Employment for All

Published in leading Pakistani newspaper Dawn, April 24th, 2019 – The article explains, and makes a case for the Job Guarantee Program of MMT, for popular press.

GLOBAL experience shows that market economies create massive inequalities, enriching the top one per cent, while leaving the bottom of the population far behind. One key to prosperity is to provide productive jobs for all who would like to participate in the production process. Unfortu­nately, contemporary macroeconomics, which was blind to the possibility of the global financial crisis, is not equipped with the ideas and tools required to create full employment.

Conventional macro blames the poor for their poverty, and suggests education and training to fit them into existing jobs. However, the private sector does not naturally create enough jobs to employ everyone. Experience with Keynesian remedies shows that expansionary monetary policy starts to create inflation a long time before full employment is achieved. Modern Monetary Theory provides a genuine alternative, a job guarantee (JG) programme.

Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people. Jobs should be provided to take people as and where they are. Skills should be provided via on-the-job training. There are a huge number of jobs which require low levels of skill and education, and provide enormous benefits to society, but are not profit-making for the private sector.

Planting trees, building roads, cleaning dams, infrastructure projects, a range of social services, all provide benefits to society, and make a measurable impact on appropriate measures of GNP, but may not be privately profitable. Engaging the entire working population in productive jobs is a win-win solution since it will add enormously to the economy’s productive capacity of the economy, while providing a living wage for all members of society. We must solve a complex set of structural problems to make this work.

The first problem is institutional. Just as the private sector cannot provide enough jobs, the government too lacks the capacity or capability to productively employ millions of people. Since neither the government nor the private sector has sufficient capacity, we must turn to communities for provision of jobs. Fortunately, community-driven development was pioneered by Akhtar Hameed Khan in the Comilla Project, and has been replicated across Pakistan. Both the Pakistan Poverty Alleviation Fund and National Rural Support Programmes have created thousands of living communities across Pakistan. These communities can be given the responsibility of providing productive jobs, for which funding can be provided by the government.

Next, we must examine the consequences of pumping billions into the economy by providing millions of jobs to all who wish to work, taking them as they are, where they are. A huge amount of additional demand for goods and services will be created by this additional money being paid to the formerly unemployed. Using household income and expenditure surveys which describe consumption patterns of the poor, we can come up with first-round estimates of the nature of the additional demand generated. To prevent inflation, we need to ensure that employment is provided to produce the goods for which we anticipate excess demand will be generated, eg if we forecast additional demand for a million tonnes of food, we must employ the labourers to produce the additional million.

Careful sectoral planning is needed to ensure a match between additional demands generated and the additional production that will be created. However, even if we fail in matching supply to demand, excess demand which leads to inflation is not necessarily harmful. Rising prices signal high demand and set off private mechanisms to create additional capacity to meet new demands. Large amounts of labour made available by the JG programme would facilitate expansion of supply in response to increased prices and profits.

A surfeit of money would create excess demand for imports. With an overvalued rupee, we subsidise all imports and can’t afford to increase demand, since that drains our forex reserves. However, an undervalued rupee acts as a tax on imports which creates forex reserves for the State Bank. Many economies like Japan, China, and East Asia have used undervaluation to promote domestic industries and accumulate dollars. It is true that essential imports with inelastic demands will become more expensive. However, we can use the surplus generated by undervaluation to subsidise essential imports. This dual exchange rate policy is far more efficient than a general across-the-board subsidy to all imports, which is created by overvaluation.

Many aspects of the JG programme require careful planning and adaptation to local social and institutional structure. But the payoff of prosperity for all makes it worthwhile to invest in the required efforts.

The writer is a member of the Economic Advisory Council.

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25 comments
  1. tabeles said:

    This is the same core idea that is one leg of the Green New Deal except that the GND promotes “good” jobs basically as part of the “solarization” of the utility industry. It also is related to the UBI which expects the recipient to contribute to the economy. One of the major issues that has not been addressed revolves around the UN’s SDG’s which points out that the planetary resource base is currently challenged and becomes more problematic with increased material consumption, suggesting that this issue needs to be resolved by a “degrowth” world, economic theory not withstanding.

    Regardless of whose delusional monetary theory is used, it suggests that there needs to be serious consideration regarding the needs/wants of the developed economies which consume a disproportionate amount of planetary resources even if the problems of climate change are satisfied by adoption of solar/wind/etc as part of the Green New Deal.

