The Economists Challenge

The Economists Challenge:

What follows is a presentation of a model or mode of living, which it is the desire of a percentage (meaning only a small section of society and not everyone) of the population to implement – a group of society which we will hereinafter refer to as the Custodians. 

For the economist, our question or challenge to you is to tell us if any individual or household was to implement the following model, would it cause economic loss to any other?

This mode of living is a different way of holding, treating and distributing resources to be done for purposes which are outside of the purposes for which the private sector generally operates. We will refer to this mode or model as the Custodian model.

Households which implement this model will collectively make up what we call the Custodian sector (the term sector is used in the same way as distinguishing between public and private sector, and is therefore not to be confused with concepts like communes – the custodian sector is not a commune or anything similar to a commune), and as a sector will co-exist alongside the private, public, and voluntary sectors without competing against any of them.

In support of said model we make certain claims. As some of these claims involve matters which are often treated at some length within some economic circles, we challenge economists to peruse this model and to answer: if any individual or household was to implement the following model, would it cause economic loss to any other (economic loss would also mean and include any loss of purchasing power)?

Claims:

We make the following claims that the Custodian sector, and the implementation of the Custodian model within it, will:

  • Reduce the size of the CHUP sector (crime, homelessness, unemployment, and poverty) as well as lessen the burdens of government, and as a result bring benefits to both the private sector and to the whole community.

Further, that the Custodian sector, and the implementation of the Custodian model within it, will:

  • Not come at any cost or expense to the tax-payer or have any need for welfare, charity, or government grants;
  • Not cause personal, property, or economic loss to anyone;
  • Not cause or create, nor change expectations of, inflation, deflation, or otherwise effect purchasing power for producers and consumers of the other sectors;
  • Not compete against any business or industry, property owners, job seekers, or economic agents in general.

We also rely on the principle that if any individual or group with legal, economic, or property interests can prove that the custodian model is unlawful or will cause legal, economic, or property loss, then these same individuals or groups have grounds to prevent its implementation. If they cannot prove these claims to be untrue then they would have no grounds to prevent it.

For the economist, our question or challenge to you is to tell us if any individual or household was to implement the following model, would it cause economic loss to any other?

What we are not:

The custodians are not a political movement, and neither do the Custodians position themselves anywhere along the political spectrum; therefore, the Custodians have no conflicts with any political ideology or political or legal interests.

The Custodians are not a charitable or not-for-profit organization (as they are commonly understood) nor a religious organization.

The Custodians are not a commune nor act like a commune, nor are the Custodians communists.

The Custodians have no intention or objective in selling, convincing, persuading others of their model, mode, or principles or to otherwise change the nature and character of the private sector economy or the legal rules and relations it operates under.

What is a Custodian and what is the Custodian model?

In a nutshell, a custodian is a household (individual or family) who desires to become a custodian and who therefore doesn’t wish to operate within the commodity framework (i.e. debtor/creditor relations). The household renounces the pursuit of private property and economic aims and instead holds and manages all resources necessary to legally function in a society, plus any tools etc. necessary to produce what it is they will produce under a surplus share arrangement (the model) with the government as partner and beneficiary. They will produce only real things and any surpluses after taking out what they need themselves will be distributed through an entirely different network and process to the distribution network employed by the other sectors operating under the commodity framework.

Any surpluses the model provides come from two essential or direct sources, the first being the custodian themselves (such as their labours), and second, any technologies, apparatus or otherwise attached to the land, house, etc. (such as solar power). Indirect sources will be education, research, assistance, etc. from government as the partner and other custodians.

The illustrate the custodian model further, we will first give an example of what it would look like (from an outsider’s perspective) if an individual or family (household) was implementing the custodian model, i.e. the model was in full swing and all preliminaries (legal formation of the model and securing of resources) had already been taken care of.

