Non Credit Money

An Essay on Society

I believe I can safely begin this essay on society with one broader observation: the modern society is in crisis. By ‘society’ I imply the humankind in general, i.e. inhabitants of our planet as members of a single society (the so-called global village), as well as smaller human communities, starting from the family, to the nation or state or group of closely related countries. By ‘crisis’ I imply a broader sense in that there exists, considering the basic human aspiration to survival and happiness, a general dissatisfaction with the present state of matters and with the ways the situation is dealt with.

There is no doubt that the immense development of science and technology has created necessary conditions for the rise of human welfare and happiness, but it is obvious that these conditions are not sufficient. I postulate that the missing condition stems from a lack of an adequate science on society. In this paper, I shall attempt to identify the principle cause of social crisis and to provide a fundamental theoretical basis for a new science of society, which will indicate the ways and means to overcome the crisis.

First, I have to define some basic concepts as a paradigm for classification of social phenomena. I will define ‘society’ as community of individuals, between which certain activities take place and certain relations develop that in turn lead to emergence of certain processes. All activities, relations and processes can be divided into four basic abstract realms of social life in general:

1. Creation of value, or culture.
2. Exchange of value, or economy.
3. Distribution of value, or policy.
4. Utilization of value, or civilization.

Here, ‘value’ stands for anything that contributes to maintaining human wellbeing and prosperity. These abstract realms of social life find their concretization in specific areas of social life, whether material or non-material goods (values) are thereby produced, exchanged, distributed and consumed.

Note that through the processes of exchange, there already occurs (re)distribution of value, and this would be the subject of study of the so-called political economy. Distribution of value by (the intermediary) government authority is the subject of politics in the narrower sense (the so-called economic policy). Apart from civilization in the narrow sense, as defined earlier, there is also the notion of civilization in the broader sense, which encompasses all four spheres of social life. The most general science on society would be the science of its civilization understood in this broader sense.

Arnold Toynbee used to study history through observation of birth, development and destruction of twenty-one civilizations. A civilization is in ascent as long as its leaders manage to answer the challenges of the environment and of the development of the civilization itself. In other words, as long as they are able to produce adequate answers to problems set before them. Once a certain crucial question is badly addressed, the civilization fails and begins its spiraling down the path of decay or self-destruction.

Civilization in which we live today is the so-called Western civilization that is in the form of ‘new world order’ being imposed on all of humankind. This civilization is characterized by a level of culture (value creation) unparalleled in history, but also by an obviously inadequate utilization of value, which is usually expressed in the phrase ‘consumer society’ or ‘technological barbarity’. We are destined to share the fate of this civilization, but may also be allowed to offer answers to its challenges and, by salvaging this civilization, to be saved ourselves.

The key question to which the spiritual leaders of Western civilization and humanity in general have failed so far to give an adequate answer is the question: What is the substance of the values that are traded on the market (or, in a centrally planned economy, distributed by state authorities). Many answers have been offered but not one has succeeded in grasping the whole and the essence of the problem. Classical economists believed that labor contained in a commodity was the substance of its value. Marx has also regarded that value of commodity could be represented by abstract human labor, i.e. labor in general, as spending of labor force common to all producers and stored in commodity.

Note that the theory of labor value understands labor as an objective category, or objective cost of production. In contrast, bourgeois economists, who celebrate their victory, agree that the value of goods should be defined as subjective utility (use value) as perceived by consumers. These two schools of thought, however, cannot be mutually contested, because objective labor and subjective utility are not categorial equivalents. In opposition to objective abstract labor (as objective cost of production), a categorial equivalent in the sphere of consumption can only be objective abstract utility, as regeneration and improvement of human labor and other skills, objectively realized through consumption, which bourgeois economists have completely overlooked. On the other hand, standing in opposition to subjective perception of use value is subjective assessment of costs. Both are important as a psychological motivation for behavior of consumers and producers, but regardless of their subjective evaluation, their fate will be determined by objective costs and utilities. We assume that all strive to minimize expenditures, which is achieved through increasing the productivity of labor, and to maximize utility, which is realized through increasing the rationality of consumption, and we assume that their efforts are, objectively, successful.

