Re: Maximum Profit v. Minimum Wage

From: Biometrics (bio_at_metric.net)
Date: 03/20/05 

Date: Sun, 20 Mar 2005 14:18:45 GMT

Distributions of Wealth and People's Economy

By Dharma Deva

The question of wealth distribution requires a fundamental look at what

forms a holistic economy. Sarkar states that a developed economy should

consist of four parts: people's economy, psycho-economy, commercial

economy and general economy. It is the people's economy that offers

economic liberation and security for all. Its scope, implementation and

invigoration of economic and human rights needs to be brought to the

forefront as conventional economists are unable to come to grips with

the failures in economies around the world.

Guaranteed minimum necessities

People's economy deals with the essential needs of the people in

general and with aspects such as production, distribution and

marketing. In particular, it is directly concerned with the guaranteed

provision of minimum requirements like food, clothes, housing, medical

care, education, transportation, energy supply and supply of

irrigational waters. The objective is continuous improvement and ready

availability of these essentials. In order for minimum requirements to

be assured there must be guaranteed purchasing power. The time has come

to recognise that the right to guaranteed purchasing power is a

universal and fundamental human right and as such requires

constitutional protection, ie there must be constitutional recognition

of the benefits of economic prosperity for all people.

Grossly unjust wealth distributions

Current laws emphasize property rights and give compensation for

expropriation and misappropriation of property whether by governments

or other individuals. However, in doing so there is disregard as to

whether the distribution of such property rights can be or is

justified, particularly in the case of over-accumulation. A highly

skewed distributions of wealth ranging from some individuals amassing

billions in assets while others struggle on a few cents a day

represents an inefficient production, distribution and marketing system

that does not serve the needs of a people's economy. Despite capitalism

being a relatively somewhat better system than communism in terms of

the production of goods and the incentive to innovate, the large scale

wealth inequalities evident in capitalism does, of itself, mean that

there are many pernicious loopholes in such a free market system.

In terms of a comparison with investment theory, it is certainly

arguable that if a particular investor can derive an abnormal return

consistently distinct from what may be considered as being within a

range of an average or normal return in the market, then the investor

is probably privy to certain information that enables them to exploit

arbitrage or speculative opportunities. Indeed the situation may be

worse and involve, for example, favouritism, collusion, cronyism,

bribery or other biased distribution mechanisms. Abnormal opportunities

such as these represent inefficiency and unfairness in the economy if

such loopholes are readily available and allowed to persist. A truly

efficient economy would continuously marginalise and virtually

eliminate the opportunity to make such abnormal gains or profits. This

also includes the ability to amass unprecedented or abnormal levels of

wealth.

Minimizing the gap - a sign of an efficient and rational economy An

efficient economy would, instead, minimize the gap between the minimum

requirements needed generally by all people and the maximum amenities

required by particular persons or groups so that they are capable of

rendering more service and useful outputs for the benefit of society.

For instance, ordinary people may be provided with motorcycles instead

of bicycles. Here, there is some difference between a motorcycle and a

car, but the gap that existed between a car and a bicycle has been

partially reduced. In an economy that is efficient in what it

distributes (ie marginalises and seeks to eliminate the ability to make

abnormal gains in wealth accumulation), or in another sense is a

rational distributor; the economic gap between ordinary people and

meritorious people is constantly reduced as much as possible, but the

gap will never vanish altogether. That is, the difference between the

minimum requirements of all and the maximum or special amenities of the

meritorious is never entirely eliminated. Even though the gap exists,

there must nevertheless be efforts to continuously reduce the gap. An

important reason for that is because if the gap increases

disproportionally there is every likelihood of economic loopholes again

arising to abnormally skew the distribution of wealth to irrational

proportions. This affects the economic welfare of all members of

society and the common people, such that the value of their labour and

participation in the economy is not properly recognised, thereby giving

scope for a large segment of society to become deprived - and

exploitation will again re-emerge in society in the guise of special

amenities. Accordingly, the provision of special or maximum amenities

should not go against the common interest. This is the relationship

between minimum requirements and maximum amenities.