In this illustration, we will draw from two examples, where one custodian will be someone who likes to, or is learning to, grow and raise food, and the other will be a researcher who happens to be interested in researching food preservation techniques for the 21st century (both these examples are not requirements of being a custodian – more on this below).

1. We will start with the land and housing.

Each custodian will be living and operating on whatever size land and housing the custodian needs to both legally function and achieve their productive goals under the arrangement.

As the first custodian is a food grower, depending on what types of food they will grow, will determine what size land they will need. The second custodian will have no need for land other than the usual type suburban front and back yard. Depending on the size of the family, this will determine the size of the house required in each case.

In both cases, and in fact in all cases, the government will own legal title in both the land and housing with the community as beneficiary, and the custodian will have mere possession (or what is often known as naked title) but with the equitable duty to ensure the maintenance of the property (this is not public housing in the normal sense of public housing where residents are leasing from government).

2. All remaining resources necessary to achieve their productive goals under the arrangement.

For the food grower, this will mean all tools, equipment, machinery, etc. necessary to grow and raise the food they plan to grow and raise. For the researcher, all tools and equipment etc. necessary to conduct and compile research including computer, internet, software etc. Again, in all cases the government owns all the tools etc., and with the custodian as merely the possessor with the same equitable duty to maintain and take care of said tools etc.

In addition to the goals of each custodian, all custodian models may have technologies etc. attached to the housing and land, such as solar panels, wind turbines, rain tanks, water pumps, and whatever else which may be used to harness natural energies and other natural resources.

3. All remaining resources necessary to legally function*.

Along with requiring housing to legally function, each custodian will require resources necessary to operate normally as a household, including but not limited to any basic needs they are unable to produce themselves, like clothing, food, water, and energy, and health and education for their children, etc. but also furniture, vehicles, appliances, linen, and so forth (the mechanism by which the custodians will actually acquire the use of said resources will be explained further on). Again, all these resources will be owned by the government.

So, to summarize so far, both example custodians have access to enough resources to both, legally function and to produce their respective goals, whilst the government will own legal title in all said resources.

Whatever it is the custodians produce from their own labours, plus, whatever is produced/harnessed from any technologies becomes the governments/community’s property subject only to what is needed by the custodians themselves to contribute to the ability to legally function and, to maintain the arrangement and the resources under the custodian’s care. The rest is then utilized by the government for whatever purposes it deems best except it can’t be used for commercial purposes.

*We use the term legally function to refer to the minimum resources a human being living in a civilized society is required to have access to and some control over in order to obey the laws of the society they live in. Anyone who has suffered from homelessness or extreme poverty knows full well that it becomes almost impossible to obey the laws such as those against trespass, public nuisance, vagrancy, sleeping on park benches, etc when one reaches this low level; as an example, a homeless person obviously lacks access to housing or shelter, and as a result, the moment that person tries to sleep anywhere they will inevitably break some law; just as if you stripped a homeless person of the clothes he or she is wearing you will cause the person to break the law of indecent exposure; the same goes for lack of access to food, for it is illegal in most civilized countries to beg or dumpster dive. In other words, society has essentially made it illegal (even if indirectly) for anyone to lack access to basic human needs. There is an abundance of literature on this if you wish please ask me, or do an internet search on the subject.

What will the custodians primarily do?

The list of crafts, tasks, skills, activities etc., that a Custodian can engage in is almost endless. It is not determined by any commercial need coming out of the private sector, nor is it determined by any particular need of the government or the volunteer sector, but this does not prevent a custodian from devoting some or all their time to fulfilling needs from either the government or volunteer sector and in fact it would be encouraged for both sectors to collaborate with the custodian sector. Part of the purpose of being a custodian can be to discover new crafts, tasks, skills, activities etc., the Custodians can engage in as ways to contribute something to society in ways that the other sectors have not, such as fixing problems none of the other sectors can fix due to problems of costs or lack of incentive.

