The Economists Challenge

The Economists Challenge:

Added 5th May 2019:

I have recently come to realize that many of those in government and many economists, do not seem to understand the differences between some concepts and relations or that
some of these concepts even exist. Without this understanding, no one will understand what I am presenting:

It is assumed the reader understands the difference between relations based on debt and relations based on equity;

It is assumed the reader understands that whilst under the western ideology investors can make investments in equities (i.e. stocks in companies) they make these investments using money which is created exclusively from debt relations;

It is assumed the reader understands the difference between contract law and trust law.
It is also assumed the reader understands the difference between a commercial trust which ultimately operates under contract, and honory or custodian trusts which are governed exclusively in the jurisdiction of equity;

It is assumed the reader understands the difference between a ‘monetary profit’ which is generated under a competitive economic system and which cannot be produced in
isolation, and, an ‘organic surplus’ which is generated from real resources such as seed or livestock, requires no competition to generate, and can be produced in isolation;

It is assumed the reader understands, that the relations required to generate a monetary profit are contractual in nature, and the relations required to create real surpluses out of real resources, are relations which can be based on trust;

Finally, it is assumed the reader understands that people who are parties to relations which are contractual in nature seek damages or the seizure of property upon default of the contract, whereas trust relations are based on mutuality and involve operating on the conscience of the parties.

To illustrate the difference between the two, let us imagine a man owns a cow and lends the cow to his neighbour, for a price, for the purpose of allowing the neighbour to milk it:

Under the contractual relation the owner will pre-determine his price, i.e. he will stipulate that the neighbour must pay 5 litres of milk a week to the owner, and what is produced above this can be kept by the borrower, and he will place a lien on the borrowers property as insurance. It will be exclusively the borrowers duty to determine how to get the most out of the cow. If the neighbour fails to produce and deliver the stipulated 5 litres of milk a week he will be sued in a court for damages, he will have to return the cow, and if he is unable to pay the damages will have his property seized to make good to the lender. If he has no property he will become the slave of the owner.

Under a mutual trust relation, the owner will not pre-determine his price but offer a surplus share arrangement, whereby whatever milk is produced each will get half. If there is any week where no milk is produced, both parties get nothing, no one is sued, and no property is seized. The lender will take it upon himself to help and educate the borrower to find better ways to produce more milk or to prevent there being no milk (such as suggesting putting the cow in different locations on the land which may provide better grass or less stress for the cow).

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 are unable to embrace the western ideology (for various reasons) and who we will hereinafter, for illustration purposes, 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 (therefore there is no inflating of the money supply);
  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 trust relations with government.

[See:

http://www.bailii.org/uk/cases/UKHL/1977/2.html

Die Mercurii, 2° Martii 1977
HOUSE OF LORDS

TOWN INVESTMENTS LIMITED AND OTHERS
(RESPONDENTS)

v.

DEPARTMENT OF THE ENVIRONMENT
(APPELLANT)

…the legal relationship of trustee and cestui qui trust under a trust in private law is capable of existing between an officer of state in his official capacity and a subject…that property may be held in the capacity of a trustee for the Crown.

See also:
http://www.austlii.edu.au/au/cases/cth/HCA/1993/1.html
Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation [1993] HCA 1; (1993) 178 CLR 145; (1993) 117 ALR 27; (1993) 67 ALJR 922 (7 December 1993)]

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, and more importantly, the custodians are not producing for the purpose of economic gain, and as such there can be no economic loss to any other.

[See

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/sa/SASC/2007/365.html?
MILLS & ORS v SHEAHAN [2007] SASC 365 (16 October 2007)

Individual Autonomy

In a competitive world where one person’s economic gain is commonly another’s loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another’s personal property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage.

This particular immunity from liability reflects the common law’s concern with the autonomy of the individual and its desire to give effect to the choices of the individual by not burdening his or her freedom of action. Thus, as long as a person is legitimately protecting or pursuing his or her commercial interests, the common law does not require that person to be concerned with the effect of his or her conduct on the economic interests of other persons.]