It also, however, means the ordinary public will not and should not be

deprived of maximum amenities - efforts must be there to give them as

much of the maximum amenities as possible and available to society at

the time, but without destroying the incentive of the more meritorious

to produce better outputs and contributions for society in all spheres

of endeavour. A close analysis reveals that such a system of production

is based on consumption for the benefit of all members of society,

rather than profit being the underlying motive in the field of

production.

Naturally, with the marginalisation of profits and the elimination of

the ability to make excess or abnormal profits, eg with the continual

lessening of opportunities to make speculative gains, the economy is

then in a better position to truly serve consumption needs rather than

profiteering objectives.

Rational distribution of rational profits

Profits, must of course be made, but these have to be rational or

normal profits. What should be eliminated in an economy that rationally

distributes resources and makes maximum utilization of resources is the

ability to make abnormal or irrational profits. There is no scope for

speculative gains in a people's economy.

For example, in the market place the market price may be the cost of

production plus a rational profit (Price = C + Y) where a rational

profit is about 15%. To further the increased purchasing capacity of

workers this amount or part of it will be rationally distributed

amongst them and act as an incentive. As they get more incentive,

workers will produce more goods and services. Incentives should

encourage greater work and better quality work, and so they should be

directly linked to production. This approach in a people's economy

increases purchasing capacity and, therefore, the per capita income and

standard of living of workers increases. In such a system there is no

economic exploitation involving the unrestricted plunder of physical

and psychic labour of a particular community (or its natural resources

in the local area). The surplus value created by labour and taking the

form of profits is rationally distributed to labourers and/or

shareholders in a co-operative manner and through co-operative business

enterprises.

The object of production is then based on the consumption motive.

Profits having been marginalised or minimised to normal or rational

profits in an economy that is truly efficient and which rationally

distributes resources, means also that speculative or profiteering

opportunities or motives decline and, as there is little or no scope

for them, the focus of production shifts to satisfying the minimum

necessities and maximum amenities of the ordinary and also the

meritorious people. It is the rational profits (including equitable

remuneration in the form of salary or wages) derived that are used to

guarantee and increase the purchasing capacity of labourers and/or

shareholders (where labour includes all manner of utilization of

physical, psychic or spiritual capability). Only a system that revolves

around the consumption motive can increase the standard of living of

all people. In such a system the value of wealth is measured in terms

of its capacity to purchase commodities. It is the purchasing capacity

of one's wealth that is the real value of that wealth and that

purchasing capacity is, of course, the real wealth. Accordingly, it is

improper to define wealth as meaning only riches - that amounts to

hoarding of wealth.

Hoarding of wealth leads to economic crisis

Given that wealth must be measured in terms of purchasing capacity, if

there is hoarding of wealth then capital becomes concentrated in the

hands of a few individuals (including corporations) or the State and

its purchasing capacity is undermined. This concentration in the value

of wealth (or what could be purchasing capacity and therefore what

could be money rolling through the economy) is a fundamental cause of

economic depressions. The second and related cause is when money in the

possession of a few individuals, corporations or State capitalists

stops rolling. The Asian crisis is symptomatic of this second cause.

When large amounts of money were withdrawn from economies such as

Indonesia and Thailand, that money could no longer roll through those

Asian economies.

Instead the money found its way into USA stock markets for the

acquisition of corporate stocks, creating an unusual and unprecedented

demand for shares traded through US stock exchanges (the prices of

which are not truly reflective of the fundamental businesses or

investments of those corporations). This usage of money essentially

simply pushed up the value of stocks/shares, while remaining entirely

inert or unutilised for real productive purposes. It has now caused

inflation in the value of shares traded on US stock markets, while at

the same time the withdrawal of wealth from Asia has resulted, or

rather added to, the inability of those Asian economies to produce

their minimum necessities and to provide for any special or maximum

amenities, first to the more meritorious and secondly to the common

people. At no time has the people's economy been considered. For all

intents and purposes innovation in Asia has been stifled, the original

wealth that rolled in and was subsequently withdrawn was not used to

increase the real purchasing capacity of the people because it was not

first properly applied in building up the minimum necessities of all

people, but rather focused more on providing special amenities for a

limited segment of society or class of persons. In a nutshell, there

was no rational distribution. The capitalist reasoning in withdrawing

money from Asia was that they thought that if the money was allowed to

roll freely in Asia then their profits will decrease (even though it

would bring relief to the common masses). Consequently, they withdrew

their money without any control on them by the local economy and local

people.

