IntroductionBinary economics is the expression of a new universal paradigm or new understanding of reality that creates a new economics, a new politics, a new justice and a new morality. It addresses the big environmental issues. Without the new universal paradigm - which is relevant to all societies including modern Islam - there will be no peace, nor an end to colonialism and racism.
THE GLOBAL FINANCIAL CRASH IS HAPPENING. HERE IS THE SOLUTION.
The Modern Universal Paradigm by Rodney Shakespeare (Foreword by Tarek el-Diwany), containing the latest developments, is now published. To purchase, click PRESS HERE TO BUY
THE PEOPLE OF FRANCE (and Greece and Europe) must DEMAND interest-free loans from the European Central Bank to fund large-scale public capital projects thereby providing jobs and, at the same time, the interest-free mechanism can be used, over time, to reduce France’s national debt. The mechanism can also be used, over time, to develop and spread the real economy to EVERY individual in society. NB The interest-free loans are to be repaid and cancelled.
STUDENTS should DEMAND that all loans to them are interest-free, and they should link up with unions and workers to DEMAND that national bank (or European Bank) interest-free loans are immediately made available for big public capital projects thereby creating work for other people. Once there is a general understanding of the power of national bank-issued interest-free loans, students should extend their demands to other areas.
In its economics aspect, binary economics is a market economics whose markets work for everybody. Furthermore, it upholds private property but private property (and the associated income) for everybody. A summary might be “a justice which creates efficiency and an efficiency which creates justice.“
An alternative summary is “the use of national bank-issued interest-free loans, administered by the banking system, for the development and spreading of various forms of productive (and the associated consuming) capacity thereby creating a balance of supply and demand with producers and consumers being the same people (as required by Say’s Theorem) and forwarding social and economic justice.”
No subsidy is involved. Existing money (e.g., a bank’s capital or, with permission, the deposits of customers) may be lent in ways including interest although Islamic banking practices (e.g., “partnership”) are preferred. However, newly-created money MUST be lent interest-free for developing and spreading the real economy to every individual in the population.
In its intent to involve people in ownership and participation, binary economics has affinity with distributism and with the worker cooperatives of the Emilia-Romagna region of Italy and the Mondragón Cooperative Corporation of Spain.
A quick illustration of binary economics
Philadelphia Waterworks and Museum. Source: Jeannine Keefer
A quick illustration of binary economics is the interest-free funding for low-cost public housing, a waterworks, bridge, sewage works, road or hospital - the use of national bank-issued interest-free loans halves, even quarters, the cost.
Two more illustrations are:-
* a halving or more of the usual cost of micro-credit for poor people
* the enabling of any individual in the population (from a baby to a retiree) to become a shareholder in one of the great corporations - the shares would be full-payout ones thereby creating a considerable income for the holder.
NB The financial savings of individuals are not used as the source for funding the full-payout shares - the source of the financing is ultimately the national bank.
The national bank is used as the source of the loans for the shares to emphasise that the national money supply is not that of a mere private grouping (as is the case today) but is society’s money supply which (although funnelled through the banking system making an administrative charge) can be interest-free for the purposes of an efficient, just economy. Indeed, where the financing of new productive capacity is concerned, interest is not necessary.
Binary economics defines ‘full payout’ shares as net of reserves for depreciation, research and development and the earnings of full payout shares are expected to be five to nine times existing earnings.
Binary policy results in national bank-issued interest-free loans being available for the purpose of development and spreading productive (and so consuming) capacity to every individual in the population thereby enabling producers and consumers to be the same people and, at the same time, forwarding social and economic justice.
In practice there would be two rates of interest - interest-free (for the purpose as above) and interest-bearing. Economies should not be reliant on foreign financial capital and so national bank credit should be used with capital controls being available.
Meaning of ‘binary’
The ‘binary’ (in ‘binary economics’) sometimes perplexes people. It means ‘composed of two’ because it suffices to view the factors in production as being but two (labor and capital) and thus there are only two ways of genuinely earning a living - by labor and/or by the ownership of productive capital. In viewing the two factors it can also be observed that humans own their own labor but they do not necessarily own the other factor - capital (which includes land).