Therefore, I postulate, contrary to traditional economists, who have attempted to define the substance of value as one-dimensional category, that three equally important dimensions are embodied in commodity: cost, utility and market price. There exists, therefore, the total objective abstract utility, comprised of (1) necessary utility, which is the equivalent of investment costs (abstract labor) and represents the amount of utility that must be absorbed from consumption (usage) in order to redeem production costs; and (2) if rationality of use is greater than that which is needed for realization of the necessary utility – surplus utility. Market price, as a rule, is greater than costs and less than total utility and it enables both sides in an exchange to realize gains. It divides the surplus utility into the producer’s surplus (profit) and the consumer’s surplus. If this is so, then there must exist a quantitative difference between these dimensions on the global (social) level: the sum of all costs I term the product of culture, the sum of all utilities the product of civilization and a sum of all market prices – the social product (gross national product). The social product is what is today only visible because it is expressed in money in the form of market prices. It is the result of both the laws of political economy (exchange) and the economic policy as state interference in economic processes.

It is interesting that Marx differentiated between use value (essentially utility), which he considered a quality that cannot be measured; exchange value at which use values are traded (essentially market price); and labor value (cost) that he deemed to be the basis for the first two, thereby reducing, in quantitative terms, the three dimensions to one basic dimension. On the other hand, the greatest bourgeois economist Marshall maintained that there exists a supply price (determined by costs), a demand price (determined by utility) and a market price, but that in the state of equilibrium of supply and demand these prices are equal.

Analogously to quantum physics, I maintain that in the processes of creation, exchange, distribution and consumption of values there appear quants of value, as the smallest monetary units that can be used to express and calculate the quantities of the product of civilization, product of culture and social product.

All previous economic theory appears thusly as a border case of the theory exposed herein. If cost, utility and market price are all equal, that is, if product of culture, product of civilization and social product are equal, laws of traditional economic science are in power. However, if these values are not equal, the traditional science is simply not able to adequately explain the economic phenomena and, consequently, to suggest economic policy.

How did such a gross and dangerous oversight of economic science come about? I believe that the culprit is the so-called economic equilibrium analysis, which one can already glimpse from the mentioned example of Marshall’s equilibrium market price. Traditional economists have regarded the equilibrium analysis as a key to understanding economic problems and have therefore put in the center of their considerations. Schumpeter believed that “what is not balance is the chaos that escapes analytical control.”

This conclusion may be reached only by one who is not familiar with the achievements of the modern thermodynamics or who does not know the laws of entropy.

Entropy was, as a mysterious quantity, discovered by Clausius in the middle of 19th century when he studied heat engines. Since then, this concept has spread to almost all sciences, including modern computer science and cybernetics. Clausius noticed that a cylinder with a piston, filled with gas molecules and atoms, could be added heat with temperature remaining unchanged. Something still had to change though, and Clausius termed the change – entropy. It was then found that entropy is, in fact, a quantity that measures the increase of chaotic movement of molecules and atoms in the observed cylinder. Amazing was, however, the discovery that in a closed system entropy can only increase, up to its maximum, when the movement of molecules and atoms is maximally chaotic. However, this maximum entropy brings the global system into the state of general equilibrium, when temperature and pressure in each point are equal and, due to lack of any differences in potential, no work is possible, because any flow of energy is impossible (e.g. from a higher to a lower temperature). Thermodynamics established that internal energy of a system consists of free energy, which can produce work, and entropy-bound energy, which cannot be utilized to obtain work. Later, entropy was defined as probability of state and it was affirmed that chaos is more probable than order, and therefore entropy would always increase.

In an attempt to merge all the notions of entropy from various areas of science – for the question was whether it was in essence the same phenomenon – I found that the general concept of entropy could be defined as logarithm of the reciprocal degree of connectedness between events. The more related (i.e. organized) the events, the smaller the entropy, and if they are unrelated, entropy (chaos) increases. There is a general formula: organization + chaos (entropy) = capacity of the system which is determined by the measure of diversity of the elements of the system.
The important point is that the system that is in all sciences rated as the worst of all, i.e. the equilibrium system with maximum entropy, the economic science has accepted as the ideal system that should be pursued in every way. It is not accidental that equilibrium analysis was developed on the model of the so-called complete and atomistic competition of liberal capitalism, where the multitude of companies, like atoms in Clausius cylinder, lead to a state of balance and equilibrium price, in which all dimensions of value are quantitatively equal. However, the state of balance, similar to a stalemate in chess, leads to termination of movement and death of the system.

From everything presented above it follows that, in place of balance of the social accounts, there should exist imbalances, but not those that mean chaos, but rather those that are a consequence of reducing entropy and increasing organization, and that indicate certain proportions, foremostly the ratio of cost to utility.

Money, or income, does not originate from costs (the product of culture), nor social product, but from the product of civilization. It is spent in the amount equaling the necessary utility to purchase material goods from the product of culture, while it also partially represents non-material values equivalent to social (global) surplus utility. After exchanges are performed, gross social product (market prices) can exceed the product of culture (expenditures), leaving producers with a net profit for growth; while remaining lesser that the product of civilization, leaving consumers with a consumer’s surplus for purchasing immaterial goods.

