How Points-banking can end stagflation and trade wars for good

The End of Capitalism (and Marxism) Icon

August 1, 2022

In 2017, we predicted that Masayoshi Son would be the last capitalist . This is because our model predicted a global economic crisis sparking in 2018, which would then create a global stagflation by 2019 .

The crisis turned out to be Covid and the Russia-Ukraine war which caused the current global stagflation in 2022.

Though the stagflation is a few years late, it nevertheless gives us a chance to deploy our solution step by step, starting in 2022. The solution manifests as a moneyless Points-based system that is specifically built for severe inflation and stagnation.

Money is the Root of All Evil

Moral philosophies from all countries unanimously agree that money is the root of all evil. However, none of them are able to explain why.

We explain that this is because money is a finite, exact, number or quantity. Value, however, is naturally infinite, non-exact, and is more of a quality.

  • Money is close-ended
  • Life itself is open-ended

A system that focuses on money will close out the infinite, subjective nature of life. This leads to a system that goes against nature, manifesting as suffering via crashes, poverty, inequality, recessions, stagflation, etc.

Imagine a mother charging a money-price to her children for every dinner that she cooks for them, putting them under a precise money-debt which gathers interest the longer they do not repay her. Such a mother would be regarded as cruel.

Family

In reality, her cooking was sourced from her love for them, just as they are expected to love her back in non-exact or non-quantifiable ways. The imposition of an objective money-payment naturally kills that subjective feeling of love.

More commonly, this is similar to attending a live concert and watching it through your smartphone that you use to record the concert. The smartphone objectifies the event into a video file that you can watch later. Yet it also limits you from experiencing the concert in full.

Audience
People can choose to watch a concert with their eyes or through their phones

The natural way is to either watch the concert:

  • at the venue without the smartphone, or
  • outside of the venue via a smartphone or video streaming.

Likewise, a familty can eat dinner:

  • without using any money by cooking it themselves and serving it to each other, using family-relatonship bound by family morals, or
  • by using money by going to a restaurant, using customer-seller-relationship bound by commercial morals

The current economic system only uses money, and commercial morals, and fails without it. Our points-based moneyless system frees up an economy by allowing a second, lower-cost mode, using more of the family-friends-morals instead of buyer-seller-morals.

Points Quantify Effort

Unlike money which quantifies utility, our points system quantifies the effort put by the producer, according to the viewpoint of both the producer and the buyer.

  • Utility is the effect
  • Effort is the cause

Our science thus focuses on the cause. This is different from Modern Economics which focuses on the effect.

In our family-dinner example, the points can be assigned by the children as follows:

Meal Points
Dinner July-31-2022 9/10
Breakfast August-1-2022 6/10
Lunch August-1-2022 8/10
Dinner August-1-2022 7/10
Average 7.5

The changing points then plot the changing quality or quantity of the meals and serve as a record of actual meal-events. The mother can then fairly demand from her children to excel in their own tasks, such as in their chores or in grades in school, in exchange for the benefits that they get from her.

Since the points are quantification of past events, their values do not inflate over time. The system also requires its members to be tightly-knit, having common interest.

An economic system based on points is therefore inflation-resistant and far less volatile than a money-based system. It also creates a tighter, more integrated, and responsive local economy that is organized into hubs and spokes. In our dinner example, the mother is the hub and the children are her spokes.

The money system, on the contrary, is arbitrary, disorganized, and fragmented since it relies on selfish-interest instead of the common-interest. These qualities cause prices to rise and fall wildly, with economic damage spreading uncontrollably. This is beneficial for speculators who buy and sell things to take advantage of price movements, following the maxim of ‘buy low, sell high’.

The Balance Sheet in a Capitalist System

Captialists use this maxim on equity by buying or investing in cheap stocks or startups, and then selling them when they become expensive.

This equity is recorded as part of liabilities:

Assets Liabilities
Cash Loans Payable
Receivables Long-term Debt
Property, Plant, Equipment Stockholder’s Equity

The Balance Sheet in a Points-based System

Under a points-based system, equity and long-term debt are converted into moneyless points.

Money is retained only as petty cash for facilitating immediate payments. Adam Smith calls this as ‘ready money’.

It would be more convenient for any merchant to pay for his suppliers' goods with some of his other goods than in money. Such a merchant would then have no stock unemployed. He would not need ready money for answering occasional demands. Wealth of Nations, Book 5, Chapter 3

This leads to a new kind of balance sheet:

Assets Liabilities
Cash Money Loans Payable
Points-Receivables Short-term Points Payable
Property, Plant, Equipment Long-term Points Payable

In the beginning, a company will have very few points-receivables and points-payables. But as the new system catches on, and the cost savings become evident, a balance sheet will have more points values until money becomes a smaller part of company and every local economy.