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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One thought on “The Economists Challenge

  1. The following is a conversation I had with an economist blogger regarding the Custodian model and the Economists Challenge:

    https://thomasthethinkengine.com/2018/04/16/thomas-the-book-engine/

    The reason I asked is because in 1998 my parents won the lotto (in Tasmania), becoming instantly wealthy and able to leave their jobs, only to end up bankrupt and heavily in debt 4 years later. They then split up (for 6 years). This was so hard to watch I began to research on it and discovered that statistically, somewhere between 70-95% of lottery winners end up the same way my parents did, and I have subsequently met past lottery winners in the flesh, all of whom lost it all and more.

    But the real shock came later when I discovered that 19 out of 20 businesses ultimately fail, and around the same percentage of people will retire with insufficient funds (when I last checked around 6 months ago, according to ABS, total superannuation in Australia is something around 3.7 trillion where total household debt is around 3.5 trillion).

    So in 2002 began a long journey of truth (for lack of a better word) and the search to answer a lot of questions. I wanted to know why these statistics existed, why the majority of people were not succeeding when it comes to money, why those who win large amounts can’t hold on to it let alone make it make more money, etc; and these questions flowed into other questions like, is it because we are all quite lazy, and lacking discipline and intelligence, or is it more a mathematical certainty, in other words, is it impossible for everyone to be solvent, let alone generating returns on a constant basis; could everyone retire young? What is it people really want, is it money, or is it really something else like security or trust they seek? Why is it so many people are in debt? Is debt necessary to our economic way of life? Why do so many people dislike their jobs, why do so many people play lottery, why are there so many poor people in so-called rich countries. I then wanted to know if I really wanted to be one of the success stories or not? If I found out that it is not because people are lazy or lacking intelligence, but that it is a mathematical certainty that for every retired wealthy person, others must be in debt and working meaningless jobs, can I live with myself if I was wealthy?

    All other sorts of other questions began to surface such as, if we created a Utopian world where everyone was successful, healthy, and stress-free, what would all the police, judges, doctors, nurses, economists, politicians, lawyers, government workers, not to mention all the industries which exist a result of wars, conflicts, diseases, etc, do for a living? What would all those volunteers and charity workers do? Where would it leave us all, what would we all be doing when we consider how many jobs and careers exist because of the fact that we are living stressed and conflicting lives in a stressed and conflicting world?

    So began a long journey of research and study into just about every subject you could imagine. I studied money, finance, banking, markets, economics, law, history, religion, philosophy and whatever else I could get my hands on, including studying wealthy people, middle class, and poor people (my brother lived many years on the streets) and through this process also began to learn how to objectively (at least try to) study myself as an economic agent living in a competitive world and the many decisions I make or have to make as a economic agent.

    Unfortunately, what these studies (both the material and of myself) revealed was not good, both as to the prospect of seeing a happy world, and on a more personal level, as to my own ability to find any peace.

    I discovered that no amount of wealth can exist without others being in debt because money itself is debt, that economies can’t grow without conflict and suffering on all levels, and that crime, homelessness, unemployment, and poverty (which I refer to as the CHUP sector) not only can’t be reduced to zero, no one really seems to want them reduced to zero. A mate of mine went into a job network place to find that they had started implementing computers, and he jokingly said to a lady there, I bet you hope these don’t replace you, and where she replied, I hope not or I will be out of a job. This made me think about the sheer size of the jobs which exist just because there is unemployment (centrelink, dept human services, job networks, charities, counselors, education providers etc) and I realized that the extent to which the economy relies on jobs, careers and industries which exist based on the CHUP sector alone, not to mention the many other industries which thrive financially from diseases, wars, etc is too large for them to ever be reduced to zero.

    This also led me to discover one of the biggest contradictions of our politically and economically motivated society, that homeless people are physically unable to obey all laws of society by virtue of being homeless, such as laws against vagrancy, loitering, public nuisance etc, and lacking access to basic needs like food which causes them to beg or dumpster dive etc, all of which is illegal – something my brother experienced a lot (interestingly, my brother told me once that when he was homeless he used to busk and he said it was the richest he ever felt because he had no bills; he sometimes gave money to other homeless because he didn’t need it and it was safer to get rid of it than to be a target). This meant that unless one is willing to compete to become an economic agent, or failing this, to seek welfare subject to the terms society creates, then society will prevent you from obeying the laws of society.

