Cost of Interest
Placeholder Picture
Imagine that you woke up one morning and the struggle was over. The laws were changed and you are finally free to start living a Better Way. Your right to an income is now guaranteed for life.

All income taxes have been abolished. Profit and interest are now illegal. The National Endowment Fund will provide a basic income for you. If you can't find work, you can easily start your own business. No money or debt will be needed upfront to get it started.

As long as you respect others and contribute your talent to society honestly, you will be free to do whatever you want. But if you try to cheat others by lying or stealing, the penalties will be severe.

There are three ways to channel your contributions to society, all of which pay exactly the same amount. Go to school. Start a new business. Work for an existing enterprise. In school, you will be free to explore and develop your own personal interests and talents in the order of importance that you define for yourself. As you increase your knowledge and skill, the collective wealth of society also increases. Self-development and learning involves work, so it is only right that you be paid for your effort. If you fail to achieve acceptable grades, you will have the opportunity to switch courses but the total amount of time that you will be paid to learn is limited, so please don't squander it.

If you choose to start a new business, or wish to become self-employed as an artist or professional, you will need an honest, realistic business plan. You will not, however, need any of your own private capital or savings, or the private capital or savings of any other person. You will need to have your business plan approved at a public bank. If you need help preparing your business plan there are paid programs at school to assist you. Once your business plan is approved, all of the money that you will need to launch your business will be created, as public investment capital, by the public bank. Public investment capital is a form of self-extinguishing, interest-free credit that is only made available to enable new productivity. It is similar to what we used to call loans except that the borrower is not responsible for paying back the credits himself. Instead, the borrower's credits are reduced automatically when the goods or services that he provides are sold or consumed in the marketplace. Sales extinguish production credits automatically. Once the borrower has produced what he promised he would in his business plan, his credit obligations are fulfilled and he is free to borrow again for new production or expansion. If, however, his actual sales do not match his projections, a review of his business plan may be required before additional credit is made available to him. If you choose to start a new business you will still have to compete with other businesses for a share of the market. If after a reasonable period of time (and a review of your business plan) your products or services continue not to sell, you will have to seek employment elsewhere.

The example below illustrates how the credit bank system of public investment capital works and how government taxation is applied to retail prices. To help clarify things, imagine for a moment that all of the producers of goods and services in the economy have merged into just 3 large companies. Goods Inc. produces finished goods, Services Inc. provides services, B-2-B Inc. sells production inputs (raw materials, parts, services, etc.) to businesses only. To help keep the arithmetic simple, each company employs 1000 workers and all workers earn 1 unit each for their labour contributions (it doesn't matter here what each labour unit is worth).
Placeholder Picture
All three companies initiate a new production cycle by drawing 1000 internal labour units of public investment capital from the credit bank. These labour credits are used to pay the wages and salaries of their employees. The government draws 500 credit units for its own internal labour costs plus an additional 1500 to finance income benefits to students, retirees, etc. All business-to-business and business-to-government sales are tax exempt. Goods Inc. purchases services and production inputs worth 1000 internal labour units, Services Inc. purchases goods and production inputs worth 1000 internal labour units, B-2-B Inc. purchases goods and services worth 400 internal labour units. The government purchases goods and services worth 500 internal labour units. For each transaction, the outstanding credit balance of the purchaser is increased by the amount of the purchase and the outstanding credit balance of the seller is decreased by the amount of the purchase. Outstanding credits are simply transferred at the credit bank from one account to another. No new credits are created or required.

At the end of the production cycle, Goods Inc. and Services Inc. each have an outstanding credit balance of 1250 labour units. B-2-B Inc. has no outstanding credit balance. The government has 2500 labour credits outstanding. Both Goods Inc. and Services Inc. sold 375 units of their production and have 625 units left in inventory for consumers. B-2-B Inc. sold all of its production and has nothing left in inventory.

