Undestructible economy

The financial crisis, its concrete and deeper causes

The financial markets are currently in an uproar, and independently of if and how these problems will be solved, we should ask what their deeper cause is, and how to protect economy from that. First, regarding the concrete causes, I found the following material to be a good introduction:

Now regarding the deeper causes of the crisis, there are way less people who at least think about that, and way less articles to read about that. I found two ones that seem to be recommendable:

  • “Der Kapitalismus ist zum Spielcasino verkommen”, Spiegel Online, 2008-10-09. An interview with Muhammad Yunus, who got the 2006 Nobel Peace Price together with his Grameen Bank for micro credits as development aid in rural regions of Bangla Desh. He suggests that businessmen turn away from earning money for its own purpose and out of pure profit-maximizing greed, and instead use it for social purposes as a “social company”. His Gremeen Bank seems to be the paradigm he has in mind. The “social company” as a company that helps people and earns money at the same time is, in his eyes, preferrable to “blindly giving” philantropy, because the invested money is not just used up, instead it is “help for self help”, it is used as a catalysator for own economic activity. He says that Adam Smith’s theory of the “invisible hand” (self-regulation of the market) is invalid, and that the current financial crisis shows just that (it’s a “crass market malfunction”).
  • Jürgen Werner: Die wahren Hintergründe der Finanzkrise, WirtschaftsWoche, 2008-10-12. The German philosopher Jürgen Werner thinks that short-visioned desire for more efficiency (in my words: greed for money) is the foe of long-term efficiency, which is provided at best by mutual trust and correct behavior towards each other.

The problem financial markets and the real economy

A financial crisis in itself would not be that bad, but it can have immense effects on the real economy and on politics. During the Great Depression (1929 and onwards), people in the USA even became fugitives, and in Germany it led to the rise of the NSDAP and the Third Reich. The financial crisis of 2007/2008 starts to have effects on the real economy, also (BMW announced that it lost 14% of new car sells in 2008-09).

It definitely feels uncomfortable to be part of an economy that you cannot steer, being doomed to share its fate, be it success, depression or chaos. This has to be avoided, definitely. The fate of a human being should not depend on the fate of his society. So how to achieve that?

Theoretical basics: indirection, complex systems, modularity, centralization …

Here are some basic perceptions of mine (though not formally verified by studies) that I will use later to build my own flavor of economic system on:

  • Money is an indirection: it’s a substitute for material value. As any indirection, it is more flexible (easier to transfer, easier to divide, can be saved up). And as any indirection, it comes with its own rules: it can be traded, exchanged between currencies, it can be creates out of nothing (fiat money), it can lose its worth independent of the underlying material worth, it depends on trust (as the money material is worth nothing), it enables “market rules” as an indirection of money trading, and “market trend” as an indirection of market rules, again with it’s own rules set. All these rules differ widely from the rules applyable to material goods, and as every set of rules, they come with their own set of problems. The current financial crisis shows that we don’t know the rules and how to use them correctly. Therefore, we should search for a more robust economic system.
  • A complex system is one that uses its own result as input (feedback principle). Good architectural guidelines for complex systems are set up by agile system architecture. The best work on this that’s available online is: Dove, Rick K.: Design Principles for Highly Adaptable Business Systems, With Tangible Manufacturing Examples. In: Maynard’s Industrial Engineering Handbook. Ed.: Zandin, Kjell B.; Maynard, Harold B.. 5. edition. New York, NY, USA; et al.. 2001. pp. 9.3-9.26. Here, systems are made up of “self-contained units”, with “plug compatibility”, “facilitated re-use”, “non-herarchical interaction”, “flexible capacity”, “unit redundancy” and “evolving standards”. These principlses seem to be a perfect basic idea for an efficient economic system (even more efficient than current high-tech financial management), and as stable (through reconfigureability, multi-redundancy etc.) that it is, as a worldwide system, undestroyable.
  • As to the morals. Adam Smith’s “invisible hand” might have been present in the past, but it vanished into thin air (or worse) nowadays. Why? In my opinion, because, less decisions are based upon personal values (desire for quality, desire to do something for the money you get, desire to spend money only on what you can afford etc.), and more decisons on pure greed. There seems to be a critical threshold of value-based decisions, below which the economy starts to malfunction.
  • Centralization is immensely positive for the development of efficiency, but for robust economies and societies, centralization is negative. Because, where there is only one or a few large things of one type, a defective one will have dramatical effects on the whole society. Therefore, for the sake of world’s stability and on the cost of technical efficiency, I suggest to decentralize everything, from power supply to state laws. By using the agile deisgn principles, the loss of efficiency can be minimized, so that it is bearable even for a technology freak like I am.

Practical proposal: community-based world economy

The following proposal may seem somewhat strange, but propose to me a less strange one that is both capable of being a personal and world-wide alternative to the current greed-based economy (which we call still “market economy”). A central thought is, that in modern Western societies, the “social net” has only very small and very large meshes (the family and the society), and that’s a fault. But let’s see:

The proposed economic system consists of modularized modules (in five layers), each with a special task and the promise of solidarity (in level-specific areas) to its members. Solidarity decreases in intensity from smallest to greatest level, but increases in extensity (that is, higher levels are for the rare, really bad cases in life, while the everyday cases need higher personal commitment of time). Economically, the modules of each level are autarchic, and the degree of autarchy increases from smallest to highest level, while a level of autarchy sufficient for survival shall be available from level 3 on (i.e. groups of 1000 people).

The levels are:

  1. the individuum
  2. the community (10 individuums)
  3. the thousand (100 communities, resp. 1000 individuums)
  4. the million (1000 thousands)
  5. the world community (6000 millions, i.e. all people of the world)

Each module (i.e. each group in the size as described by a level) is able to select its members. For example, a thousand may decide that it wants to include (or educate) two physicians, but no more theologicans. By applying such careful orchestration, te groups become organisms, not just societies which are cobbled together by some laws. And, most importantly: through their autarchy, groups (from the “thousand” size on) can live on themselves, including education and medical care. To do so efficiently, all information must be free by default, shared between all the groups (by using the Internet). Because, if you have all the CAD data on the net, manufacturing your own products is possible in a community of 1000 in an efficient way; and where it is not, the following is possible without sacrificing autarchy: every group uses 10% of its time for a group specific special service or special product, wherewhich it serves other groups. This can be applied to all levels, and resembles the “community service” principle in African societies.

If this proposal is used to create a “personal economy system” as a working alternative to the fragile global economy system, I suppose to found a powerful community of 10 friends, and with them, the “thousand” community. As goods and services are exchanged within the community without any need for money, in direct exchance or with an internal registration system, this “thousand” community is functional right from the start, even when it would consist of unemployed people only.

And of course, as there is only direct marketing of goods and services, and as larger enterprises are enabled through the collection of people as a community instead of the colloection of capital, no financial market with all its drawbacks will be available in this new economic system … .



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One response to “Undestructible economy”

  1. […] similar LRIS idea, on time banking currency, on Bitcoin, and experimental thoughts on creating undestructible economy and solving […]

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