    The most painful discovery however for me personally, was that I don’t even like being an economic agent to begin with, because whilst I love to work with my hands and produce, create, invent etc, I do not like competing in the market place, I do not like selling, I do not like exchanging, I do not like being in debt, I do not like holding others in my debt, I do not like being bound by contractual agreements, I do not like being bound to the same daily routines (such as is required by a job), I do not like working with or around others who also do not enjoy their jobs, I do not like pursuing money, I do not like having to budget, I do not like living in fear of what the economy might do and my prospects of providing for my children, I have no desire to own property, nor do I share the same political and economic goals of the majority of my fellow country-men, and yet, all of these things I must do otherwise I will become like my brother or worse, I will no longer be providing for my children, which in itself is illegal. It’s like discovering I am an alcoholic, but unable to do anything about it because society expects me to continue being one because it is the only thing which fits with their goals and the political goals of the country.

    So I set out to try to answer the following questions:

    1. How can we reduce the CHUP sector without it costing tax-payers and property owners a single cent, without the need for welfare and charities, and whilst at the same time not leaving those whose jobs rely on the CHUP sector without a job?

    2. How can people like me, who do not enjoy the game of economic pursuits, and others who lack the emotional (like my brother and others who can’t hold down jobs), the intellectual (disabled etc) and the physical (injured etc) disciplines to be an economic agent let alone hold down a job, produce something and contribute to society in a way which does not require us to be economic agents who must sell and compete?

    By attempting to answer one question, I was finding that I could answer the other, and that the solution I came up with solved both problems. This solution I call the Custodian model. I was so shocked when I discovered this by the simplicity of it, that I spent years trying to disprove it, only to find that the more I tried to disprove it, the more it was proving itself, that there is a way to reduce the CHUP sector without causing economic loss to anyone, and at the same time providing an alternative to the game of economic pursuit for those who wish to operate another way.

    Unfortunately, no one seems interested. Every economist I try to show it to, especially those who claim to be motivated to help reduce the CHUP sector, aren’t interested. I have share this with countless blogs which are based on economics and all I find is that everyone is charged with their own political view and nothing else matters. I have shown this to the Australian government, at the RBA, the Treasury, and to the Cabinet, and not a single response. I have written to politicians about it who don’t respond.

    I wish I had never discovered all of this, I wish my parents had never won that money to begin with, because then I would have been blissfully unaware of the reality of the economic world and of my own emotions etc. I constantly scream to the heavens asking ‘Why the hell have you shown me this – what am I supposed to be doing with this knowledge??????’.

    So anyway, I have often wondered if I should write a book about it, but then I ask myself, who on earth would read it? Why would anyone want to read something that doesn’t have a happy ending? Of course, on the flip side, having this knowledge means I am more aware of why and when economic cycles turn down based purely on understanding the nature of money and human emotion, but I know that only those who care little about the CHUP sector are going to be interested in such a book and my conscience won’t let me do that.

    …………………..

    Dingo – I read your comment and found it fascinating and beautifully written! The problems you’ve identified are mostly good. But your solution seems to me unworkable.

    I read your blog about the custodian model. I have to admit I don’t see how it can work.

    Here’s my rebuttal. Let me know if I’m missing the point.

    Basically you have for example government-owned farms and people living on them, custodians, who share their surplus with the government? I fear the incentives are such that the farmers will make enough for themselves and there will be no surplus for the government. Given the government is furnishing the land and the tools of the trade this is a bad deal for taxpayers!

    There exist already parts of the economy with the land and capital goods provided by government, that provide a service the government finds useful. Let’s think about hospitals and imagine the doctors nurses and adminstrators are custodians. The implication of your model is that as well as working for the government the staff live in publicly provided housing and get paid a subsistence wage? It’s certainly possible some of them would prefer this to the current model but I’m unsure how many.

    It sounds like a work-for-the-dole scheme blown up to economy-size (or a bit like the military!)