Ultimately, the custodian will either produce tangible goods or some type of service (or a combination of both). When it comes to tangible goods, after they produce what they themselves need, any surplus belongs to the government. When it comes to services, they essentially can provide those services for any of the three sectors government, volunteer, and custodian (just not the private sector unless it is done for purposes which are not commercial in nature).

To demonstrate some ideas, we list the following:

  • Farming (surpluses include food produced beyond one’s own needs)
  • Research, Analysis etc (can be done on behalf of the government and/or volunteer sectors)
  • Arts, Crafts, etc. (surpluses can mean the artwork or crafts created becomes public property for display, or art is performed free for public enjoyment)
  • Teaching (like research and analysis, teaching can be done for purposes which benefit the government and/or volunteer sectors, but also for purposes of the custodian model itself, or religious purposes, or scientific purposes, etc)
  • Repair work
  • Studies, surveys, etc.
  • And just about any other field of study or occupation which can be done for purposes outside of commerce.

So how will the Custodians acquire the use of all said resources?

Whatever resources required, all will be purchased by the government (more on how this is done below). Big ticket items like land, housing, vehicles, etc. can be directly purchased by the government and then granted to the custodian to possess and use. Small ticket items (say anything under $5000) can be purchased using some form of purchase card attached to some account which the custodian will use for such purchases, but which the government will own. Either way, the custodian will be accountable to government for all purchases.

So, now comes the ultimate question – how is this funded?

We will first have to borrow a schematic from Professor of Economics Michael Hudson to show how current sectors are funded in today’s political economy:

Hudson

All economists who rely on accounting models will most likely be familiar with this schematic or at least understand it by a simple cursory glance. The FIRE sector meaning the large group to the left is where all of the credit comes from.

We originally had the custodian model operating under a type of tri-lateral arrangement where the private sector had no financial input whatsoever, and where the government would fund the custodians (in order to purchase goods from the private sector) by either: 1) creating interest free money by the central bank which was then destroyed when it inevitably returns as taxes, or 2) providing businesses which supply any product or service to the custodians a tax-offset of equal amount (something which is used regularly within the non-profit sector).

This tri-lateral arrangement then looks as follows with the custodians giving to government what it is in need of (lessening the burdens of government by producing without pursuing or benefiting private property), the government giving to the private sector what it is in need of (money or tax-offsets, and buying local), and the private sector giving the custodians what it is in need of (goods, services and the tools to legally function and to produce).

Tri

However, after reading some other material by some economic researchers and professors, particularly some work done by Dirk J Bezemer (No One Saw This Coming 2009) and Michael Hudson, we realized that we can’t single out the whole private sector, who whilst wanting to remain part of the private sector may also want to contribute to the custodian sector and get something in return (in contrast to simply donating to non-profits). Notably, we saw a need for people who want to save for security reasons and who want to invest in something which benefits society, but feel that the risks involved investing in companies within the private sector is too great. As a result, we came up with a third mode of funding which we call the Custodian Bond.

Unlike typical bonds, stocks, and other financial assets which are allowed to be freely traded in the secondary markets and allowed to fluctuate in value and yield based on market forces, the custodian bonds will operate essentially the same as TIPS bonds. The idea is that that investor is not seeking to benefit from any free appreciation (and is thus not subjecting themselves to the risk of any market bust), but investing in the government/custodian partnership for a fixed return adjusted for inflation. It must be pointed out that the investor is not investing in a commercial enterprise – the government/custodian relationship is not using the money to create more money – it is using the money to purchase tools from the private sector which allow the custodian to operate their model.

With the Custodian bond, and the Custodian model process as explained above we can overlay the whole process on top of schematic overview of flow-of-fund models created by Research Professor of Economics Michael Hudson and now explain it.

Hudson Model

Similar to the tri-lateral arrangement above, the government pays the private sector to supply those goods and services (which the custodians cannot produce themselves) necessary for the proper functioning of the custodian, but this time the money is funded either fully or in part (the other part as explained in the tri-lateral arrangement example above) from savings of those households who wish to invest in Custodian bonds.