  2. Samir Shaikh said:

    This articles completely ignore the technology effect on unemployment. Technology advancement factors in no small way in the unemployment rates worldwide. Even in Developing countries, industrialists and investors often wind up importing technologies to run their industries. Reeducation and retraining is, therefore, quite essential in challenging unemployment

    • tabeles said:

      Take the impact of technology forward. It is clear that Artificial Intelligence not only impacts at the less skilled but also up through functions of highly educated individuals. The important issue here is to consider how or what an individual designs as “work” rather than as a “job” or “employment”, one of the major shifts being recognized when considering the UBI. Thus, many of the economic models need to be rethought rather than shoehorning current “employment schemes based on productivity and “jobs”. The shifting real world systems, influenced by AI and related technologies, demands that these changes be addressed so that theory reflects changing praxis.

  3. Dean said:

    Asad,
    You are obviously a supporter of employment for all.

    Can I ask you, the following questions:

    Do you believe that everyone wants to work 40 hours a week for 50 years of their lives contributing to some ‘production process’?

    If so, why do most people dream of retiring early?

    What is stopping a receiver of income from a JG program taking their income and investing in the stock markets in the hope they can retire young?

    Thanks

  4. Another imagination: to rebuild the microeconomics
    For centuries, the imagination to the process of the economy that we learned is still the same, what changed is just more and more beautiful, not right. This is the general equilibrium theory. Today, the question we faced from the Great Depression where is the boundary of the government and the market is still a question. Despite many economists try to give the answer, no one succeeds. There are too many theories about the economic crisis and every school want to build a theory to explain the crisis, but no one succeeds,even the most famous school. The reason is they are the same. They believe that we will get a beautiful future by the power of the government or the market. That’s the reason why they can’t succeed on the way to explain the economic. The economy of today is failed. And at the same time, many economists want to get the answer from other subjects and build some branches of economic, such as Behavioral Economics and The Game Theory. But the directions are wrong, economics is always economic, the question is always the question of the economic, not others, we can’t get the answer from other subjects. We need to rebuild the microeconomic.
    Despite we will rebuild the microeconomic, what’s wrong with the microeconomic. It’s the logic and the principle, not the tool. Next what we will write include the perfect compete, the full employment, the demand curve, and the supply curve, the general equilibrium theory, the consumer surplus and the producer surplus, the international trade theory. In the end, we will see the future of the economic, not the uncertain future we described in the perfectly competitive market we learned.

    1.The perfect compete market
    In here I will give the new assumptions to replace the old that we often used. In fact, the new perfect compete market is just the real market, the difference is more clear than the real to learn to know the market. And at the same time, I won’t talk about the wrong of the old perfect competitive market and try my best to describe the new. The difference between them is the assumption. The first assumption is the number of firms is not limited,even that’s one or two. The second assumption is the goods could be different. The third assumption is the firm could enter or exit the market freely, not be stopped by the government, but pay for the cost. The fourth is the firm only know the information about the cost and profit, include the cost of the progress of technology. By the help of the assumption of the information, we could the certain of the model, and by the help of the economic man, we could get the direction of the change of the firm. The first and the second is just used to be recognized as the difference with the old. Despite we described the new, the people still don’t understand what’s the meaning, we will draw the demand curve and the supply curve to make the model clearly, and at the same time, we also talk about the new define of them and then the importance of them.

    2.The demand curve and the supply curve
    The define of the demand theory and the supply theory we used is to talk about the relation of the price and the production, just like when the price change, what the production will be,can’t show us the change of the price in a long time. The new define will show the price, not the quantity. In fact, the demand curve and the supply curve we see in the perfectly competitive market should be static, but what we learned is dynamic, the change of price cost time and we can’t use the model in the perfect compete market. In the new model, the curve what we see in the final is the equilibriums of every sellers and buyer, not the relation between the price and quantity. So the demand curve means the array of the first high price, the second high price and so on; the supply curve means every firm’s marginal cost (because the marginal cost equals the marginal price, so we can use the marginal cost replace the marginal price) and they are independent, the production of every firm is different and every firm has themselves’ equilibrium, so the supply curve is made up of a series of horizontal lines. In the final, let us see the chart (1).