    Ultimately I think the problem with your custodian model is that it assumes patterns of productivity can be sustained absent strong incentives. I suspect the custodian sector has underdeveloped incentives and would rapidly become unproductive.

    In your comment above you said a lot of things that resonated with me:

    >I do not like being in debt, I do not like holding others in my debt, I do not like being bound by contractual agreements, I do not like being bound to the same daily routines (such as is required by a job), I do not like working with or around others who also do not enjoy their jobs, I do not like pursuing money, I do not like having to budget, I do not like living in fear of what the economy might do and my prospects of providing for my children.

    I feel much the same. And I think most people feel the same.

    Few of us really want to be economic agents I reckon. A tiny share of people thrive on it and then a big share grin and make do, pretending they like it since they have no alternative. But few of us want to give our lives to the great capitalistic machine – just like bears probably don’t want to stand in freezing streams chasing slippery fish.

    It’s important to remember that in a state of nature we are also driven by incentives. Hunger and thirst and feelings of danger are powerful motivators. If these strong and concrete motivators feel more real, you can always drop out and become self-sufficient.

    The tricky part is dropping out while also being part of the economy. Your custodian model tries to achieve that but I think where you go wrong is not thinking enough about how productive a sector unguided by incentives would be. It is hard for me to believe the custodian sector ends up being a net contributor to everyone else.

    This is my thinking at this early stage of getting to grips with what you’ve suggested.

    ……………..

    Hi ,
    First of all, thanks for the kind words regarding my writing. I have always felt that I was poor at writing and explaining myself so this was a bit of a surprise.

    Also, thank you for your thoughts on the custodian model, it is very constructive.

    I got the idea of the model after having an email conversation with an economist from Iran, after I had done some searching on the historical roots of usury and the problem religions have always had with it.

    He explained to me that usury ultimately occurs and is perpetuated by pre-determining profit rates and insuring against loss. He used the humble tomato seed to explain.

    Two households grow tomatoes to eat and one household has his current tomatoes, his current crop and all his seeds (capital) destroyed by some freak act of nature. He asks his neighbour for some tomatoes to eat for his family, and some seeds to grow a new crop. If the neighbour lends tomatoes with the condition he must return an equal or larger amount of tomatoes he has committed usury. If he lends the tomato seeds with a pre-determined interest rate and/or he places a lien on any of his neighbours property as insurance, he has also committed usury. To not commit usury, he must gift the tomatoes out of compassion asking nothing in return (but knowing that his neighbour would do the same thing for him), and he must lend the seeds under a profit share arrangement, whereby, if the crop succeeds they both share in the surplus, if the crop fails both get nothing. It therefore becomes incumbent on the lender to work with his borrower and to ensure success. This contrasts with the capitalist or the Wests view of lending whereby the lender pre-determines the interest rate and insures against loss by placing a lien on the borrowers property, and then has no more to do with his borrower leaving the success of the borrower purely up to the borrower.

    I had already spent years studying trust law and its history through both the English and Roman empires and found the principles upon which the honoury trust operated (compared to the now more common commercial trusts of today) to be beautiful. I then married with this what I had learned thanks to my Iranian friend and the Custodian model sprang out at me.

    So as for incentives, or lack thereof as you mentioned, both the fact that government will be working with the custodian to ensure success, and because the custodian is operating under trust law, then I cannot see the custodian being unproductive.

    However, the definition of productive (and indeed success) may need some careful scrutiny. How productive do we really need to be? According to statistics from the ABS, workers in Australia on average produces 5 times in GDP what a person on the dole consumes. This tells me that we already produce, and/or are capable of producing far more than is necessary. But having said this, a worker who does produce as much as they do puts himself in a great position to accumulate much in wealth, and so their level of production is in many cases spurred on by the potential financial rewards it may bring him. Contrast this to a custodian who has no goal of owning property, then on what grounds should they produce the same level as a worker in the private sector?

    I recently read a blog post by Bill Mitchell of MMT who was criticizing something called the universal basic income (something which I do NOT support) and the theme of his blog was based on some members of society who just wanted to do their art and receive a UBI. His complaint to this was that these people shouldn’t be allowed to just do their art when there are those out there working 40 hours a week and who produce the houses, food, energy etc which the artists too will consume.