As we can see, consumables + capital/tools (we use the term capital to mean simply machinery etc) produced by business (and we can include here the purchase of land/housing, vehicles etc on any secondary market) are channeled to the government, who becomes legal owner, and then into the possession of the custodian, who operates the surplus share arrangement, who then provides the surpluses back to the government. Meanwhile, savers who wish to invest channel savings into Custodian Bonds, this money is channeled to the producers/business by way of purchasing said consumables and tools, whilst savers receive interest net of inflation.

So to summarize the three methods of purchasing from the private sector:

  1. The central bank creates interest free money (credit), this credit is then used to purchase what is needed, and when those funds return in the form of taxes, they are destroyed;
  2. Any business which supplies goods/services, or any bank which facilitates any purchasing of big or small ticket items, will receive a tax offset of equal amount;
  3. The government issues Custodian bonds to investors from the private sector looking for safe, non-tradeable, inflation adjusted investments, and uses these funds to purchase what is needed.

Is there room for abuse of the model?

Anything which involves human beings is open for abuse – this is part of what makes us human. However, the custodian model operates under trust law and equitable maxims, doctrines, and principles. Any abuse would be a breach of trust and would be punishable by the same methods as any other trustee who was in breach of trust. Custodians would be under the same high level of accountability as both the government and volunteer sectors are.

Our reasons in support of the claims we make.

We revisit our claims:

We the Custodians make the following claims that the Custodian sector, and the implementation of the Custodian model within it, will:

  • Reduce the size of the CHUP sector (crime, homelessness, unemployment, and poverty) as well as lessen the burdens of government, and as a result;
  • Bring benefits to both the private sector and to the whole community.

Further, that the Custodian sector, and the implementation of the Custodian model within it, will:

  • Not come at any cost or expense to the tax-payer or have any need for welfare, charity, or government grants;
  • Not cause personal, property, or economic loss to anyone;
  • Not cause or create, nor change expectations of, inflation, deflation, or otherwise effect purchasing power for producers and consumers of the other sectors;
  • Not compete against any business or industry, property owners, job seekers, or economic agents in general.

The fundamental aspect underpinning our first claim above is that we believe that the percentage of the population who would employ this model and would enjoy living this way would be similar to the level of unemployment (and if unemployment was reduced so too would crime, homelessness and poverty). This is not to say that everyone who is unemployed would be suited to this model; on the contrary, many unemployed want to be gainfully employed but are shut out of the jobs market because there is a lack of jobs and yet at the same time there are those who are employed but do not enjoy their jobs nor get any satisfaction from their jobs or even the money they earn, and who might consider the custodian model more suited to their needs. Our point is that we can significantly reduce unemployment by including the implementation of the custodian model as opposed to trying to reduce unemployment solely by trying to create more jobs; and if it so happens that some of the population would prefer to operate under the custodian model as opposed to working a job, then it makes more sense to offer the custodian model as an alternative, especially if it is proven that it can be implemented without causing loss to anyone.

However, we are not here to sell this model, and again, we rely on the principle that if any individual or group with legal, economic, or property interests can prove that the custodian model is unlawful or will cause legal, economic, or property loss or loss to person, then these same individuals or groups have grounds to prevent its implementation. If they cannot prove these claims they would have no reason to prevent it.

As it relates to being unlawful or causing loss to person or property, then in determining this it matters not whether the model be implemented by one household or millions; however, when it comes to economic loss (or even potential economic loss), then the percentage of the population who implement it may be a factor (we do not see any more than say 5% of the population would employ it – in other words, it would be around the same type of figure as those who make up the CHUP sector).

As it relates to being unlawful, we have yet to find any rule in law or equity that would prevent its implementation, and this includes the necessary relations with government.

As it relates to loss to person or property, we see nothing which shows any property seizure or the destruction of property rights. Anything which is required by the custodian sector, which is not already owned by the government, will always be purchased (by one of the three methods above) and only if it is being offered on the market; nothing will be compulsory acquired. Furthermore, purchases are kept local, which only brings benefits to local business.