NB ‘Capital’ means things which create wealth e.g. seeds, hand tools, machines, patents, land, raw materials, ships, quarries, bio-technological processes, telephone networks, farm animals, trucks etc. - anything which is non-human, which can be owned and which is capable of producing an income.
Binary economics is fundamentally different from all forms of conventional economics
Binary economics is fundamentally different from all forms of conventional economics (be they expressions of right-wing, centrist or left-wing theory). Thus, unlike most mainstream economics, binary economics accommodates belief in God, unicity and ethics. It directly addresses the main environmental issues; does not assume that humans only follow their own immediate short term self interest; ends economic colonialism; appeals to people of faith and of good faith; and does not assume that humans (as distinguished from capital instruments) do all, or nearly all, of the physical creation of wealth.
Binary economics is not a “third way” between capitalism and socialism: it expresses a new paradigm. Binary economics co-operates with, and supports, anybody who understands the uses of the national bank-issued interest-free loan supply - in the USA an example is Dennis Kucinich and colleagues.
In the 50-minute video below (2000) Harold Hudson Channer of Manhattan Neighbourhood Network tv discusses binary economics with Rodney Shakespeare, co-author of Binary Economics - the New Paradigm and Dr. Edward Wolff, the American expert on the distribution of wealth and author of Top Heavy.
NB Binary economics is a developing subject. The video is highly topical but, all the time, binary economics develops (see Developments on the Present page; the Global Crisis - Causes and Solution page; and the False Assumptions of Mainstream Neoclassical Economics page).
As a study, binary economics is not reductionist, does not ignore the imbalance in power relationships between people, and does not assume that extensive poverty is inevitable. (NB. 55% of the world’s population lives on under $3 per day: every day an estimated 25,000 people die from the effects of dirty water). Being concerned with social justice and economic justice it also notes that allegedly successful ‘free market’ economies show symptoms of profound failure - thus figures from the 2004 Census show that one fifth of Americans live on under $7 per day.
Moreover, up to one fifth of the USA population does not have proper health security and this happens in a country which is the richest in the world; which claims to be the embodiment of a perfect, efficient and just ‘free market’; and which spends 18% of its income on health. Forty three million Americans have to rely on food stamps.
Main cause of poverty
Binary economics establishes that lack of access to productive capital (in various forms) is the main cause of poverty and of structural imbalance in a market economy so that producers and consumers are not same people with consequent imbalance of supply and demand and a general inability to further social and economic justice. Moreover the institution of interest (as distinct from administration cost) operates as a giant hoovering operation sucking up wealth from the poor and transferring it to the rich.
It follows that productive capital must become as widely spread as possible. Furthermore, productive public capital e.g., waterworks, sewage works, roads, bridge, hospitals and housing must be spread and human capital developed via the provision of education and interest-free loans. All newly-created money must be interest-free and used for the purpose of developing and spreading productive capital to all people in the society.
Binary economics addresses weaknesses in current economic system
Binary economics addresses a number of weaknesses in the current economic system which are dismissed by conventional economics as being of no, or low, importance. The weaknesses include:–
* almost all of the modern money supply is in the form of interest-bearing debt created and owned by the banking system (in the UK over 95% of the money supply is created in this way: there are similar percentages in other countries)
* the present money supply is generally not directed at productive (and the associated consuming) capacity but instead goes into derivatives, rising asset prices, consumer credit and putting everyone - individuals, towns, corporations, towns, cities, countries - into ever-increasing debt.
* at present two lots of financing are required to keep the system going - one lot for production and a separate lot for consumption. The two lots are continually inflationary yet, all the time, more and more loan money must be created (by the banking system) if the whole economic and financial system is not to collapse. Inflation is inevitable with the present system.
