Conventional Economics versus Binary Economics

A good understanding of binary economics can be obtained by contrasting various aspects with comparable aspects in conventional economics (especially mainstream neoclassical economics).

The first contrast is that mainstream neoclassical economics claims to be primarily a positive economics (i.e., an analysis of ‘what is’) whereas binary economics is considered (by mainstream neoclassical economists) to be primarily a normative economics (proposing an economic system that ought to be). However, as compared to mainstream neoclassical economics, binary economics undoubtedly has a superior account of physical reality (i.e., of what is) – particularly in its analysis called productiveness. Binary economics is therefore both a highly positive economics and a highly normative one.
Secondly, in its physical analysis of who or what creates the wealth, mainstream neoclassical economics upholds the concept of productivity (generally labour productivity) while, in complete contrast, binary economics has the new concept of productiveness giving fair credit to the contributions of both labour and capital. Binary economics believes that the binary productiveness analysis, as an understanding of physical reality, is far superior to that of mainstream neoclassical productivity.
Then conventional mainstream neoclassical economics believes that interest (as opposed to administration cost) is always necessary. However, binary economics, again in complete contrast, states that, certainly where the development and spreading of productive (and the associated consuming) capacity is concerned, interest (as opposed to administration cost) is not necessary (because a supply of interest-free loans coming from the national bank may be used).
For newly-created money, conventional economics upholds the doctrine of the Time Value of Money Whereas binary economics, noticing that money is created out of nothing by the banking system, denies the time value doctrine. Consequently, binary economics rejects conventional financial savings doctrine (that there must be financial savings prior to investment) – no financial saving is necessary if money can be created out of nothing. Indeed, what matters is whether the newly-created money is interest-free; whether it can be repaid; whether there is effective collateral; and whether it goes towards the development and spreading of various forms of productive (and the associated consuming) capacity.
Furthermore, an assumption of general scarcity is at the heart of conventional economics. Binary economics, however, denies the assumption of general scarcity. As Amartya Sen has shown, starvation is primarily due to lack of money in the hands of the starving and not the general absence of food: thus it is human attitudes, practice and institutions which are at fault.
The contrast continues. Thus Conventional economics:-

  • is largely unconcerned that the present money supply (mostly created by fractional-reserve banking) is generally not directed at productive capacity
  • in practice engenders a continual inflation
  • conceives of a self-centred homo economicus
  • eschews ethics and belief in God
  • ignores the imbalance in power relationships between people.
But binary economics views it as essential that:-

  • the money supply be directed at the development and spreading of productive (and the associated consuming) capacity
  • the money supply be not inflationary, indeed, should be counter-inflationary
  • recognition be made that humans are capable of going beyond self-interest
  • ethics and belief in God be upheld
  • account be taken of the imbalance in power relationships between people.
Conventional economics claims that it promotes a ‘free market’ which is free, fair and efficient. Very fundamentally, binary economics rejects this claim.  It states that the present ‘free market’ is unfree, unfair and inefficient not least because the ‘free market’ thinks it does not matter who owns productive capital and how it is distributed and does not worry if people do not have independent incomes.
In a quite remarkable way the two economics differ on the subject of democracy. Conventional economics upholds the periodic political vote (as in, for example, elections to government). Binary economics does the same but then deepens democracy by insisting that productive capital and the practical everyday power its ownership gives to individuals be widely distributed as well. In binary economics freedom is only truly achieved if all individuals are able to acquire an independent economic base. In short, binary economics upholds political democracy plus economic democracy.
Perhaps most importantly of all, conventional economics is generally heedless of (or at least, not directly involved with) environmental issues but, even if it does heed them, does not have the specific mechanisms to address the environment in a large-scale way. Indeed, conventional economics generally views environmental solutions as imposing an economic cost, and a large one at that. Binary economics, however, again in complete contrast, does have the mechanisms – particularly, interest-free loans – and its solutions do not impose economic cost.
Lastly, conventional economics claims that its mathematical equilibriums are a manifestation of a world-encompassing objective science expressing universal values. But binary economics denies that claim. NB. In this website the page FALSE ASSUMPTIONS sets out fifty three false basic assumptions of mainstream neoclassical economics. It only needs two or three basic assumptions to be false for the whole of an economics to be false.


Next page: Fifty Nine False Assumptions of Mainstream Neo-classical Economics