With emission of money in the form of credit, as the case is today, the system could function optimally only if there would exist a real balance of social accounts. Credit of the central bank to commercial banks, which in turn distribute it to companies, would be paid back in full and it would measure the size of the so-called social base, while credit of the central bank credit to the state, from which it finances the superstructure, would be completely repaid from taxes and contributions. However, in such a system the social surplus utility would equal zero.

According to the theory presented, if there exists a social (global) surplus utility, then one part of income should be, as the equivalent of surplus utility in the form of noncredit money, directly given as a gift that need not be compensated by taxes and contributions. It is apportioned on the “according to the needs” principle to the recipients of income from superstructure, i.e. to those who from that income can yield the most utility. This way we begin to see one part of previous taxes as a mistake of economic science that unnecessarily makes consumers pay more and producers receive less than they actually should. Part of the taxes, however, should still exist in any system in which there is a state organization and politics, to cover the costs of existence of the social system.

Increase of economic rationality in the sphere of production, i.e. increase of productivity of labor, reduces the time cycle of production, i.e. the time after which the production can begin anew, which in turn leads to increased supply. On the other hand, increase of economic rationality in the sphere of consumption leads to increasing the length of products’ use time, extending the re-consumption cycle, i.e. the time after which it is necessary to restart consumption, which in turn leads to decreased demand. Supply exceeds demand, which is known as crisis of overproduction (as in 1929.) or of insufficient consumption, which creates a deflation problem in society that is observable through a slowing down of the velocity of money circulation. It is a phenomenon that Milton Friedman found in all systems he studied, but he did not have any explanation for it.

The amount of deflation is in fact a measure of surplus utility and it can be neutralized only by an adequate emission of noncredit money, a “gift from heavens.” Since at present day there is no emission of money from surplus utility, it is spontaneously expressed (in compensating for deflation) through inflation, as well as through delay between income and expenditures, and budget deficit. A nominal balance of social accounts is achieved, satisfying the dogma of economic science; while in reality there is a real imbalance of social accounts, blurred by the mentioned chaotic processes, but essential to realize at least part of the surplus utility. The surplus utility is destroyed in attempts to unnecessarily equate the cycles of reproduction and re-consumption, or the frequency of supply and demand, by purposefully producing lower quality goods, by inciting consumers through advertising into superfluous and irrational consumption etc. (the “consumer society”) and especially through the costs of militarization. In the end, a part of product stock still remains unsold and is wasted.

A system with legalized surplus utility would in reality operate, to the satisfaction of all, as follows: those who draw their income from labor (i.e. from products of culture) would spend only part of their income on products of culture (and the other part on the immaterial values), making it possible for the rest of products to be bought by non-producers, who draw their income from social surplus utility. The size of the social surplus utility would represent a quantitative expression of the achieved level of civilization.

Since besides the national, there is also the world product of civilization and world surplus utility, it is clear that a new world order can not be established by NATO tanks or the American president, but only by experts of the International Monetary Fund and the World Bank, who would be able, once introduced to the theoretical achievements drafted in this essay, to properly ration the required emission of world noncredit money for each country, and thusly create the basic requirement for the blooming of world trade, which will allocate global production according to the minimum costs and consumption to maximum utility, enabling the optimal development of all, without inflation and deflation, and with full employment.

To conclude: one side of the social accounts is the product of civilization as the total utility and the total cash income of society, the other side is the product of culture as a sum of costs.
Social surplus utility is a percentage of the product of civilization, and also stands in relation to the product of culture. We can imagine a future civilization in which the product of culture, as its material base, will make, in money terms, only a few percent of the total product of civilization. However, such a civilization cannot arise on the basis of the current social accounts, in which the surplus utility equals zero and the costs of superstructure equal the taxes, only so that the equality of the two sides of social accounts may be enforced.
The current economic theory and its accompanying policy that are founded on the premise of non-existence of surplus utility and, accordingly, on balanced social accounts, not only represent the main obstacle to further development of civilization, because they encourage irrationality of use of values, but they threaten the very survival of civilization. Unless this contradiction between the base and the superstructure is resolved, i.e. between surplus utility and the product of culture, the Western civilization will break down. It is obvious that only with the legalization of income from surplus utility (i.e. noncredit money) will we create the institutional prerequisites for the realization of the potential surplus utility, and only then will we enable maximally rational use of values, and further development and growth of civilization in which we live.

Author: Stojan Nenadović