debt & equity

in the previous post, i made the logical extension that if hoarding of money inevitably leads to the unfair distribution of economic resources and power, then all investments including owning real estate cannot be allowed.  as previously stated, hoarding is a logical consequence of capitalism, in that profit is the ultimate goal, those that are good at profit / are born into the right families / right countries continue to make profits, they then retain these profits to maximise their future economic power.  over generations this results in an economic elite that hoard a large portion of the economic resources, to the detriment of the majority of humankind.  and by detriment, i am referring to people dying in various parts of the world due to the inequitable distribution of resources.

with no hoarding and no debt, there would be large implications for the banking sector.  if you go back to the traditional banking model, people keep their savings in the bank for security, and maybe a little interest.  the bank then aggregates this pool of savings and finds a suitable customer to loan it to.  back when banks were responsible and prudent, they would make a margin of profit but would very carefully assess who they lent money to as even a small bad debt would wipe out the profit on many other healthy loans.  but the obsession for profit combined with the concept of selling those loans (or more importantly, selling the risk of non-payment) resulted in banks lowering these lending standards.  i think we all recall the consequences.

debt, even when it is provided by a prudent banking sector, is a significant cost in a capitalist society.  a healthy business could easily have interest making up 10% of their expenses, often more.  in my country, young people first entering the housing market often spend 25%-33% of their income to cover the interest expense.  even people that don't hold any debt directly, consider that all the prices they pay for goods and services has to cover the cumulative cost of the interest of the logistical chain from when the raw resource was first extracted to the final finished good that they are purchasing.  this is a significant impost for all purchases, reducing all economic activity due to the requirement to pay the holders of the debt this 'rent' on their accumulated economic resources.

investments (equity) are said to have a higher required return on capital than debt, due to there being higher risk as the returns are not contractual obligations.  so debt, or equity investments, are effectively a tax on all economic activity that is required to be paid to the economic elite rather than the government, stifling all activity, stifling growth, stifling innovation, all because these elite were privileged to be born in the right place, right family, or be skilled at making a profit.

and once again, money isn't real.  it is a symbol of the underlying economic resources or power.  debt and equity is therefore, in the current capitalist mythology that we accept without question, a symbolic representation that a significant portion of all economic activity is quarantined for the benefit of the economic elite.  that all activity currently taking place is at their discretion as they can withhold all forms of funding, and every transaction serves to strengthen the power these elite hold as they extract their interest, dividends and capital gains.

a logical question is - if there is no debt funding, no investment funding, how can businesses start and continue to operate?  my answer to this is, once again, money isn't real.  you don't need money, the physical assets continue to exist in the absence of money.  money is just how we justify they flow of economic activity from raw materials to finished goods and services.

in the current system, a company sees an opportunity.  obtains funding, buys materials, converts it to a value-added good, sells it at a profit.  it then uses this profit to pay other expenses including the cost to service the funding.

the key events that happen - there is a need or want, they receive materials, they convert the materials, the finished product is transferred to the customer.  money is not required for these key steps, it is used just a part of the currently accepted mythology.  same with profit - it isn't required, the underlying assets don't spontaneously combust if  there is no profit.

society can choose an alternate system to convert raw materials into goods and services.  money and profit aren't required, and they both result in the continued and ever increasing power of the economic elite.  instead of benefiting those few elite, it should benefit all of human-kind.  it therefore should be allocated according to need first, rather than callous profit.  the challenge as i see it is any system needs to be efficient to maximise the benefit to human-kind.