    P

    F
    S
    Pe E
    B C
    A
    D

    0 a a+b a+b+c Q
    Qe
    (1) the demand curve and the supply curve
    in the perfect compete market
    In this chart, the D is the demand curve, the S is the supply curve, the E is the point of the equilibrium, the P is the price, the Q is the quantity, the Pe is the price of the equilibrium, the Qe is the quantity of the equilibrium, the A is the producer surplus of A, the B is the producer surplus of B, the C is the producer surplus of C, the F is the consumer surplus, the a is the production of the A, the b is the production of the B, the c is the production of the C. So we can use the new chart to talk about the consumer surplus and the producer surplus. When the capital or the labor adds, because the cost of the firms is different, the dominant firms could get more capital and profit than others, the profit of the disadvantage firms is less, even compare in the technology, so the winner becomes more and more strong, the loser exists the market until the last one, the monopoly will be the last form of the market. The process of the change just like the chart (2). And in this chart, we won’t get anything about the quantity, what we could get are just the winner and the loser. Who’s efficiency is the best who is the winner, not to let everyone get the profit and to be a price taker.

    P
    F2 S
    Pe B2 E
    A2 D
    0 Q
    a2 a2+b2
    Qe
    (2)
    2.The consumer surplus and the producer surplus
    When we talk about the questions about the consumer surplus or the producer surplus, we often think about is how to get more and more surplus, we think the firms and consumers will try their best to get more surplus and haven’t told about others. Today what we talk about is the change of the surplus, when the price of a good goes down, what will happen to the consumer surplus and the producer surplus. Of course, most people think that the consumer surplus will add and the producer surplus will decline. But not that, what we will talk about is not the total of the surplus, the consumer surplus of everyone is the most important, not the total. We want to get from it is not the welfare, is the trend of the price. The willingness to pay of a buyer is based on the equilibrium price, when the price change, the willingness also change. By the effect of the decreasing cost, the price will be decreasing, so what will the price be. We will have two kind assumptions of the recourse to talk about the trend of the price. First, if the resource is limited, the cost includes two parts, one is the rent of the resource, the other is the wage of the labor and the interest of the capital, by the help of progress of technology and the capital accumulation, the part of the wage and interest is declining and will be zero on the extreme, the price of the good will be the rent of the resource in a long time in the perfect compete market (look at the the chart (3), the demand curve and the supply curve coincide, the surplus is zero). And at the same time, the willingness to pay equally the price the buyers actually pay. Second, if the resource is unlimited, just like we have said, the part of the wage and interest will be zero, at the same time, the rent of the recourse also become zero, so the price of the good will be zero in a long time in the perfect compete market (look at the chart (4), the demand curve and the supply curve and the horizontal axis of p = 0 coincide, the surplus is zero and the price is zero). Final, the willingness to pay to equals the price the buyers actually pay and equal zero. So the end of the perfectly competitive market is the price is zero and the surplus is zero, no one could get any profit from the market. But we still have a question, the price is certain and zero, what’s the quantity, the curve of the demand and the supply coincide and anyone point maybe the quantity of the equilibrium. Really? The answer is no and we could get a certain quantity in the next.

    P P

    Pe D(S)
    Pe D(S)
    0 Q 0 Q
    (3) (4)
    4.The full employment
    When we talked about the perfectly competitive market, we did not talk about the factor of production. We have two assumptions about it, one is the capital could flow freely; the other is the labor can’t flow freely and the limit is the ability of the labor, not the government. Because of the limit of ability and technology, the kind of goods that we could produce is limited, that means the scale of market is limited, we can’t assume everyone has the ability and the kind of good we could produce is unlimited, By the help of competition, the labor try their best to have a job, the labor who have a higher ability have a higher wage, the labor who have a lower ability have a lower wage or no wage, so we will see the model of the wage is a pyramid, just like the chart (5), the labor who has the highest ability on the top of the pyramid, the labor who have a little or no ability in the bottom or the floor that can’t be a part of the pyramid. At the same

