who makes the sky appears blue.
In our theory, we considered the money like the quantum. Money has a face value but the real value of it, in any specific transaction will change based on some criteria.
Our method of application of those criteria is simple: each person will benefit of it the at any level, and the global application of those criteria will benefit the system as a whole.
We have invented a giant anonymous tracking system for economic transaction. It has to be anonymous, and there are too many reasons to explain all here; to sum them up, it is not the task of the economic system to maintain legality, and we need something that can mimic banknotes: a weakness of many governments is they use technology to save on investigation time, and we have proven that it is highly unproductive. The system is implemented with some simple modifications to the actual credit-debit card infrastructure, by tagging separately and anonymously each transaction and the money used for them. To obtain it, we use a mixture of hashing and cryptography. Basically, it is like we attached to each pound, dollar or euro bill a sticky notes with the history the social value of each transaction it participated, so the value of that specific bill is higher or lower of the face value. We have run simulation on our model and it works perfectly.
The use of tagged money would make convenient for everybody to favour transactions which benefits the system as a whole. The actual capitalistic system is based on the sum of all single transactions. Every person, company or institution is free to conduct the transaction which is more convenient for him, and he can be aware, or not, of the wide effects of his action. Under certain economic and social conditions, as we have seen, the sum of all single transactions is positive for the society; under other conditions, as we are experiencing now, can be highly detrimental. Money, as we are repeating at every moment, are an abstraction: more abstract they become, more dangerous they are. By giving a merit to money that produces global beneficial effects, and a demerit to those which indices negative effects, we produce a distributed system who can propel the society indefinitively.
How we can start using tagged money? Being it a distributed system, there is no need for world government to agree upon and prepare the necessary laws and regulation. As we already seen, the capitalistic system doesn’t accept well any imposed rule; fewer rules means a more functional system. It is enough one bank in the world offers tagged money products, and people will learn what they means in practice. Since tagged money requires only a small modification to the existing electronic payment infrastructure, its implementation will imply only some changes to the banking system software. We initially prepared the tables which defines the value of merit of the tags, but our simulation indicates that those tables will become of utmost importance as the system kicks in, and we think they should be agreed at the top political and financial management. In a practical lab we will conduct an exercise on how to prepare a tagged investment scheme, for those of you which are not familiar with banking techniques. We need you to grasp both the operation of such a system, and its widespread effects.
The bottom concept is simple. With this system, we kill the processes that give birth to the derivatives… and I am afraid to say, we also kill the job of financial consultant. As you don’t need a consultant to understand the value of a one hundred pounds bill, at the same you will not need a consultant to understand the value of a transaction or investment made with tagged money.
We have run simulations with a vast variety of financial models: the only one who can save our economy based on capital is the one I just described. The idea is make not convenient to cheat, or purely speculate with money, but leaving the choice anyway.
To recap the first part of our lesson, please remember: First, the amount of real money available in the world is fixed, and is tied to the human efforts, energy production, and data coordination; second, monetary transactions can produce beneficial effects for the single person, and at the same time create havoc globally, while the single cannot know or care; centrally imposed rules or limitations only works temporarily, if at all; and transactions merit tables, required for tagged money, can be set jointly from financial and political entities without any conflict of interest.
I would take our forty five minutes break now. Since the matter of this lesson is very important, I would start the second part of the lesson with your questions. So during the break think to some sensible questions regarding dead capitalism and tagged money, which is the only solution to revive it. See you here in forty-five minutes.”
“Well come back to the second part of the lesson… I ask you now to pose any question related to what I have said before the break…”
With my big surprise, Lisa stand up and started to talk. “Good morning everybody. I am Lisa Hartmann, and I’m an associate Professor to this University.
Dear Professor Wayward, could you give as an application scenario of your new theory? We all understand the deep meaning of it, and the fact that it could revert the actual stance of the world economy... but at the moment I would like to listen to an example… Thank you…”
Andrew looked positively surprised. And he went on:
“Dear Prof. Hartmann, I’m glad of your question. The design of our theory only require seeding, which we may want to produce in the near future. Suppose that myself, you and few friend of ours setup a bank. We use our capitals to finance the production of solar energy in the Sahara Desert, to built a number of advanced nuclear power plants around the globe, to reinvent the electrical battery, and setup a network of self linkable electric cars.
Suppose all of those projects are designed with specific software, which is commonly available; we used a commercial one made in the U.K. At each moment you can compare the advancement status of each project, each expenses, and monitor each team responsible for the different portions of the project. The prospectus are made public on the Internet as a guarantee to the investors. The projects never lasts more than five years, so the investment lengths. Against those projects, our bank emits tagged financial products which, believe me, will have a special value in the story. They will be the first form of tagged money…”
“Dear Professor Wayward, can you elaborate on your projects?” a male stressed voice shouted from the back of the auditorium, without presenting himself.