* forms of productive capital remain narrowly owned and there is no policy to spread the ownership of productive (and the associated consuming) capacity throughout the population
* people do not have their own independent incomes
* the practices of the IMF and World Bank which deliberately trap countries into never-ending debt; keep productive capital (and associated consuming power) narrowly owned; and, in an abuse of power, are generally bent on ripping off the wealth of poor countries
* in practice, economic colonialism
* in practice, racism
Binary economics redresses those weaknesses. Thus economic colonialism is ended by allowing countries to have control over their own money supply, control over their own assets, and freedom from international debt. No country should ever borrow foreign currency; instead all countries should always use their own currency. Moreover, opposition to racism has little meaning unless it is manifested in practical, everyday material improvement and binary economics provides this by spreading ownership thereby enabling the spreading of the associated incomes.
Binary economics does not expropriate or take: rather it enables everybody to build.
The binary competence
Indeed, over time, on market principles, binary economics enables all individuals to build an independent income or binary competence. The competence (the word can be traced back to Jane Austen, Alexander Pope and William Shakespeare meaning property or means sufficient for the necessaries and conveniences of life; sufficiency without excess) is defined as:-
a capital estate large enough to supply sufficient current consumer income to support at least one half of an affluent life style (measured in the context of what society as a whole can efficiently produce).
Figures contained in a 1998 study by Northeast Ohio Employee Ownership Center, Kent State University, Ohio and a 2005 study from the Center for Economic and Social Justice, Washington, D.C., indicate (2005 figures) that, aged sixty five, an adult would have a binary income of about $26,000 and a capital accumulation of at least $200,000 with both figures continuing to increase after the age of sixty five.
Along with the competence, of course, individuals will also be free to gain income from their labour as now.
As part of binary policy to develop capital ownership for each member of the population there is no estate duty (or Inheritance Tax) on death IF the estate devolves in such a way as to spread capital estates, and therefore capital ownership, to more individuals. If it does not do so, then there is a graduated tax.
Other characteristics of binary economics
Binary economics is of particular importance in a world where, increasingly, more of the physical contribution to production is being, and will be, done by machines and near-robots.
Automation - Bread
With binary economics national debt is lessened and national unity encouraged. Binary economics creates a stable economy and associated financial system which is not subject to unsustainable booms and resulting crashes.
In binary economics there is no expropriation (as there can be in socialism, for example). Moreover, because people come to have sufficient income from their own independent capital estates much less redistribution is necessary (for example, by taxes in order to fund forms of government spending including welfare benefits). Because there is much less redistribution there is much less taxation.
Binary economics cannot be inflationary: it is counter-inflationary. Nor can it lead to a global financial crisis of the sort now threatening economies and markets. It upholds the periodic political vote but deepens democracy by ensuring that all individuals have the everyday freedom stemming from an independent economic base.
Conventional economics compared with binary economics
A good understanding of binary economics can be obtained by contrasting various aspects with comparable aspects in conventional economics (especially mainstream neoclassical economics).
The first contrast is that mainstream neoclassical economics claims to be primarily a positive economics (i.e., an analysis of ‘what is’) whereas binary economics is considered (by mainstream neoclassical economists) to be primarily a normative economics (proposing an economic system that ought to be). However, as compared to mainstream neoclassical economics, binary economics undoubtedly has a superior account of physical reality (i.e., of what is) - particularly in its analysis called productiveness. Binary economics is therefore both a highly positive economics and a highly normative one.
Secondly, in its physical analysis of who or what creates the wealth mainstream neoclassical economics upholds the concept of productivity (generally labour productivity) while, in complete contrast, binary economics has the new concept of productiveness giving fair credit to the contributions of both labour and capital. Binary economics believes that the binary productiveness analysis, as an understanding of physical reality, is far superior to that of mainstream neoclassical productivity.
Then conventional mainstream neoclassical economics believes that interest (as opposed to administration cost) is always necessary. However, binary economics, again in complete contrast, states that, certainly where the development and spreading of productive (and the associated consuming) capacity is concerned, interest (as opposed to administration cost) is not necessary (because a supply of interest-free loans coming from the national bank may be used).