    (5)
    time, by the effect of the progress of the technology, we will see two different results, one is the top get more and more profit; the other is the unemployment of the bottom, because the production efficiency improves, we could use less labor to complete the task and the labor that lost job can’t find another job, the trend is not a short-term phenomenon and always exist, if the labor won’t have the creative ability, they will lose their job, the situation is more and grimmer. With the development of the automation technology and the cost declines, the machine could be used more and more industries, the unemployment will improve significantly in recent ten years. In the process of this change, we will see employment add in the developed countries and unemployment adds in the developing countries, next the unemployment add in the developed countries and can’t be stopped. This is the effect of the progress of technology. If we can’t have the creative ability, we will lose jobs; if the creation has the boundary, we all lost jobs, the machine will replace us. In a word, freedom is prosperity, is grave. Finally, we could tell the answer to the question that we have given in the final of the 2 part. In the free market, we face the future that everyone lost their jobs, so everyone can’t get any income and can’t buy anything, even the price of the good is almost zero. In the book that I have read, when we talked about how the full employment could achieve when the machine is used, the reason that they gave always is the wage of workers could decline and the price of good also decline and the income of the workers could fulfill the life, but that’s unilateral. We always talk about the wage of worker and the price of a good, but never talk about the change of the machine, if the cost of a machine is always lower than the cost of workers, what will we do. The answer to the quantity of equilibrium in the perfectly competitive market in a long time is zero. Look at the chart (6).

    P

    E (0,0)

    0 (Pe,Qe) Q
    (6)

    5.The relationship between the market and the government
    In this model, the market is failed, whether that means the government intervention is right? No, what the government could do now is just to help the jobless and until the cost could be accepted we could take the measure of nationalization. The way of the free market is to fail, the government must play the role to help the jobless. The encounter between Keynes and Hayek should have a result, they are all failed, one thinks the market is defective and we can improve the market by the power of government; the other think the market is perfect and the government intervention is failed, they still affect the opinion of us today. But it’s time to say goodbye. The economy should be built on a more solid foundation, not so many unrealistic assumptions.

    6.The international trade
    Based on the theory we have written, free trade can’t be accepted, especially the trade between the developed countries and the developing countries. How to deal with the relationship becomes a big challenge, if we can’t do well, the free trade may be stopped. Especially like China and India, the economic transformation hasn’t complete and have too many populations, the critical point that the cost of robot is cheaper than the labor is coming soon, how to face the challenge will decide the future.

    This is what I am thinking. Because of the bad English and the lack of data, what I could do is just try my best to think the logic of the economic and write down. In fact, I’m not good at writing, maybe the content can be accepted, but I still hope someone could get something from it.

  5. Implementation of this idea requires a re-engineering of social norms, a reversal of changes in ways of thinking creeated by the Great Transformation. I am strongly in favor of “social responsibility” – as a society, we have a collective responsibility to take care of basic needs of all of the members. There is no question about feasibility — the resources currently in existence are far more than sufficient to take care of all needs of everyone on the planet — there is no “scarcity”. Scarcity is an ILLUSION created by the rich who want us to grow more to take care of poverty tomorrow instead of asking them to give up their excess ill-gotten wealth and take care of the problem today. Of course, if we follow their advice and create growth, the surplus ends up in their pockets — their is no trickle down

    • Eduard Lukschandl said:

      I agree to 95%. But what is the connection with your article above? Why should jobs be created?
      The notion of a JG program is disgusting. The UBI is the only answer! Listen to Andrew Yang (running for president) and his convincing arguments for it.

    • Dean said:

      Hi Asad,
      A few years ago I discovered a non-political way to reduce unemployment to zero (not to mention crime, homelessness, poverty etc) without the need to create any extra jobs (hence without the need for a JG program), without changing the monetary system, without changing the political system, and more importantly, without costing tax-payers/property owners a single cent (meaning it will not interfere with anyone’s economic goals or political agendas hence was non-political in nature). This idea would also scrap the need for welfare and charity.

      (I am not going to explain the idea here because I am fed up with explaining it over and over)

      I was so gob smacked at what I found and how simple an idea it was I could not believe no one else had seen it, at least not in contemporary times. So I set about trying to find out what was wrong with the idea, and yet the more I tried to find holes in it, the more I found that the idea had no holes.

      So I repeat: I found a non-political way to reduce unemployment, homelessness, poverty to zero without the need to create any extra jobs and without any cost to tax-payers/property owners a single cent and also enabling us to scrap welfare.

      So you would think that politicians, government authorities, charitable organizations, and economists would be interested in such an idea wouldn’t you????

      But you would be wrong. Dead wrong!!

      I set about explaining the whole idea backed with facts as to how and why it will work and sent it to popular economists, human rights groups, and to my government particularly the treasury, the cabinet, and the central bank.

