Appendix One – Fifty Nine False Assumptions

Nobody likes being told that their assumptions are wrong or their career is based upon false assumptions. Yet facing up to reality can be a joyous experience which happens when it is realised that those niggling doubts about an academic subject are not mere irritations but, instead, indications that something is seriously wrong.

There then comes the elation of inhaling the fresh air which results from knowing that, when paradigms shift, almost limitless possibilities can arise and they include the chance of living more exciting, fruitful and constructive lives.

Furthermore, people often say that they “don’t understand economics”. This is NOT because they are stupid. It is because mainstream economics is full of contradictions and inaccuracies making understanding impossible. However, with the new accurate paradigm, people suddenly realize that they do understand….!

Below are fifty nine assumptions about reality which underlie mainstream economics and the associated politics. The assumptions are interconnected and often accepted as true (or as inevitable, or sensible) but, in fact, are false.

Nevertheless, the Binary Paradigm becomes easily understood if the fifty nine false assumptions are one by one, and simply, reversed (or near-reversed) as briefly explained in the italicised text. Indeed, after only two or three reversals, it soon becomes clear that a new Universal panorama is emerging.

The fifty nine false assumptions of mainstream economics are that:

1. In a task, human labour creates all, or most, of the output while the capital instruments create little or none. (This is a pernicious false assumption. Labour sometimes creates all the output; sometimes creates a percentage, large or small; and sometimes creates nothing with everything done by the capital instruments.)

2. Banks lend existing money. (No. The money is created out of nothing by pressing computer buttons.)

3. Interest is inevitable and necessary. (No. Administration cost, principal repayments, collateral and a business plan are necessary, but interest is not.)

4. Scarcity is inevitable. (No. Not when there is homo co-operans, modern technology, responsible attitudes and reducing population levels.)

5. High taxation is necessary. (No. High taxation results from the need to redistribute money to those without earning power and also to repay interest-bearing national debt. The new economics creates widespread earning power and greatly diminishes the effects of interest.)

6. The ‘free market’ of finance capitalism is free. (It is un-free. Most people are blocked from entering the markets for productive capital.)

7. The ‘free market’ consists of states of equilibrium i.e., when there is disequilibrium there will always be a return to equilibrium. (Nonsense! Crashes occur and, afterwards, there is a long build-up to the next crash.)

8. The ‘free market’ allocates resources efficiently. (It allocates inefficiently. Rich-poor division is hugely increasing.)

9. The outcomes of the ‘free market’ are always just. (They are unjust. Half the world has to live on only $5.50 per day and 10% have under $1.80.)

10. Homo economicus is an accurate description of human psychology. (It is outdated and can, and must, evolve. Homo co-operans will be better.)

11. Mainstream economics is an all-encompassing study of objective process and universal value and further improvement in economics is impossible. (False! Further improvement is possible. Indeed, it is time to replace mainstream economics (and the associated politics) before it destroys our planet.)

12. It is a matter of small importance that the banking system creates money out of nothing sufficient for the repayment of a loan’s principal but not for the interest. (It is of huge importance because it causes an endless need for more money creation as interest-bearing debt.)

13. There Is No Such Thing As a Free Lunch (i.e., any improvement for the poor inevitably involves a detriment to the rich). (False – the new Economics is not a zero sum game. Technological advance massively increases potential output and enables improvement in the position of the poor.)

14. The ‘free market’ upholds private property for all. (Wrong. The ‘free market’ always narrows ownership of the capital instruments.)

15. It does not matter who owns the capital, particularly productive capital. (It matters hugely because productive capital creates the wealth.)

16. The ‘free market’ implements JB Say’s Market Theorem that producers and consumers should be the same people. (It does not implement the Theorem.)

17. Somebody who voluntarily looks after a sick person 24/7 does no work in the economic sense. (This is outrageously untrue!)

18. Ethics/morality is not part of economics. (This is madness!)

19. The poor are poor because of lack of effort and lack of skill. (False. Apart from lack of jobs, they are poor because of lack of access to productive capital, lack of access to cheap capital credit and suffering from compound interest.)

20. Inflation is not caused by the banking system. (Inflation is largely a monetary phenomenon.)

21. Financial savings are necessary before there can be investment. (Nonsense! Nowadays, money is created out of nothing!)

22. Physical savings are necessary before there can be investment. (This is generally untrue because materials, or substitutes, are available. Prices for things can rise but that only increases cost.)

23. Labour income and/or welfare payments always suffice. (They do not suffice. Wide capital ownership – and its associated income – is necessary.)

24. Wide ownership is not necessary. (It is necessary to spread productive capacity and associated purchasing capacity.)

25. It is not necessary for every person to have an independent income. (Untrue! Without independent incomes people are controlled by others.)

26. The level of interest rates is all that is necessary to manage an economy. (What matters is who or what creates the output and gets the ensuing benefit.)