The psychology of the capitalists is to make profit from the rolling of

money, and as in Asia when they discover that the investment of money

does not bring profit up to their expectations, then they stop rolling

the money in that particular economy. It brings economies to it knees.

The money is instead kept immobile or inert or channeled into

unproductive purposes by, for example, the acquisition of US related

stocks. While this may give a pretence of riches it is really a type of

concentration of wealth away from where it could be better productively

applied in the medium to long term so as to give greater opportunities

for the all-round welfare of a greater number of people. Such pretence

of riches also does nothing to increase the purchasing capacity of that

wealth. In PROUTist terms the wealth is said to have lost its value

because it is not assisting in increasing the purchasing capacity of

most people.

Keep money rolling

Also, in PROUTist terms the value of money depends on the extent of its

circulation. The more frequently money changes hands, the greater its

economic value. The greater the value of money, the greater the

prosperity in individual and collective life, and the greater the

opportunities for all-round welfare. The people's economy then

flourishes. While money may well change hands through the US stock

markets, that does not amount to true circulation of money in the

productive parts of the economy which are concerned with the provision

of minimum necessities for all and special or maximum amenities to

first, the meritorious and secondly, to the common people. This

contradiction in capitalism and its false claim to being an efficient

allocator of wealth and distributor of resources arises due to the

self-centered profit motivated psychology and the control and

accumulation of wealth for the benefit of a few rather than for the

welfare of all.

However, had the consumption motive been the motivating force for

production there would have been a continual circulation of money

through the productive parts of the economy centered around the needs

of the people.

There would easily be a proper and equitable allocation of wealth,

money would circulate readily and the standard of living of all would

be capable of increasing.

The consumption motive

The advantage of the consumption motive is that it is essentially

concerned with establishing adequate purchasing capacity and then

increasing it. Furthermore, this can only be beneficial to sustaining

business enterprises. For example, while first class passengers already

get special facilities and ordinary passengers do not, if the

purchasing capacity of ordinary passengers is increased in greater

proportion to that of first class passengers, then the ability of

ordinary passengers to consume more (and to obtain at least some of the

extra facilities available to first class

passengers) has increased. That would result in an increase in

production for the extra provision of some of the facilities previously

available only to first class passengers and which are now made

available to a greater population base of ordinary passengers through

increased purchasing capacity. The production being for the consumption

by ordinary passengers.

Therefore, that consumption motive has resulted in an increased

standard of living for ordinary passengers. In a less advanced economy,

it would of course be the minimum requirements of the common people

that would be immediately increased through extra purchasing capacity.

This again would result in increased production for consumption

resulting in increased standards of living. It is worthwhile mentioning

that what constitutes both the minimum requirements and the maximum

amenities/facilities is ever increasing.

Citizen power

To ensure that there is citizen power in enforcement of a guarantee of

minimum necessities to all persons, PROUT supports a constitutional

right for citizens of a country to sue a government if their minimum

requirements are not met. This is a check to ensure that proper

policies are developed by governments to warrant that there must be

rational distribution of resources and a system of minimum necessities

for all and increasing maximum amenities as required. While the

government should not be an economic controller per se through

centralized economic power, it does have an obligation to ensure that

there is no inequity in society and so can be taken to be the last

avenue of recourse when there is a concern about any person's minimum

necessities being denied. It can always pass the necessary laws or take

administrative action to ensure that the required equity is achieved

across the board for all people.

