Three Policies Based On Non-Violable Laws Of Nature To Form A Permanently Stable Economy

Value is defined as the sum total of all the future benefits and losses to infinity in time. To derive the solution of value, which can be either the price or the rate of return on investment, we start from the equation of cash flow.

The equation of cash flow is a realistic accounting of cash flow, which should be acceptable by everyone:

Cash Return = Sum of Cash Flows + Cash From Resale

The rigorous mathematical solution to value is to completely satisfy the equation of cash flow.

What we want to calculate is the price. In the above equation, there are two prices, one price and one resale price. Another similar equation can be written for the resale price. The equation for the resale price will introduce another resale price for the resale price. The number of similar cash flow equations of the exactly the same form extends to infinity in time, with an additional resale price introduced with each additional equation. The number of cash flow equation is always one less than the number of the price and the resale prices. The system of cash flow equations is non-deterministic, where the number of equation and the number of prices are not equal.

The additional equation can be obtained by making the assumption of economic stability at the end of the long chain of cash flow equations. The assumption of economic stability implies that the future capitalization rate, which is the net income divided by the price, is a constant. The net income is the annual gross income minus the vacancy and the annual operating expenses. Theoretically, and in practice, the end of the chain can be extended to as far as one wishes to make the assumption acceptable.

In general, the price at the end of the chain of cash flow equations needs to be determined by an iterative calculation by repeatedly assuming different trial prices and calculating the rate of return. The assumed price is the price when the calculated rate of return equals the assigned rate of return. All the inputs to the cash flow equation at the end of the chain are expressed as approximate time-invariant quantities, often either as a percentage of the price or of net income. Being approximately time-invariant, all the inputs are obtained from market comparisons. The price should not be obtained from market comparison because it can be calculated.

When the price at the end of the chain is known, the price prior to the end can be determined with known resale prices in a time reversed fashion.

When the price is given, such as in the stock market, the rate of return can be iterated with a double iterative loop, one for the price and one for the rate of return. The number of iterations for the calculation of the rate of return is roughly the square of the number of iterations for price determination.

Being mathematically rigorous, the solution of value is a non-violable law of nature and the basis of the three policies to establish a permanently stable economy:
1. Use the solution of value by all market participants,
2. Set the interest rate based on the logical order:
Rate of Return > Interest Rate > Inflation Rate
3. Supply the proper amount of money based on the Quantity Theory of Money: Price x Quantity = Velocity of Circulation of Money x Money Supply (PQ = VM) where the distribution of money should be determined by the rate of return. In a capitalist economy, competition decreases the price. A capitalistic economy cannot survive without innovations, which, accordingly, often have the highest rates of return. One final important point to note is the relationship of the Money Supply M and inflation. Money supplied to increase the Price P without guidance by the rate of return will generally cause inflation. But, innovation can increase the Price P without necessarily causing inflation.

A Practical Application To The Financial Crisis Of 2008

The financial crisis is caused by the incorrect determined price by market participants and the monetary authorities. The cure is to:
1. Determine the correct price so that the price will stop falling at the correct price, not further, and no loan amount should be higher than the correct price.
2. The interest rate should be lowered to below the rate of return, but with the rate of return being negative, the interest rate should be lowered to the lowest possible point, approximately zero.
3. The negative interest can be achieved by bailout money or government contracts, whose priorities are ordered by their rate of return, not necessarily restricted to monetary returns. Social welfare is important because of its high non-monetary rate of return (non-monetary return of the same amount of money is higher for a poor person than a rich person).

The current policy of government finance through selling treasury bonds, in addition to taxation, is a self-imposed financial discipline on government spending and is not a non-violable law of nature. The policy will interfere with the money supply to the economy or the Quantity Theory of Money PQ=VM. Inflation is needed to counter deflation. Inflation can be created by increasing money supply. Money should be supplied as much as needed to create the inflation without being hampered by the concern of the national debt. The US dollar is already an IOU which is backed by the US economy. Selling Treasury bonds should only be for the purpose of reducing the money supply, not for raising funds. Otherwise, the government might interfere with the desired operation of the economy. If the federal government, not the local governements, needs money, it should just print it.

