Loans

Uses of central bank-issued interest-free loans for the development and spreading of productive capacity

Binary economics proposes that national bank-issued interest-free loans should be administered by the banking system and that, while no interest would be charged, there would be an administrative cost as well as capital credit insurance if necessary.[51] This supply of interest-free loans for the spreading of productive capacity (and the associated consuming capacity) as well as for environmental and public capital would take place in circumstances of a move to (over time, on market principles) 100% banking reserves so that the banking system would not be continually creating money (as happens today) but would be confined to lending (with permission) depositors’ money and the bank’s own capital.[52] New, efficient productive capacity will be the backing of the currency but if additional backing is desired that could be a basket of commodities and gold has been proposed. However, the price of gold is not stable and, in any case, binary economics believes that, such the efficacy of its proposals, the commodities backing will not, in practice, be necessary.

The uses of the national bank-issued interest-free loans can be summarized as follows:- Public Capital Investment, Private Capital Investment, Green Environmental Investment:

Public Capital Investment

Alberta Children’s Hospital
Albert Children\'s Hospital

Nanpu Bridge in Shanghai

Interest-free loans would allow low-cost public housing, hospitals, social housing, roads, bridges, waterworks, schools etc. to be built for one half, one third, even one quarter of the present cost. (This use is also advocated by the USA Sovereignty movement – Congressman Dennis Kucinich, Ken Bohnsack et al.). However, the capital projects can still, if wished, be built, managed, even owned, by the private sector and use made of Community Investment Corporations and the like.[53]

Philadelphia Waterworks and Museum. Source: Jeannine Keefer

With interest-free loans not only would the cost of public capital projects be halved, even quartered, but their financing would not need to be done with interest-bearing money. A major consequence would be a great diminution of the National Debt.

 

Throughout the world an estimated 25,000 people die each day as the result of dirty water. Outpourings of sewage like this…
Poor Sanitation in Cap Haitien

resulting in pollution…

can be ended by building a sewage works.
Wonga Wetlands SewageInterest-free loans for public capital projects are being used today and have been used in the past. Such loans have undoubtedly been used by the English Channel Island of Guernsey over the years but exact information as to the present postion is difficult to obtain. However, it can be noted that Guernsey has minimal national debt and low income tax. Today Malaysia is believed to be experimenting with such loans and, of late, has achieved some remarkable feats of construction. Over the period 1939 – 1974 Canada used the loans and, today, many Canadian municipalities are again demanding their use. In the USA, 3,400 governmental bodies (local boards, towns, cities etc) and six State governments support the idea – a Bill (HR 1452) reached Congress but was defeated by powerful vested interests.

After 1935 New Zealand used such loans – for hydropower schemes, railways, state housing etc. – and had a remarkably prosperous period to the 1970s when the loans were stopped. People should ask why the example of the New Zealand is not being followed. At an interest rate of only 1%, hydroelectric projects and public housing were financed. Why not today?

Furthermore, after 1949 national bank loans were a major factor in the Taiwanese Land to the Tiller program which spread land ownership from the few to the many. This was done without causing inflation and was an overall binary solution because, in various ways the money went into the spreading of both productive and consuming capacity. (One way was by financing the buyout with industrial bonds, thus giving capital to small industries to provide things for the newly empowered farmers to purchase.)[54]


Private Capital Investment

Fractionating ColumnsOwnership of productive (and the associated consuming) capacity can be spread by binary economics. Interest-free loans should be allowed for private capital investment IF such investment  creates new owners of capital and is part of national policy to enable all individuals, over time, on market principles, to become owners of substantial amounts of productive, income-producing capital. [55]

Fractionating columns

The Binary Competence
The object of the widespread capital ownership is to enable all individuals to obtain an independent income or binary competence. The competence is defined as:- a capital estate large enough to supply sufficient current consumer income to support at least one half of an affluent life style (measured in the context of what society as a whole can efficiently produce).

Binary Property Right and Right to Capital Credit

The binary competence is the practical implementation of the basic binary property right – the right for all individuals to acquire capital, to pay for it out of its pre-tax earnings, and then to receive its full payout income. The binary property right cannot be effective without an associated right to interest-free capital credit.

Figures contained in a 1998 study by Northeast Ohio Employee Ownership Center, Kent State University, Ohio and a 2005 study from the Center for Economic and Social Justice, Washington, D.C., indicate (2005 figures) that, aged sixty five, an adult would have a binary income of about $26,000 and a capital accumulation of at least $200,000 with both figures continuing to increase after the age of sixty five.

Cement works in Norway
Cement Works in Norway

By using national bank-issued interest-free loans, a large company/corporation would get cheap money as long as new binary shareholders are created. The key point is that the cost, at the very least, is being halved while, at the same time, the ownership of productive capacity is being spread.[56]

It is proposed that all large corporations should have to pay out all their earnings all the time (with exception of reserves for maintenance, depreciation, repair and research). The large corporations will then have the option of obtaining interest-free loans on condition that they help to spread ownership using the binary trust mechanisms. Medium-sized corporations will be able to have interest-free loans if they spread ownership.