As it relates to economic loss, then as we have shown, there is no taxing of incomes or property to fund the sector just as there is no need for charity or gifts. Nor is anything the custodians produce treated as commodities nor brought to any market and so there is no competition against anyone for market share or for jobs or for yield etc.

We acknowledge that the most burning question will probably center on inflation. Will the custodian sector create inflation a result of placing a demand on goods and services of the private sector considering they contribute nothing to supply (in GDP terms)?

As we understand it, under the commodity framework (debtor/creditor relations), all factors of production are treated as commodities and are thus charged for their use; rent for land, interest for credit, wages for labour, and taxes for government. Most businesses (all corporations) which employ people have shareholders and thus must generate profits over some period of time to pay dividends to shareholders. All these costs for the ‘use’ of all said commodities, is ultimately passed on to the end consumer and is captured in the price the consumer pays.

As demand inflation (in contrast to asset or currency inflation) is an increase in prices due to increased demand relative to supply of goods and services (in GDP terms), we acknowledge that the custodian sector is most likely to place at least some increase of demand relative to supply (although we must point out that many who exist in the CHUP sector are already contributing to this), for the same reason any purchases made from either the government or volunteer sectors does as these sectors do not add anything significant to the supply side (in GDP terms).

However, inflation also comes from increases in the cost of the supply side which includes demands from things like rent, interest, and wages (i.e. income). The more who pursue the ownership of assets, the more must go up the demands for financial income (and/or capital gains). Because the custodians do not own property, nor earn money, then they contribute nothing to the cost of the supply side for they themselves do not demand rent, interest, or wages (or capital gains). They also do not borrow and hence do not contribute to any increase in financial claims of others. Therefore, there is a trade-off. An increase in demand of real goods relative to supply of real goods is offset by having no demand for (or any contribution to the demand of) financial income relative to supply of financial income. Obviously, not owning property means custodians do not contribute to asset inflation either.

We can again borrow from the schematic from Michael Hudson to demonstrate the above: the circuit which flows from producer/employer to consumer/employee (the real sector), is subordinate to (and thus must feed) the circuit flowing out of and back into the FIRE sector, and it is only from the FIRE sector that financial income flows (although in theory this is not in fact how it must be done, this is just the way it is done in today’s modern world). This means that any claims of a financial nature must come before any claims of a real nature (for the latter cannot be acquired without the former), and unlike real goods and services, financial claims bear interest, therefore demand for financial income is always increasing relative to goods and services no matter how much real stuff is produced (until we have deflation). Because the custodians have no demand for financial income of any sort, they do not feed the FIRE sector and thus reduce the impact on supply side inflation.

As for currency inflation, the object of the custodian model is that all purchases are kept local as far as is humanly possible, therefore, not only is the custodian not contributing to any change in the value of the currency relative to other currencies, keeping purchases local obviously benefits local businesses.

Therefore, we do not find that the custodian sector will have any considerable impact on the level of prices and thus will not cause economic loss for those concerned.

So we are now at the point where we invite any responses to this challenge.

We have spent more than 7 years researching this model from legal, economic, philosophical, political and even religious perspectives, just to name a few perspectives. What we have presented above is really only a brief summary of the entire volumes of research, analysis, and evidence compiled in support of this model.

It has not always been this way. After a couple of years we realized we had to try and disprove it because we could not find anyone who was seeing what we were seeing and yet the more we tried to disprove it the more it seemed to prove itself.

However, we now leave it to you to prove us wrong or offer any suggestions.

For the economist, our question or challenge to you is to tell us if any individual or household was to implement the Custodian model, would it cause economic loss to any other?

You may present your responses below, or if you do not want us to make your responses public you can send them to us via the contact page where you will remain anonymous.

Thank you!

 

 

 

 

 

 

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