Also, as people's economy deals with minimum requirements and people's

subsistence problems, it must take precedence over other parts of the

economy. For example, if people have no food and are starving, it may

be necessary to establish short-term uneconomic industries to supply

food.

In normal conditions such industries would violate the logic of general

economic principles and the rules of supply and demand. But, in order

to get an efficient and rational system of supply and demand working,

the means for that must first be put in place. To this end people's

economy is also concerned with the development of small-scale

industries, both private and cooperative. Private industries must,

however, be limited in size and scope to prevent monopoly production

and exploitation, and be required to function as cooperatives once they

grow too large.

Cooperatives and social welfare

Cooperative industries are the best means of organising people in an

independent manner so that they take collective responsibility for

their livelihood. They are also the main means of ensuring rational

distribution of profits to workers and/or shareholders in the local

economy. It is the co-operative system that is capable of ensuring the

social welfare of citizens in the local economy.

This is in contrast to the notion of the welfare state supported by

capitalist and mixed economies. Does not the welfare state represent

loopholes in the capitalist system, in that because the existing system

of production, distribution and marketing cannot provide adequate

purchasing capacity to all citizens at all times, the welfare state

must step in to solve the inefficiencies of the capitalist system. This

is done primarily through transfer payments to welfare recipients. Is

it not a contradiction in terms of efficiency? The only 'efficiency'

that exists in capitalism today is the scope it gives to hoarding of

wealth for a few. The triggering of economic crises around the world

reveals that capitalism is totally inefficient in all other respects.

So much so that governments in countries such as Japan and areas such

as Hong Kong have forced themselves into intervening in their stock

markets with the expectation that they will be propped up through such

intervention.

While, of course, special facilities in the form of welfare need to be

made available in special cases such as birth deformities or being born

intellectually handicapped or similar situations in which a person has

no means of earning an income, in other cases such as unemployment

benefits the provision of relief through the welfare state merely

indicates the inadequacies of the capitalist system and its obsession

with profit making.

Unemployment being a figment of an irrational structuring of the

economy and its inefficiency in being able to distribute resources and

wealth rationally so as to ensure that no one is denied adequate

purchasing capacity.

Deficiency in Keynesian thinking

It is worth mentioning here Keynes' theory on the model of Circular

Flow of Expenditure and Income. In brief, flow of expenditure on goods

and services comes from consumers, investors and governments, which

goes to firms, which produce outputs. The income from firms then flows

to consumers (labour), after some is paid to the government as taxes

and part of the income may then be replaced or income may be given to

persons by transfer payments (eg social security payments to

individuals).

There are some fundamental discrepancies in this model from a PROUTist

perspective. Firstly, income taxes on wages and salary essentially

reduce a person's purchasing capacity. PROUT does not accept income

taxes on individual labour. However, in order to support wealth

ceilings and as a transitional measure income taxes may be used as a

proxy for wealth taxes and therefore in support of a wealth ceiling so

as to limit and help prevent the excess accumulation of wealth.

Traditionally in the Keynesian model the bulk of taxation is derived

from income taxes. Although this has changed over the decades towards

indirect taxes such as sales taxes and consumption taxes, these by no

means solve wealth disparities if no wealth ceiling or limits on the

accumulation of wealth are in place. Instead, PROUT support taxes at

the point of production, which means that taxes must be imposed before

income reaches individual workers as a result of that production. It is

arguable that such a system imposes on firms an obligation to ensure

that they prove themselves to be efficient (and not wasteful), because

as part of their productive activity, they must contribute also to the

collective welfare (eg for education facilities) through making

allowance for taxes when they produce.

This is so even if the effect of those production taxes do flow through

to prices to the end consumer (who in any case will have adequate

purchasing capacity). The effect of production taxes is also likely to

be minimal to any single consumer, eg a resource extraction tax

relative to the scale of production is likely to have minimal effect on

any single consumer. Further, the Keynesian model assumes the existence

of a welfare state and expenditure through transfers in the form of

welfare payments. PROUT, in general, does not support welfare state

mentality. Rather, PROUT supports full employment, and by this is meant

all forms of social contribution involving physical, psychic or

spiritual capabilities.