‘Green’ environmental capital investment

Interest-free loans should be used, in particular, for clean, renewable energy.[57] At present, a lot of green technology projects are not financially viable. With interest-free loans, however, they would become viable. At last we would be able to have clean electricity through tidal barrages, tidal lagoons, wave machines, wind turbines, solar electricity, and geothermal power stations.[58] Time is short. Global warning is accelerating. A crash program of clean energy-generating projects is urgently needed.

La Rance, France, tidal barrage power plant

Clean electricity generation projects can be constructed at one half or less of the usual cost. The Rance tidal barrage in France is 330 metres long although similar structures – e.g., tidal lagoons – can be many times larger and can also be built out at sea in shallow coastal waters.

 

Cutting-edge technologies

There is now also hope that some technologies – at present viewed with varying degrees of skepticism by mainstream science and previously thought to be physically impossible – are practical. Indeed, there are many ‘alternative’ technologies that, in principle, would be eligible for research and development funding under binary economics. Some of these technologies, if physically possible, would enable the clean generation of electricity for cars, houses, trains and factories and they can be found among the Top 100 Technologies which are a mixture of that which lies within, on the edge of, and outside existing science. An example is the use of magnetic interactions for clean electricity generation which does not require the input of any other energy (i.e. ‘free’ energy generation). Cars, houses, trains, factories could be powered by clean, ‘free’ magnetically-generated electricity.[59]

Moreover, ordinary algae, grown in tanks under lightweight structures, could easily solve our energy problems – see SolaRoof/Mass Algae and Solaroof All of these technologies should be implemented with interest-free loans.


Small and start-up businesses including microfinance

Courtesy Mr & Mrs Eddleston
Greenhouse Farm, North Yorkshire, UK

Small Farm in North Yorkshire, UK
Interest-free loans should be used for micro-finance, small business and farms thereby freeing them from the huge pressure of compounding interest-bearing debt. Farm capital can be one half or less of the usual cost.

The world’s poor people can be enabled to acquire some capital or training by the use of interest-free micro-finance[60] being funnelled through the Grameen Bank and similar institutions such as the Institute for Integrated Rural Development.

Women at a village pond in Matlab, Bangladesh, washing utensils and vegetables. The woman on the right is putting a sari filter onto a water- collecting pot (or kalash) to filter water for drinking.
Washing Utensils and Vegetables

However, today, as in Bangladesh, the micro-finance money bears interest. This is because, increasingly, donor fatigue is resulting in the drying-up of grant money and so micro-finance lending institutions are turning to borrowing from commercial sources at interest. This causes the loans to cost twice as much as they need cost and that has dire consequences for people living on one or two dollars per day. Binary finance to a borrower costs roughly half or less that of conventional finance and it is disgraceful that, quite unnecessarily, the world’s poorest people, e.g., Bangladeshi women, have money-lenders battening onto them.


Loans to older students

There are two factors in production – human labour and capital. The labour factor is enhanced by education. Courtesy Trisakti University, Jakarta, Indonesia
Woman Students at Trisakti University

Education should be free, particularly up to the age of sixteen. If, thereafter, education cannot be free, interest-free loans should be available because older students should not be unnecessarily burdened with interest-bearing debt maybe for the rest of their lives.

 

Veterinary students
Veterinary Students


Homes

At present the money supply largely goes into derivatives and existing assets (e.g. the continual inflation of house prices around the world) rather than into the development and spreading of new productive capacity. It is not the intention in any way to risk adding to the inflation but, certainly when there is 100% banking reserves (and so the banking system cannot create money) the use of interest-free loans for homes will be considered.

There should also not be 125% loans for homes as happens at present (maybe 80% is more appropriate and only two to three times earnings) and deliberate false valuations, like false declarations of income, should be subject to criminal penalty.


Footnotes

51. Louis Kelso & Mortimer Adler (1961) op. cit.
Norman Kurland (1998) The Federal Reserve Discount Window — www.cesj.org
The capital credit insurance is only necessary when other forms of collateral are not available.
52. Masudul Alam Choudhury op. cit.
Rodney Shakespeare (2007) op. cit.
53. Norman Kurland, Dawn Brohawn & Michael Greaney (2004) op. cit.
54. John Medaille (2007) The Vocation of Business: Social Justice in the Marketplace.
55. Norman Kurland, Dawn Brohawn & Michael Greaney (2004) op. cit.
56. Norman Kurland, Dawn Brohawn & Michael Greaney (2004) op. cit.
57. Rodney Shakespeare (2007) op. cit.
58. Rodney Shakespeare (2007) op. cit.
59. Rodney Shakespeare (2007) op. cit.
60. Rodney Shakespeare & Peter Challen (2002) op. cit.
61. Robert Ashford & Rodney Shakespeare (1999) op. cit.

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