    But missing in this argument from Bill and just about everyone else who makes this or similar arguments (such as those labelled at the unemployed), is the fact that these workers are not restricted to just producing the houses, food, energy they produce, and many of these workers may even own the means of production. These workers have the ability and the legal right, thanks to a society based on free-enterprise, to generate much wealth from their work and many do. Take a wheat farmer who owns his farm – if the farm appreciates in value based purely on market forces (a bull market in wheat or asset speculation etc), is the farmer not going to take advantage of his new found wealth, for which in reality he did nothing to create? Does a home owner not take advantage when he finds out his home has appreciated 20% in two years through nothing of his own doing? Would a worker who allocates 30% of his wages to investing in the stock market going to complain when the value of his stocks appreciate thanks to a bull market?

    So, my point would be that, yes, some people choose to grow wheat, produce cars, work in factories, drive trucks, etc but for many of these people, the incentive is less about the thing they are producing and more about the financial rewards it can bring, as many of these earners can take some of the money earned and accumulate financial wealth with it, which if they are good at, or lucky, can eventually retire and live off passive income.

    Contrast this with a custodian, who has no economic or financial goals, then how much production do we think is enough? More importantly, is it even that important what they produce? For instance, what if a custodian was simply an artist, spent all their time creating art, but made this art available free for the public to enjoy. Would not the community benefit from free art?

    I must also point out that the custodian model is not operated on behalf of the tax-payers in the sense that if a custodian happens to be growing food, such as wheat, and creates a surplus, that this surplus is just then gifted to tax-payers or sold on the open market and the proceeds dished out to everyone. In fact, the operation of the custodian and any surpluses generated are not to be co-mingled with the private sector in a commercial sense but must be kept to distributing to other custodians or to the volunteer sector. The reason for this is because it would be unfair on the private sector and all the commercial farms who are growing wheat if custodians who had a bumper crop then dumped all that wheat on to the open market thereby causing the price of wheat to fall. This would not be something commercial farmers would want.

    But, the custodians do benefit the private sector (tax-payers) other ways;

    One, is that all tools and necessities which are required to be purchased by the government on behalf of the custodian model (things they are unable or have yet to create themselves) will be kept local because the way they are purchased (by non-market sourced money which I explain on my blog) means cost is not a factor, hence there is no need to find cheaper imports, and this benefits local businesses.

    Two, because the custodians do not pursue money, do not receive tax-payer money, do not pursue property, do not pursue jobs, etc, then they are not competing against everyone else in the private sector for money, property, yield, jobs etc, and hence do not contribute to market swings, asset inflation, business cycles etc.

    It is because the custodian model does not compete against the private sector (i.e. tax-payers/property owners), that it benefits the private sector.

    I use an example of the man wanting to paint his house yellow, as a means to explain this better. Imagine a street full of white houses, and one home owner decides he wants to paint his house yellow. All other home owners believe that if he did this, the value of their own homes will fall, so they strike a deal with him that if he agrees not to paint his house yellow, they will pay him a monthly sum. From a legal perspective, the law deems that he has passed consideration because he has given up legal rights. By this same reasoning, I am saying that the custodian, but giving up his legal right to pursue financial wealth, has passed consideration to the private sector, who are now better off because there is less competition for property.

    Another example would be the game of monopoly. If 10 people start out playing, then each has a 1 in 10 chance of winning. If 2 people drop out, but at the same time freeze two of the properties (a metaphor for the custodian model making resources unalienable), then each of the other players now has a 1 in 8 chance of winning, and the fact that two properties are no longer allowed to be competed over does not reduce the ability of any one of these 8 players to win the game.

    As for the numbers who would operate this way, I doubt many people would even want to operate the custodian model. The custodian model would I think only be operated by a small percentage of the population, which I believe would be in the vicinity of around the average unemployment rate. This is not to say that all unemployed (or homeless etc) would be custodians, on the contrary, many unemployed desperately want jobs and aspire to be part of the private sector, but there are many in jobs who don’t like their jobs, and don’t aspire to pursue the rewards which the economic system provides (like financial wealth, property ownership etc). A lot of these people have very creative and cultural skills which are never truly expressed because there is no demand for them in a commercial world, so in a sense the world never gets to see the best that these people have to offer, and unfortunately, these people really only exist solely for others and not for themselves.