      The responses I got were nothing short of sad, embarrassing, and not what I had expected. Not one of the responses I got showed even the slightest positive interest (not even from human rights groups of all people!!!!), not one even attempted to disprove my idea or show me why it would not work. Instead, all the responses demonstrated that for a lot of these groups, the existence of poverty, unemployment, crime etc gives rise to far too many jobs and industries that any model which will reduce them will only threaten those jobs. A lot of these people do not want a Great Transformation. Their jobs and careers depend on human suffering and conflict existing for this is what gives them purpose in life.

      (this is not to mention all the other industries/sections of our economy which rely on human stress, suffering or conflict such as big pharma, weapons, security, insurance, litigation, etc just to name a few. That part of our economy which produces just basic needs, compared to the rest, which is based on human wants/desires/dramas/insecurity/suffering/stress/conflict/ etc is so small that if mankind found a way to live in relative peace and harmony we would need more than a Great Transformation for we would all only be working about 5 hours a week tops. The other 35 hours+ a week we all work is to perpetuate the chaos, insecurity, and drama we all live in)

      My experiences has shown me that the real enemy here is not the ultra rich and their ill-gotten wealth, but the fact that for the majority of the economy and for many people their purpose in life (and hence their jobs/careers etc) depend on far more than the meeting of basic needs. If there was to be a Great Transformation, it would need to be focused on re-educating people on how to be content with a quite boring life – a life and world without drama. I do not believe that is possible. Even religion itself requires confusion, insecurity, and chaos in people in order to give purpose to its existence.

      • Provide a sketch, and a link to details

      • Dean said:

        Asad,

        You can find info on it here:
        https://livewithoutmoneylawfully.wordpress.com/

        and here (this link was what I sent to government and to many economists):
        https://economistschallenge.wordpress.com/

        I also do need to point out the following:

        First,

        I have recently come to realize that many of those in government and many economists, do not seem to understand the differences between some concepts and relations or even that some of these concepts exist. Without this understanding, no one will understand what I am presenting (and I have recently added this to my 2nd website):

        It is assumed the reader understands the difference between relations based on debt and relations based on equity;

        It is assumed the reader understands that whilst under the western ideology investors can make investments in equities (i.e. stocks in companies) the money used to make those investments is sourced exclusively from debt relations;

        It is assumed the reader understands the difference between contract law and trust law.
        It is also assumed the reader understands the difference between a commercial trust which ultimately operates under contract, and honory or custodian trusts which are governed exclusively in the jurisdiction of equity;

        It is assumed the reader understands the difference between a ‘monetary profit’ which is generated under a competitive economic system, and, an ‘organic surplus’ which is generated from real resources such as seed or livestock;

        It is assumed the reader understands, that the relations required to generate a monetary profit are contractual in nature, and the relations required to create real surpluses out of real resources, are relations which can be based on trust;

        Finally, it is assumed the reader understands that people who are parties to relations which are contractual in nature seek damages or the seizure of property upon default of the contract, whereas trust relations are based on mutuality and involve operating on the conscience of the parties.

        To illustrate the difference between the two, let us imagine a man owns a cow and lends the cow to his neighbour, for a price, for the purpose of allowing the neighbour to milk it:

        Under the contractual relation the owner will pre-determine his price, i.e. he will stipulate that the neighbour must pay 5 litres of milk (or the monetary equivalent) a week to the owner, and what is produced above this can be kept by the borrower, and he will place a lien on the borrowers property as insurance. It will be exclusively the borrowers duty to determine how to get the most out of the cow. If the neighbour fails to produce and deliver the stipulated 5 litres of milk a week he will be sued in a court for damages, he will have to return the cow, and if he is unable to pay the damages will have his property seized to make good to the lender. If he has no property he will become the slave of the owner.

        Under a mutual trust relation, the owner will not pre-determine his price but offer a surplus share arrangement, whereby whatever milk is produced each will get half. If there is any week where no milk is produced, both parties get nothing, no one is sued, and no property is seized. The lender will take it upon himself to help and educate the borrower to find better ways to produce more milk or to prevent there being no milk (such as suggesting putting the cow in different locations on the land which may provide better grass or less stress for the cow).

        I assume that you Asad do understand all of the above concepts and relations and the key differences between them. I refer to the first relation as being under the western ideology, and the second relation as being non-western.

        Second,

        I have come under fire by some who have attempted to read my idea as if it is like welfare. Firstly, it is nothing like welfare, and secondly, I have no acceptance or sympathy with those people who complain that their hard work pays for those who are on welfare.