At the end of the production cycle, the credit bank determines the Tax per Outstanding Credit Unit rate that must be added to retail prices to share the cost of providing government benefits equally. The Tax per Credit Unit rate is calculated by dividing the total outstanding credit amount of government (2500) by the sum of the outstanding credit amounts of the three companies (2500), which in this example equals 1. Each company then multiplies their outstanding credit balance (1250) by the Tax per Credit Unit rate (1.00) to determine the total tax amount that they must add to their retail prices (1250). To calculate the correct tax amount per retail unit each company divides their total tax amount (1250) by the number of retail units they have in inventory (625), in this example the result is 2.

Notice that the total amount of outstanding credit never exceeds the total value of the internal labour credits that are paid out, either as wages to workers or as government income benefits. Consumer purchasing power (demand) always matches prices (supply). Credit transfers eliminate the need for duplicate borrowing to finance business-to-business and business-to-government transactions. GDP measures productivity using internal labour units only. GDP is not inflated by profits and paper assets. All purely speculative and non-productive financial transactions have been eliminated from GDP.

One of the main marketing differences in the Better Way is the increased importance of quality. All high-value items, like houses and cars, are sold with an estimated annual depreciation rate. The depreciation rate is based upon the expected lifetime of the product under normal circumstances. A house, for example, designed and built to last for 100 years would have an annual depreciation rate of 1%. An automobile designed and built to last for 20 years would have an annual depreciation rate of 5%. Consumers cannot afford to purchase high-value items outright and, in the Better Way, credit cannot be created by the public banks solely to fuel consumption. Instead, the production credits that were previously created for businesses are simply transferred to consumers when they purchase any high-value items. Consumers are then expected to pay back the credits to the public banks at the true depreciation rate. If a house with an annual depreciation rate of 1% sold for $300,000 then the consumer would pay only $3,000 per year, or $250 per month in payments. The higher the quality and durability of an item, the lower the payments! Now that's a switch. Since businesses are no longer dependent on profits, planned obsolescence is now unnecessary and natural resources need no longer be wasted. Gains from labour saving technologies and robotics now result in shorter work weeks and lower prices, not higher profits.

If you choose to work for an existing enterprise, either in business or government, you will still have to compete to get and keep the job. If you are not motivated enough, or the job is too difficult for you and your productivity falls below an acceptable level, you will be fired as before. Without any financial barriers to affect the labour pool, more highly skilled workers will be available. Although the availability of employment opportunities is still an important factor in deciding what to do with your life, you are now free to follow a path of your own choosing without concern over what your income level will be. All workers now make the same amount of money each year. More difficult, dangerous or unappealing jobs offer more paid time off for rest and family life. Many highly skilled positions offer extended rest periods of two or three months per year, some even provide an entire year off. Most businesses now realize that their success and continued existence depends upon the satisfaction of their employees. For the first time in history, labour is the dominant force driving business and shaping society, not capital.

The Better Way suggests that rather than government or the private banks, the People themselves should control the issue of money and credit solely through their willingness to initiate productive endeavours for the benefit of all. The Better Way suggests that our money be backed, not by gold or silver or nothing at all, but by something stable and universal, by human labour, measured in hours and accessible to all.

It is foolish to believe that meaningful reform can ever be achieved by petitioning or pleading with the existing power structures. The leaders of government and industry are working together and they know exactly what they are doing. They don't give a damn about you or your advice unless it will help them take control of the entire planet. Their only fear is that you will finally figure out that they are not on your side. Once enough people understand this, a new political party will emerge to remove the liars and thieves from government. Only then will true personal freedom and economic democracy be possible. Please re-read the Profit & Debt section of this web site until you fully understand, there is no other way.

If you would like to help make this vision of a Better Way a reality, please discuss these ideas with your friends and loved ones and spread the news of this web site far and wide. We've all been trapped inside the PIT (of Profit, Interest, Taxes) for so long, that it is almost impossible to imagine a world outside of it. But that world is waiting for us to discover it. Like an untouched wilderness, its existence does not depend upon our awareness of it. It already fully exists as a possibility, it just can't be seen from inside the PIT.

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