    I must also say that one of the reasons I am so passionate about the custodian model is because I am in fact a staunch supporter of capitalism, even though I am the last person on earth who would ever succeed at capitalism. The reason I support it is because I believe it is capitalism which has produced some of the greatest achievements by man. However, what I do not like about capitalism is that it is forced on all of us and not all of us are equipped to operate under it, and all resources including human needs are subject to its principles. As a result of it monopolizing all of us and all resources, the costs of capitalism can then never be truly met. There is no Yang to the Ying. I don’t believe socialism or communism is the answer purely because these are political in nature. I also don’t believe the charity sector is the Yang to the Ying either because whilst the charity sector hold resources subject to trust principles and operate on behalf of community purposes, they operate under the same monetary circuit as the private sector making their survival completely reliant on the private sector. It is only the custodian model which I see can offset the costs of capitalism because it does not compete with it.

    In recent times I have started to wonder whether it would in fact be capitalists themselves who would support the custodian model more than anyone else, on account of the fact that they will see that the custodian would be the only model which does not compete against capitalists for a share of the pie that they create.

    I really do appreciate the fact that you took the time to read and make comments. I have learned a lot from this and realize that I have more to explain on my blog. If you have any other questions or suggestions please let me know.

    Thanks

    ………………….

    Hi Dingo.

    On a practical level I’d edit the post on the blog that is in capital letters. It looks shouty! Your writing is good enough that the flow of your ideas emphasises your key points with little need for capitals, italics, bold or underline.

    My response to your challenge would be that the government acquiring land and tools for the custodians seems costly. Where does the money for these acquisitions come from?

    If in your model the government can print some amount of money to buy things in the real economy, are there not higher priorities for that spending than permitting some people to become custodians?

    ………………..

    Hi Jason,

    I explain on my blog that the money is non-market sourced, i.e. issued by the Central Bank interest free, and then destroyed when it returns in the form of taxes, therefore it has no impact on the supply of money or on inflation etc. This contrasts with all other money which is market sourced, i.e. sourced from the economy itself.

    The key differences between market and non-market sourced money is the purpose for which they are created. When governments spend money into the economy, mostly it is aimed at helping grow the economy, and as the economy is market and competition based then it makes sense this money should be market sourced and charged at interest (i.e. a product of that very economy). The custodian program is not part of the economy or the markets and therefore it does not make sense to use money sourced from the economy, nor would it be fair on the participant of that economy to use their money for programs which are not for the economy itself.

    Therefore, to answer your second question, of course there are higher priorities, and if these were dealt with on a more consistent and permanent basis then people like me might have less reason to try and come up with ways to get people off the streets and into homes without having to beg to tax-payers to pay more attention to how much suffering is going on. (I have always maintained that distribution of income will never work to address inequality, and that the reason many people are poor is because they lack legal permanency in access to needs).

    Ultimately, this is why I set up my blog as the Economists Challenge. Whilst I welcome feedback, the point of explaining my custodian model to economists is not as much to hear their opinions as to whether they like it, or agree with it or not, but rather to simply answer the question, if one individual was to become a custodian, would it cause anyone else economic loss? If 1% of the population became custodians would it cause the other 99% economic loss? If yes, then how?

    If not, then there can be no grounds upon which anyone could argue against the program itself or anyone implementing the custodian model. This then means, if the custodian model, and the way it functions and is funded as per the way I explain in my blog, does not cause anyone economic loss, then the same process of funding could be used for other, higher priorities, if these priorities were not for economic purposes of course – we must keep economic purposes and non-economic purposes separate.

    To date, I have not had anyone actually take up the challenge and explain how the model would cause others economic loss, but this could also be because either my blog is too long, or is not explaining it properly. Some of your questions suggest that maybe I have not explained well enough how the custodian model is funded.

    Like

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