        Whist it is true they do produce the goods and services that welfare recipients purchase with their welfare, what these complainers do not state or say is that:

        1st – the political economy in which all business and workers produce has monopolized all resources under the western ideology which obviously also includes all human needs, and so those who are unemployed do not have any choice or alternative available to them as a means by which to access basic human needs – their only options (other than stealing) is
        welfare, charity, working a job, operating a business, or speculation/gambling. All of these methods require the person to engage in contractual debtor/creditor relations. If the individual does not like any of these options available to them and/or does not like the idea of having to enter into legally binding contracts with others (essentially the individual does not embrace or cannot conform to the western ideology), they are essentially spat on by society.

        2nd – as a follow on from the 1st, the political economy has essentially made it illegal not to be part of the economy and hence the western ideology. If you are homeless, without clothing, and without access to food or some form of money, you can be arrested for sleeping in public, indecent exposure, vagrancy, dumpster diving, begging and so forth. Therefore, you are essentially forced by the laws that the political economy have created to follow and conform to the western ideology.

        3rd – workers receive a financial reward, i.e. money, for their hard work, (and most people I ask always say that they would not do their job if they were not paid) and as a result of receiving this financial reward also have the added opportunity to purchase property, and to climb the social ladder to the point where they can accumulate enough wealth to retire young. These are opportunities the welfare recipient in general does not have and almost always struggle week to week. If a worker does not reach the goal of property owner or financial freedom then this is their own fault and not the fault of anyone else (many workers are in debt because they pursue home ownership, and have credit cards etc so they can consume now and pay later – you can’t blame the unemployed when there are a lack of reasonable job hours if half of the hours you work are devoted to paying your own debts for your own personal desires – as side note, I did a study on Australian personal debt and worked out that if every full time worker reduced his bad debt (personal loans and credit cards) by half enabling them to free up at a minimum 3 hours a week, this would create in excess of 21 million available working hours per week, which if divided by the unemployment rate would equal nearly 30 hours per week per person
        currently without a job, and yet not one new job needed to be created!!!).

        4th – the taxes workers and business owners pay is the cost to have a government and the cost of monopolizing all resources under the western ideology (which obviously creates unemployment), and that without a government to protect their rights to work and their rights to own property, they would never have the right to realize huge dreams such as financial freedom etc.

        Workers do not seem to point any of these things out when they complain.

        Further, they do not seem to realize that whilst they embrace their western ideology, not everyone is designed by mother nature to conform to the western ideology. I know this as a personal fact as I had this told to me by a psychologist whom I had to see in order to understand why I have struggled with certain parts of my life. She told me in no uncertain terms that I do not fit the mold that the western world requires in order to operate in it. Whilst I love to produce with my hands, I despise doing it for a monetary economy. This means if I exist others like me also exist, and those who defend their western ideology need to understand this. My solution, which is described in both those links above demonstrates how the western and non-western ideologies can co-exist together under the one global economy, and more importantly, how the latter can exist without cost to the former.

        I have a lot of respect for you Asad, far more than most economists or thinkers out there. If you find the time to digest the information I provide on my websites, I hope any questions or comments you have will be productive and will not be based on personal opinion or coloured by any political bias – if so, you will be the first.

  6. Rddulin said:

    The problem with this proposal is a misunderstanding of the necessity and purpose of money. Money is certainly used to exchange for goods but in the contemplation by both parties evaluating the exchange, the value of the property is measured. Money is a necessity in a complex goods economy. It is so necessary that it has always had a history of corruption in it’s deployment. There are many measurements that are necessary for production of any thing of value, length,
    Weight, volume,etc. Value is just one of these.

  7. ” I did a study on Australian personal debt and worked out that if every full time worker reduced his bad debt (personal loans and credit cards) by half …”. See my comment on Dean’s paper about paying back credit cards, where the debts don’t have to be bad nor interest crippling. Let me also join him in appreciation of Asad. All in all, an encouraging dialog.

    • Dean said:

      I replied to your comment. I think there might be some confusion as to the difference between market sourced money and non-market sourced money, and the purposes for which they are employed (at least as far as the custodian model is concerned). Goals which are market based (such as treating your labours and your home as capital assets) need to be achieved in the market place and hence must use market sourced money (i.e. debt with interest). To do otherwise, would be a breach of the highest of principles of law and equity.