“Sure I can. Remember these are pilot projects, designed to be easily agreeable with local politicians, since our Bank will not have, initially, the necessary political bonds worldwide. In our vision, the role of Banks will expand to include some political public influence, in contrast with the hidden influence they had in the past.
The initial investment in the Sahara would be to setup a small silicon factory right at its centre, and build a wide water pipe and an motorway from the South Mediterranean Sea. So we will be able to produce photovoltaic cells on the spot, and have transport and salted water. We start covering the desert with cells and produce electricity. As the core of electricity production expands, we will built elevated water reservoirs in which we pump water to store surplus electrical energy. For each isle of cells we make a reservoir and a hydroelectric generator. We can add one isle per month, and after five years we can power the entire North Africa, and after five more years, the entire Europe. With surplus energy, we remove the salt from sea water, irrigate the desert, and produce liquid fuel from the hydrogen. This project will never end to produce money, not until the secret to produce electricity from nuclear fusion will be discovered.”
“I am really impressed” Lisa said. “What about the advanced nuclear plants, the batteries and the train cars?”
“Well,” Andrew said. There is nothing new with standard nuclear power: they are bed of spheres nuclear reactor, which can never face meltdown. The spheres are manufactured locally from raw uranium, and the reactor site doesn’t necessarily be close to river or sea. We designed the reactor to so that the by-products have the shortest half life, and the long term burial will also be local, and provided during the plant building. We don’t like nuclear fission but there are places in the world where those reactors are the only answer to economical collapse since they are relying on impossibly old fission reactors.
Regarding the batteries, this is a sore point. City mobility in our vision has to be only electric based. We don’t want tanks of hydrogen or methanol in our vehicles; we want reliable high capacity batteries. It is our opinion that, so far, all investments in the research have been only nominal, to attract government or corporate funds, that’s it. You can see that the better electric cars, today, uses stacks of portable computer batteries: doesn’t this ring a bell to you? We are pulling the batteries out of the hands of chemistry experts, and placing them in the hands of physics experts. A battery will be an array of layers of micron sized cells under the control of a processor; they will produce energy, not just release it, as they do it today. This project is a one-shot, in the sense we are finding the designers for it. Once completed, it will just improve our existence, and require no further investments. The train car is another project designed to change the world, and will be an ongoing one. Basically, each car entering a crowded city, an highway, or other specific places, will pass under the control of a centralized computer. You need only to set the final destination, and the car will be guided there. This will solve the impossible traffic jams, improve the security of driving, and optimize energy resources. Cities will be liveable finally, will be no more deadly accidents. While in the advances places like Europe, Japan, and U.S. this can easily be implemented, some special financial engineering will be required in the developing countries.
We have more pilot projects under development, and those four are the ones with the highest visibility…”
“Thank you for your clarifications” Lisa said.
“To be back to our economy plans, I need to reinforce the changing role of banks in our economy. As of today, the main role of banks has not changed since the inception of capitalism. They benefited of the information revolution only marginally; basically they use computer for accountability, transactions exchange, and remote access. In a recession stage, as the one impending today, they will worsen the state of the economy by producing the infamous credit crunch. This is because their limited scope, which no longer fits the global economy. Since they started resorting to derivative financial products to raise their capitals, they accelerated the decay of economy to a complete failure. Political leaders are saying that saving the banks is vital, but that is only half of the truth. The other half, which they cannot pronounce since they don’t know how to implement it, is to provide banks a correct visibility on the future of their lending’s. So far banks have provided funds to various projects on the indication of politicians or consultants, but they are, traditionally, only transactional entities. At the beginning of the capitalistic era, it wasn’t so. Investment planning was easy and was carried out by single and often gifted manager. In the global economy, this is no longer possible. In order for the banks to restore their original role, quantum economy is the only answer. They will have to fund only verifiable projects with guaranteed returns, and use tagged money to deal with individuals. To say it in short, bank will have a say in the political field and not vice versa.
Banks will have to use specialized software to calculate long term investments, usually behind the reach of the length of power of a typical politician. So far, banks have relied on external consultants which used risk-spreading software to produce investment products which in turns empowered politicians… but it has proven to be the recipe for the failure. Economy is tied to society, full stop. If you cheat on this, you will fail together with the whole society, as it is happening now. We want only to give to everybody the means to get out of this crises relatively untouched. Everybody suspects, but nobody says it, that the banks, to date, holds more toxic assets than any public intervention can cure. If our methodologies are not implemented before this spreads out, we risk to be back to the stone age.
Any other question?”
Nobody seemed to pick it up. The students were all looking profoundly thinking. “Of course, this is not your only occasion to understand what quantum economy is; more lessons, and more details, will be provided to you. Tomorrow we will deliver an introduction to quantum physics, and how we have been able to apply the principles to our economy, so you will understand from where we come from, and how we will continue on our track afterword. At this point I wish you all a pleasant afternoon…”