The use of debt and elimination of equity is evident in:

  • The Wealth of Nations where Adam Smith bashes the equity system and advocates the use of loans to serve as capital to build a factory
  • Socrates being in debt even up to his last breath
A bank could still less afford to lend the fixed capital needed by an iron forge owner for his smelting-house, workhouses, warehouses, etc.. Such entrepreneurs may properly do most of their projects with money borrowed upon bond of private people who can live on the interest of their money without taking the trouble to employ the capital themselves. The borrowed money, which would not be repaid for several years, should not be borrowed from a bank. The Wealth of Nations Simplified, Book 2, Chapter 2
[The man who gave him the poison looked at his feet and legs now and then. After a while, he pressed Socrates' foot hard, and asked him if he could feel. Socrates said, No. He repeated this with his leg, and so upwards and upwards. Socrates showed us that he was cold and stiff. He felt them himself, and said:]

When the poison reaches the heart, that will be the end. Crito, I owe a cock to Asclepius. Will you remember to pay the debt?

Phaedo Simplified, Chapter 10

What Will Investors Put their Money In?

If equity will no longer be a thing, then what will rich people do with their money?

For example, an Arab sheik has 100 million dollars and personally knows very few worthy entrepreneurs. How can he use his money so that it preserves their value, at least?

The cash saved by the points-system will be used to grow the global economy. Remember that the points-economy works best for tightly-integrated economies such as a small town or a district of a large city.

Points-banking can then connect these local economies with each other.

However, points-banking cannot connect Country A to Country B which might have very different laws on trade and taxation.

In this case, the money system is better suited. For example, the US dollar is designed for cross-border transactions:

  • prices are denoted in US dollars
  • banks are able to accept local currency for conversion to US dollars for world trade

The local currency can therefore be used to import foreign goods and even foreign services as foreign education, tourism, and foreign workers.

The problem is that, in the current world trade system, this will create a balance of trade deficit which will then cause a devaluation of the local currency.

This solution only works if all countries are on the same page and use most of their money to import, since imports in one country are exports of another. If countries are not united, then the system might solve stagnation in the exporting countries, but destroy the industry of the importing countries.

Pool Clearing to the Rescue

The economist EF Schumacher thought about this in the 1940’s and proposed a Pool Clearing system as a solution.

Instead of world trade being done in an unregulated way, each country joins the global pool which mandates them to set up a National Clearing Fund.

This fund will be used to:

  • accept local currency payments for imports
  • disburse local currency to exporters

The Clearing Funds eliminate the need for cross-border money transactions – money no longer leaves any country. This will make currency speculation and currency crises obsolete. It also helps deficient and stagnating countries like Sri Lanka to get out of crisis by letting them export their way out of their quagmire.

Each country’s Clearing Fund will be subdivided into different industries, with subdivisions, such as:

  • Agriculture Fund
    • Fisheries Fund
    • Rice Fund
    • Livestock and Dairy Fund
  • Education Fund
    • Advanced Research Fund
  • Tourism Fund
    • Cultural Exchange Fund
  • Manufacturing Fund
    • Electronics Fund
    • Heavy Machinery Fund
    • Precision Equipment Fund
  • etc

Investors, such as the Arab sheik, can then park his money in a fund that he likes, in a country that he likes. If a country can define 1 million industries, then each can have its own fund. The sheik can then have 1 million investment options.

There is still a gaming element since not all funds will succeed equally, yet not all funds will fail unless the country is totally mismanaged. This will allow people to enjoy such a childish pleasure*.

*Not all investors are rich. Some just use their savings in the hopes of striking it rich quickly.

This will allow capital to spread over many industries in many countries and not just into a few blue-chip companies, as is common in the current system.

It will also increase global trade since the Pool-countries will act as a single economic country. The Pool works on common-interest since all members can help each other export their way out of crisis and provide employment via exports and tourism. This makes trade wars and protectionism illogical.

Lastly, it serves as a better alternative to a single currency like the Euro, which has many regulations, and the US Dollar, which is controlled by one country.

Ends Both Capitalism and Marxism Gradually

The points system gradually reduces the importance of equity. This will cause stock-trading and stock-investments to likewise lose importance, dragging Capitalism with it.

With Capitalism reduced, then the need for Marxism also declines, since Marx created it to counteract the evils of capitalists. This will slowly eliminate the Cold War animosity which currenly manifests as AUKUS-EU vs China-Russia.

In a future post, we will explain how Pool Clearing could have been used to unify Hongkong, Taiwan, and China peacefully without the needing to go through the current tensions.