      Contrast this to non-market based goals, such as being a custodian, and non-profit organizations, the fact that these goals are not commercial in nature means they should not being using market sourced money but a non-market sourced money which is used once and then destroyed. To force non-profit focused people (who simply want to serve/produce/create without all the commercial competition) to participate in the markets for funding etc is a breach of the highest principles of law and equity – but our politically based society cannot see past this.

      This was the sole reason I set up the economists challenge. It was not to see if anyone ‘likes’ my idea, it was simply to ask “can you prove the custodian model, and the 4th circuit, will cause economic loss to anyone?” So far to date, no one has been able to prove it will.

  8. Having followed Dean’s link to economistchallenge I am even more encouraged. There Michael Hudson develops a three circuit model into a four-circuit one including government, which is topologically equivalent to a rather simpler one I developed in 2003 for the Mondragon cooperatives in Spain. Since then I have developed a theoretical justification and interpretation of it, in which credit is personal, pointing to the need for local government and what are now the departments or ministries of central government being functionally local not-for-profit companies. See also the RWER blog on Changing Economics, in which Ken Zimmerman introduces the concept of Actor-Network Theory (ANT).

    • Dean said:

      Hi davetaylor1
      Thanks for taking the time to read my articles.
      Just to be sure, Micheal Hudson did not create or develop the 4th circuit model, only the 3 circuit model.

      I used (or borrowed) his 3 circuit model as a way to demonstrate how (for the purposes of the custodian model) a completely new monetary circuit (a.k.a the 4th circuit as you put it) can exist in isolation and which does not stem from, nor co-mingle with the market based monetary circuit which already exists.

      This then demonstrates the key differences between the current economic model of ‘earning money for the purpose of attaining some financial goals’ and the ‘custodian model which operates under different goals’, and how the two can exist in the same society without tripping over each other.

      Those who pursue economic and commercial pursuits (i.e. all those who have financial goals of some sort, which would be the majority of the population) continue to use and operate under the market based monetary circuit as they have done for centuries, whilst those (the custodians) use the non-market based monetary circuit. (Whilst I am not political and have no political ideology, it would make more sense to me if all charities and non-profits also operated under the 4th circuit as well, but that is another thing entirely)

      As an aside, I contacted Michael Hudson to show him the custodian model, as it was my impression he felt very strongly about reducing the CHUP sector, but he replied saying he was too busy writing his new book. This is the same response I get from just about every economist I have approached. I no longer believe any economist (nor politicians for that matter) truly wants the CHUP sector eliminated, for to eliminate it would mean the world would no longer have need for economists.

  9. An interesting article. I think we can all agree that massive structural unemployment is not a good thing. But rather than attempting to plan what kinds of jobs should be provided, would it it not be far simpler to provide a guaranteed basic income, and let people find/create the kind of work they want to do?

    • Then they will not work, and not add productivity, this will create inflation, because if Money is added to the system and the productivity remains the same, prices will rise. Only when money is added and productivity is also added, then inflation does not happen

  10. Dean said:

    “Then they will not work, and not add productivity,”

    This very statement underlines the whole problem with our political economy.

    I personally do not want an UBI (i.e. I would prefer not to rely on government or tax-payers for anything) but I am fed up with our political economic thinkers who think they know and understand people by making claims such as “they wont work’.

    I take offense to such comments!

    How exactly do you define “work” anyway? Is it only work if the monetary economy also benefits? Is it only work if I can sell what I do or produce or create? Is a creator not working when they create something or is it only work if they can commercialize it? Who gives you or anyone else the right to tell me that value only exists when I can sell what it is I create and not before? You are beginning to become too much like Bill Mitchell who I might add expects teenagers to be working full time jobs whilst he flies around in jets all over the world adding nothing to society but his political agenda.

    I have always been a hard ‘worker’ (i.e. applying my hands and mind to the creation/production of things and ideas), but I’ll be damned if I will happily work for a ‘monetary economy’ which has monopolized all resources as commodities. I only work in a job because society demands that I do and because it is the only way I can fetch the human needs I need so I can obey the laws this same society has created. But I do this against my will and under duress.

