The Driving Forces Behind the Free Market
An economy can be money-driven or resource-driven.
The market is about how people exchange resources in an economy. When done on a large scale, these exchanges need some degree of sophistication in order to be done efficiently and without putting anyone at a disadvantage. Only a true free market can achieve these goals. We know that people exchange goods they have for goods they want or need. Individuals acquire new skills and resources by exchanging what they already have for these new resources or to learn new skills. Countries similarly exchange resources they have for what they need through the import and export process. In previous articles, studying these exchanges, from the basic exchange between two individuals, up to exchanges between governments and the general public has led us to a new understanding of currency and taxation. On a small scale, private currencies can be used to facilitate exchanges between individuals, while on the larger scale Public Service Credits replace taxation and facilitates the exchange between the government and the general public. While the exchange of resources is what is happening in the economy, it is important to understand the forces that drive these exchanges.
Money Versus Resources
Most people think the purpose of all the activity in the economy is the actors trying to make money. In other words, they think that economic activity is driven by the profit motive. The profit motive is a feature of capitalism. In fact, it is the driving force behind capitalism. But capitalism and the free market are not the same thing. Capitalism is about private ownership of the resources and the production of goods and services for profit. The free market is about the exchange of resources, goods, and services with prices determined by supply and demand only. Thus you can have free market capitalism which combines the two, but there are other forms of capitalism. Most countries today practice some form of capitalism but no country has true free market capitalism. The reason I want to make clear the separation between the free market and capitalism is that people often conflate the two. Capitalism is driven by the profit motive and is a money-centric view of the economy. But when you look at the free market, people generally engage in an exchange not to make a profit, but to consume whatever they acquire in the exchange. Even if you look at it in terms of a buyer and seller, the buyer obviously wants to consume what he buys, but the seller also wants to consume some future goods which he can use the money received to purchase. We must understand that people do not want to make money for the sake of it. Rather they seek to make money so they can use it to acquire the resources they want. Thus while capitalism is driven by money, the free market is driven by resources. Since resources are finite, people must compete for them. How do you decide who should get what amount of a particular resource? It depends on what each person is going to do with that resource, and the value to the rest of society that their resource usage brings. The free market, as part of the process of exchanges, sets prices based on the supply and demand of resources, and in the process efficiently allocates those resources to their most valued use.
Allocation of Resources
Thus while the activity in the free market is exchanging resources, the effect of this activity is to allocate resources in a way that they are utilised for their most valued use cases. Take an individual for example. During his childhood, he goes to school and acquires some knowledge and skills. Those are the resources he has. He may then acquire a job where he exchanges those skills for money to purchase the goods, services, and additional resources he needs. He is indirectly exchanging his skills and knowledge for resources he needs such as food. Money is the facilitator of this indirect exchange and is effectively used to redistribute resources continuously in the society. From the point of view of the capitalists, acquiring more money is the most important thing since they are are driven by profit. From the point of view of the free marketers though, acquiring the resources they need is the most important thing. It might seem trivial but it makes a difference in how the economy operates.
We need to take a pause and ask what are we really doing? There are two halves to almost every transaction in the economy. One half is money, the other is the good, service, or resource. Our economy can be driven by either half. If we are driven by money, then we have to be really careful about how we create and inject that money into the economy. Right now we have the banking and financial sector pulling all the strings when it comes to the creation and injection of money into the economy. This is a problem because the money created by banks is debt, i.e., loaned into existence to be paid back with interest, causing society as a whole to be constantly indebted to the banks. But since our money is debt, which can grow exponentially and indefinitely, it means our economy is driven by debt which grows exponentially and thus demands exponentially growing consumption to keep up with the debt. That translates to an exponentially increasing demand for resources on a finite planet, which is impossible. Our economy then is quickly out of sync with the environment and the resource-constrained Earth that we live on. If we are driven by resources instead then we understand that resources are finite and will not grow exponentially. Unlike our current system where the price of money is set by the central bank, in a true free market the price of money will be set by the forces of supply and demand. Thus money won’t be artificially cheap and it will reflect the availability of resources. Resources will be more efficiently allocated and we will no longer have to consume increasingly more resources in the pursuit of growth. This means that we can have an economy that doesn’t destroy the environment. Public Service Credits and competing currencies are designed to take us away from the debt-fuelled economy we have now to a resource-driven economy.
It is important to understand that money is the tool used by the free market to reallocate resources. Thus it is one half of almost every transaction in the economy. Anytime money is transferred from one person in the economy to another, it results in a redistribution of resources among the actors in the economy. It may not be an immediate shift but it will happen eventually. When banks create money out of thin air and loan it to the public to do their business, the interest payment constitutes a claim to future resources that the banks have on the public. So basically the banks claim a commission in resources from the public for any economic activity the members of the public engage in. This is further compounded by taxation where the government is also claiming a commission in resources for all economic activity. You might argue that the government uses its commission to provide public goods, but they still take a cut for their services. This is why the idea of Public Service Credits and competing currencies is so important. Under that new paradigm, all sectors of the economy are on a level playing field and no one has a claim to resources he hasn’t earned.
There are two aspects to an economy. One is the ownership of resources which is described by economic/political systems such as capitalism and socialism, and the other is the exchange of resources which is described by the market, with the free market being the optimal market system. The economy can be driven by motives of the system of ownership, or by the motives of the system of exchanges. Currently, most western countries have systems that focus on profit-making which is fuelled by a debt-based monetary system. The result is an economy that demands continuous and exponential growth which is impossible. I believe we should focus on the market aspect of the economy and letting the exchanges drive the economy instead. This would lead to an economy that is in harmony with the Earth’s natural systems. Public Service Credits and competing currencies are the first steps towards such an economy.