For newly-created money, conventional economics upholds the doctrine of the Time Value of Money whereas binary economics, noticing that money is created out of nothing by the banking system, denies the time value doctrine. Consequently, binary economics rejects conventional financial savings doctrine (that there must be financial savings prior to investment) - no financial saving is necessary if money can be created out of nothing. Indeed, what matters is whether the newly-created money is interest-free; whether it can be repaid; whether there is effective collateral; and whether it goes towards the development and spreading of various forms of productive (and the associated consuming) capacity.
Furthermore, an assumption of general scarcity is at the heart of conventional economics. Binary economics, however, denies the assumption. As Amartya Sen has shown, starvation is primarily due to lack of money in the hands of the starving and not the general absence of food: thus it is human attitudes, practice and institutions which are at fault.
The contrast continues. Thus conventional economics:-
* is largely unconcerned that the present money supply (mostly created by fractional-reserve banking) is generally not directed at productive capacity
* in practice engenders a continual inflation
* conceives of a self-centred homo economicus
* eschews ethics and belief in God
* ignores the imbalance in power relationships between people.
But binary economics views it as essential that:-
* the money supply be directed at the development and spreading of productive (and the associated consuming) capacity
* the money supply be not inflationary, indeed, should be counter-inflationary
* recognition be made that humans are capable of going beyond self-interest
* ethics and belief in God be upheld
* account be taken of the imbalance in power relationships between people.
Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a ‘free market’ which is free, fair and efficient. Binary economics states that the present ‘free market’ is unfree, unfair and inefficient not least because the ‘free market’ thinks it does not matter who owns productive capital and how it is distributed and does not worry if people do not have independent incomes.
In a quite remarkable way the two economics differ on the subject of democracy. Conventional economics upholds the periodic political vote (as in, for example, elections to government). Binary economics does the same but then deepens democracy by insisting that productive capital and the practical everyday power its ownership gives to individuals be widely distributed as well. In binary economics freedom is only truly achieved if all individuals are able to acquire an independent economic base. In short, binary economics upholds political democracy plus economic democracy.
Perhaps most importantly of all, conventional economics is generally heedless of (or at least, not directly involved with) environmental issues but, even if it does heed them, does not have the specific mechanisms to address the environment in a large-scale way. Indeed, conventional economics generally views environmental solutions as imposing an economic cost, and a large one at that. Binary economics, however, again in complete contrast, does have the mechanisms - particularly, interest-free loans - and its solutions do not impose economic cost.
Lastly, conventional economics claims that its mathematical equilibriums are a manifestation of a world-encompassing objective science expressing universal values. But binary economics denies that claim.
NB. In this website the page FALSE ASSUMPTIONS sets out fifty three false basic assumptions of mainstream neoclassical economics. It only needs two or three basic assumptions to be false for the whole of an economics to be false.
A brief summary is that binary economics results in:-
* capital ownership for all individuals in the population so that they produce (and thus earn) independently of whether or not they also have a conventional job
* free markets
* an efficient wealth creation including a balancing of supply and demand
* structural economic and social justice
* no inflation
* proper encouragement of small and start-up businesses
* sharing and participatory structures
* a strong ethical sense imbuing everything
* an end to riba/interest
* an end to economic colonialism
* public and environmental capital projects
* a direct connection between money and the real economy
There is also:-
* an increase in political freedoms and a deepening of democracy
* policy to unite inhabitants who have different linguistic, religious, geographical and ethnic backgrounds
In particular, over time, binary central bank-issued interest-free loans enable a government to refrain from increasing the National Debt and enable the ownership of an economy to remain in local hands.
Binary economics is beginning to be taught in universities. The first such teaching is on the Islamic Economics and Finance postgraduate program at Trisakti University, Jakarta, Indonesia - Trisakti postgraduate Islamic Economics & Finance. Trisakti is famous as the birthplace of the 1998 Indonesian reformasi revolution. It is the biggest private university in Indonesia and second only to the main state university in prestige.
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