    What is more, you claim those on UBI won’t “work” (obviously an economic definition of work) yet no one in government creates real wealth, and yet 1/3 of my income goes to these vultures so they can live off my hard work whilst they create and enforce more and more laws (many of which are created on the advice of economists who also produce absolutely nothing for society). When I pay my taxes I do not think of the unemployed who are benefiting from my hard work, I think of the all those in government, all the economists, all the property owners, and all those other people who contribute nothing ‘real’ to society and yet get to live off my hard work. They are truly the lazy ones. It does not take ‘effort’ and skill to make laws, to come up with theories, to count beans. Those who are unemployed have more of a job on their hands trying to make ends meet which is in stark contrast to government employees who do sweet nothing and get comfortable wages.

    Here’s a bit of advice for you Asad. I speak for a lot of people here when I say this – what I truly want in life the “economy” cannot provide, and what I want to give to this world the “economy” does not want. But this does not make me lazy. It makes us different – something the political economic agenda pushers can’t accept.

    I am fed up with political economic thinkers just assuming that people are inherently lazy. But then again, maybe they need to make this claim in order to justify their own existence/careers.

  11. Dean said:

    Besides Asad, if the economy has a monopoly over all resources then whose fault is it if it can’t take the pressure when consumption exceeds production? Think carefully before you answer.

  12. Actually, I am assuming a capitalist economy as a background. In an ideal Islamic Economy, where social responsibility is the backbone of society, UBI is not needed. For a thousand years, everyone was fed and all basic needs were met using the institution of the WAQF, which was based on individual philanthropy (not government). The Great Transformation changes mindsets which is why, within a capitalist economy, UBI will not work but Employment Guarantee will – you will note the EG program will create a LOT of unusual jobs like taking care of people which private sector does not, in accordance with your tastes. But if you want to opt out of capitalism, then look at my paper on Islam’s Gift: An Economy of Spiritual Development. There we do not need, and do not want, everyone to have “jobs” as a capitalist economy requires. But thanks for your comments, which offer me a change to provide clarification not provided in original post. That is, framing background is capitalist economy, because the change of mindsets required to create an Islamic Economy — or a traditional economy, with social responsibility — requires a revolution, which seems difficult to create at the moment.

  13. Dean said:

    Asad,
    I am not sure why my last comment did not come up, but I wanted to ask you how money is created in an ideal Islamic Economy? I am assuming it is not created in the same fashion it is created in the west (i.e. as an IOU).

    • Dingo said:

      At the risk that my question will not get answered I decided to ‘google’ the question ‘how is money created in an Islamic economy’?

      Strangely, I could not find a universal answer. Rather, there seems to be a lot of debate on what the purpose of money is and what it should be made of as opposed to simply answering the question ‘how is it created?’.

      The little I did find seemed to focus on the banks rather than the real source. So, it has been suggested that unlike western banks which leverage their “obligations to convert demand deposits into hard coins and notes” into credit a.k.a. demand deposits, an Islamic bank would only lend out that which it has received in deposits of hard coins and notes and therefore would not leverage (or as some like to call it, fractional reserve banking, etc).

      Of course, this does not answer how the hard coins and notes are created and under what conditions they are created.

      As I understand the general consensus from the western perspective, they are printed/minted by government and then swapped for government debt. A bank which feels it is in need of hard coins and notes will purchase them from say a central bank via bonds it holds of equal value. This sort of practice would obviously make no sense under an Islamic economy. Further, the western perspective of the creation of hard currency is illogical, for how can a central bank/govt swap the initial currency it issues when it is obvious no bonds could exist at that time? Rather, the more logical explanation of the first money creation by a govt/(or some type of authority) would be the pre-purchase of feudal fees/taxes/tithes etc in the form of tokens (proof of fees/tax/tithes payment) which would have value to all those who are obligated to pay fees/taxes/tithes and hence could circulate.

      So I repeat my question but with a bit more elaboration:

      “How are the hard coins and notes issued under an Islamic economy and under what conditions?

      • The government, and only the government, is authorized to create fiat currency. “Under what conditions” — is a very interesting question – there is a well developed sophisticated theory of government spending — some is compulsory, some is permissible, and some is prohibited (as per Islamic laws). Government must create money to meet compulsory obligations, and has some discretion in the permissible category, and cannot enter the prohibited category.

  14. Dingo said:

    “Government must create money to meet compulsory obligations, and has some discretion in the permissible category, and cannot enter the prohibited category.”

    You have nailed it…

    Now let’s expand our minds

    you, as well as I, can see how different each monetary system is, and what it works on….ok

    So my next question to you is ””’why can’t both monetary systems (or even 3 or 4) co-exist in the one society?’

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