27. Student loans must bear interest. (Why? The taxation system collects repayment and so acts as collateral. The loans can, and should, be interest-free.)

28. Public capital projects should be funded by interest-bearing money. (Interest-free loans (from the national bank) halve, even quarter, the cost.)

29. Micro-credit borrowing should bear interest. (Why? Collateral, administration cost and repayment are required, but why interest?)

30. Environmental capital projects should bear interest. (No!)

31. An economy requires two lots of financing – one for production and one for consumption. (Not true. Only one lot of financing is necessary if it is simulfinancing as in Binary Economics.)

32. There Is No Such Thing As Society. (Why don’t these people grow up?)

33. Personal and national interest-bearing debt is healthy for an economy. (Nonsense! Because of their need to repay interest, indebted people (and nations) have less purchasing power than those without debt.)

 34. There is no power imbalance between actors (participants, including individuals) in an economy. (Whoever first thought of this has never lived an ordinary life e.g., the rich have collateral and can easily borrow cheaply whilst the poor do not have collateral and so must borrow at extortionate rates. The reasons for power imbalance include:- lack of good education; lack of effective social networks; and unstable backgrounds.)

35. Social and economic justice on the one hand and economic efficiency on the other are incompatible. (Wrong! In the new economics the justice and economic efficiency create each other and are compatible.)

36. Economic history is irrelevant. (This arrogantly assumes, for example, that past crashes will never happen again….Madness!)

37. Economic theory (coming from Adam Smith, 1776) suffices to guide modern mainstream economic theory and practice. (Mainstream economic theory is outdated. Smith’s theory was conceived before the Industrial Revolution began.)

38. The important things in economics are anything except the development and spreading of productive capacity so as to make producers and consumers the same people thereby enabling a Say’s Theorem balance of supply and demand and also enabling the forwarding of social and economic justice. (This is a huge untruth.)

39. Commercial banks should be able to offer interest-bearing mortgages (as distinct from administering interest-free national bank mortgages). (The subject of housing finance needs to be reviewed.)

40. Economic inequality is desirable – the greater the ratio between top and bottom, the better. (Untrue!– the rich do not (and cannot) spend all their money.)

41. ‘Trickle down’ economics works. (NO! The rich are incapable of spending their money (even if they wanted to, which they do not) so they accumulate it.)

42. Rising house and stock market prices indicate genuinely increased wealth. (No – these rising prices usually only reflect newly-created money being put into anything except the spreading of the real, productive economy.)

43. Large economic cycles and crashes have been ended. (They have not. They are inevitable with mainstream economics but not in the new economics.)

44. Individual greed is good and institutionalised greed is even better. (This is an expression of homo economicus. Homo co-operans is needed!)

45. Countries should raise interest-bearing money on the international markets. (No. Interest-bearing debt cripples them forever and opens them to the expropriation of their assets.)

46. Countries should not be independent: they should be controlled by others. (No! Colonisation must be ended,)

47. A country’s assets should be owned by outsiders. (This stops a nation’s people owning their own assets and getting the benefits thereof.)

48. A country’s new money supply should originate in the commercial banking system rather than the national bank. (When it originates in the commercial banking system it is improperly applied and interest is added. Subject to periodic checks, it must originate from the national bank but can be administered by the private banking system charging a fair administration cost but no interest.)

49. Employee shareholdings do not improve efficiency. (Wrong! They do.)

50. Political democracy does not require Economic Democracy. (‘Democracy’ amounts to nothing unless the economic aspect is also considered.)

51. There is a Time Value to borrowed money. (NO! Since the money is usually created out of nothing, it has no time value.)

52. Environmental matters are extraneous and impose unnecessary cost. (Good heavens! These madmen (they are usually men) are destroying the planet!)

53. Economics is a separate academic subject which needs not take account of other subjects. (Wrong! All subjects, to the greatest possible extent, must take account of all other subjects.)

54. Burgeoning population growth is inevitable. (It is not inevitable. When there is genuine economic security, education and health, population levels begin to moderate then decline. Moreover, because of technological advance, smaller populations do NOT necessarily have a diminished ability to create wealth.)

55. An understanding of technology is irrelevant to economics. (It is highly relevant.)

56. Jobs can be exported. (When exported, the spending power of the jobs is removed from the domestic economy.)

57. Domestic manufacturing does not matter. (It matters very much because it ensures local wealth creation and control. Local banking is also necessary.)

58. Education and training suffice for economic needs. (They do not and cannot suffice by themselves. Also necessary are wide capital ownership, access to interest-free capital credit, and freedom from usury.)

59. All the derivatives balance out to net zero. (But that forgets the fees taken out when a contract is negotiated. Moreover, the financial failure of one organisation can lead to a domino collapse. Warren Buffett says that derivatives are “financial weapons of mass destruction”.)

60. (For good measure, here is an extra false assumption.) Every night, the global elite dream of serving the interests of everybody else and the world. (Er…. – No comment.)