In a free economy constrained only by non-violable laws of nature, money supply should be allowed to increase to achieve the desired goal, such as funding projects with high rates of return to, mainly, increase employment. On the other hand, when there is too much work to be done, machines or robots should be manufactured to increase productivity through automation. Thus, the economy can be permanently stabilized by funding projects with high rate of return during underemployment and building robots or machine during over-employment.

It is important to stress innovation and automation, two real contributors to human progress. Money matters, but the real progress must come from knowledge, which is mainly advanced through innovations or new discoveries and the enhancement in automation. A permanent stable economic system must take into consideration improvement period, meaning innovations, and the construction period, meaning the commercialization.

After Boeing 777 was finished, the workers were fired from this project because the 777 is highly automated. Generally, automation or enhanced productivity, in general, decreases employment. Thus, the amount of money supply to maintain a desired degree of employment must not be influenced by progress in automation. It should be dictated by the equation, PQ=VM, mainly to avoid excessive inflation or deflation. The self-imposed discipline of the national debt accounting might interfere with the equation of PQ=VM and should be discarded, along with the sea shell, silver, gold standards, one-by-one in the past.

As a reality check, by the end of 2008 the US government has done (2) above in reducing the interest rate as low and as rapidly as possible, as recommended by Post-Science Institute. Soon the new Administration will have to face the task of determining the priorities of funding and finding the money to fund. It needs to consider (3) for determining the priority and finding the money. And (1) applying the solution of value is necessary for a permanent solution. ### Hugh Ching, Post-Science Institute, 12-30-2008

Hi!

Paul said: If "communism" is the economic system where everyone supposedly owns everything "communally" and "capitalism" is the system which relies on private transactions in a supposedly "free" market, then "socialism" is what we call the middle ground. The bigger the role of government in the economy, the more "socialist" it is.

Wingnut says: Paul, what is it called when the phenomenon of ownership is outlawed, and although totally communal, no economy is used at all. No money or receipts or advertising or lawsuits or insurance or entitles of ownership or pyramid schemes like capitalism... are used whatsoever. What is THAT supply/survival system called? Christianity?

A true commune or socialism or SOMETHING... uses no economy at all... and it is NOT "an economy" itself. It is the practice of NOT using economies. (barnraisings and potlucks instead) (stone soup). Much like the USA military supply system and USA public libraries... no monetary discrimination allowed.... cuz no money or ownership. What's THAT stuff known as? (If you know and would be so kind to tell us)

We can all see the pyramid scheme symbol on the back of the USA dollar bill. We all know that capitalism is a herd control system invented by the Free Masons/Illuminati. We ALL can do a Google IMAGE SEARCH for 'pyramid of capitalist' and see the pretty picture of the con/sham that was discovered way back in 1911 or before. Why do people still join the thing, when they know its a pyramid scheme?

In case anyone is wondering what a pyramid scheme is, think back to the failed servitude-infested pyramids we tried as children in the farmyards and playgrounds. While the upper 1/3 are "heads in the clouds", the kids on the bottom ALWAYS GOT HURT from the weight of the world's knees in their backs. Capitalism is such a servitude-infested and inequality-infested device... and will collapse just like the ones in our childhoods.

Seeing any 18 year olds being forced to "get a job or starve"?? That's the same as "join the free marketeers competer's church, or die". That, my friends, is felony extortion and forced religion. So is "pay up or lose your wellbeing"... quite extortive and yet seen widely in capitalism/AmWay/American Way. Why not give the 18 year olds freedom of choice to join the cooperator's church instead, if they choose? (Christianity/socialism)

I could tell you a bunch more about capitalism's tradition of railroading/bandwagoning the 18 year olds into it... but we'd run out of blog-pixel ink. See my other writings found on various anti-establishment sites.

Best Regards!

Larry "Wingnut" Wendlandt
MaStars - Mothers Against Stuff That Ain't Right
(anti-capitalism-ists)
Bessemer MI USA