There is also no reason to exclude the bringing up of children, care of

the elderly, etc. All these can be done through co-operative assistance

and enterprises, and through rational distribution of profits to

workers and/or shareholders (be it via wages, salary, bonus payments,

dividends or contributions to superannuation funds, annuities, pensions

or insurance co-ops for members), this will largely take care of the

need for government transfers for contingencies such as are now covered

by social security payments. Furthermore, money applied for these

purposes would not fall directly into government hands thereby avoiding

the concentration of economic power via centralised government

management or control.

Concentration of economic power in government hands has recently been

demonstrated by the governments of Hong Kong and Japan investing large

sums of money, either directly or indirectly through controlled

entities, in the stock markets of those countries so as to artificially

prop up those market indices. Such money would have been better

utilised toward programs that increased real production in the country

and so as to increase the minimum necessities and special amenities of

the people as appropriate. This also demonstrates how far removed the

ordinary person has become in having a local say in their local

economy.

Welfare economics requires people's economic power

Nobel prize winner, Amartya Sen has emphasized that what creates

welfare is not goods as such, but the activity for which they are

acquired. Sarkar goes further and asserts that excess accumulation of

wealth reduces those activities and therefore the ability to enhance

purchasing capacity across the economy. According to Sen, income is

significant because of the opportunities it creates. But the actual

opportunities - or capabilities, as Sen calls them - also depend on a

number of other factors, such as health; these factors should also be

considered when measuring welfare. Again, Sarkar goes further and

provides a blueprint and economic model and intuitive principles that

directly tackle the issue - even defying conservative economic

thinking. In relation to health, Sarkar states that medical care and

therefore health is a minimum or basic necessity which must be

available to all people through adequate purchasing power. Without the

guarantee of minimum necessities the capability of income or rather the

value of wealth is not realised.

Sen has pointed out that all well-founded ethical principles presuppose

equality among individuals in some respect. Sarkar, in this regard has

formulated what in Neo-humanistic terms is called the Principle of

Social Equality and contrasts that to the Principle of Selfish

Pleasure. The former is beneficial individually and collectively, while

the latter is not of real benefit to the collective interest and indeed

leads to degradation of individual consciousness.

Sen recognises that the ability to exploit or claim equal opportunity

varies across individuals, and concludes that the distribution problem

can never be fully solved; equality in some dimensions necessarily

implies inequality in others. This raises the tricky issue of, in which

dimensions equality is to be advocated and in which dimensions

inequality is to be accepted. Sarkar, with profound foresight, gives a

solution to this issue by advocating that the guarantee of minimum

necessities to all represents the baseline for economic equality and

the Principle of Social Equality must not deny anyone access to social

opportunities. In addition, Sarkar solves the inequality question

through the principle of making available special amenities to

meritorious persons making contributions to society, while also

reducing the gap between minimum necessities and maximum or special

amenities, but never closing the gap completely. In this way society is

capable of pursuing a continual betterment and increase of available

minimum necessities and additional or special amenities which in one

way or another benefits all people. Sarkar's position being that it is

people's economy that is the real welfare economics.

People's economy - the way forward

The conclusion that must be reached is that for there to be real

economic welfare there must be proper economic organisation in society.

Just as there is political organisation in society through

representative structures, there must also be economic organisation

having as its motive the economic well-being of all people and indeed

all living things as well as the inanimate environment. Today economic

power is owned by a handful of capitalists in the liberal economies or

party leaders in State socialist countries. Sarkar's message is that

this supremacy must be terminated. Only then will there be economic

liberation and economic democracy will be established so that the

economic welfare of all people can be enhanced step by step.

The basis of people's economy as propounded by Sarkar, without

attachment to conservative economic thinking, and fully in accord with

the human heart and intuition is the stepping stone and means to that

economic welfare.

--------------------------------------------------------

Contact Details:

PROUT INSTITUTE OF AUSTRALIA INCORPORATED

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