On the Fundaments of an Effective Economic System

On the Fundaments of an Effective Economic System[1]


  • When there are more goods and services available than there are funds in the hands of people who need them, an effective and efficient society needs to find ways to generate opportunities for such people to derive the means of acquiring them, which benefits both producers and consumers.

  • When the private sector fails to maintain the operational efficiency of an economic system by inefficient distribution of resource-opportunity (unemployment at any level is a symptom and indicia of such failure) leading to inefficient circulation of goods and services, then the state must act.

  • Increased employment through state action, especially in projects designed to improve citizen services and infrastructure, may be the most efficient method to resolve the distortion but even mere state grants of supplemental income are more efficient and conducive to sustained economic health than doing nothing.

  • The state can modulate its internal means of exchange as required to provide the liquidity necessary to circulate available and potentially available goods and services by issuing additional legal tender (money) and determining its allocation and use.  Abuse of such function leads to inflation but proper use leads to sustained growth and economic health. Under use of such function creates a vacuum filled by generation of debt, which is inimical to economic well-being and subject to wide spread social abuse.

  • Infusion of capital by the state as a solution to economic crises, to be effective, must be specifically directed to the most basic consumers so that it always circulates on a system wide basis, rather than congealing at the top (e.g., financial industry), where it tends to further aggravate rather than solve the imbalance that led to a crisis.[2]  Rather than trickle down it must be percolate up in nature.

Public and private opposition to the foregoing is based on a misconception concerning the fundamental nature of all societal services and of many if not most goods[2] and that is that they are not reasonably renewable.  In fact, the general capacity for acquisition of most goods and services does not preclude such acquisition by others, even disproportionately, if the circulatory system (money) is efficiently distributed.

In the absence of an adequate monetary supply, extremely distortive distribution of the economic media of exchange (in reality a transportation system rather than a commodity) precludes its proper circulation and consequently, precludes the possibility for acquisition and maintenance of an effective standard of living by the most disadvantaged members of society.  That is a primary cause of economic inefficiency and resulting economic crises.

When the private sector fails to maintain an appropriate economic system, that must be remedied by state action addressing the distortion either through divestiture of excess wealth (e.g., through taxation, nationalization, or other confiscatory measures), or by inflationary measures directing new economic media of exchange (e.g., government employment or financial grants[3]) to those who have inadequate economic resources; but most likely through a combination of both.

[1]        © Guillermo Calvo Mahé; Manizales, 2012; all rights reserved

[2]        That does not obviate the need to treat natural resources, especially nonrenewable resources, frugally.

[3]        For example, Richard Nixon’s negative income tax concept.