Chapter 1

1.4 Interests and Investment Earnings

last revised/edited 11/2010, 1/2012, 9,12/2016, 4/2017, 7/2019

1.4.0 Summary
1.4.1 Interests, theories: justification, appropriate rates, expected effects on economy
1.4.2 Interests’ function in modern economies [added 12/2016]
1.4.3 Interests representing taxation of money supply; interests as flow of assets from poor to wealthy
1.4.4 Lenders and borrowers; allocation of resources
1.4.5 Forms of borrowing and investing; private versus public interests
1.4.6 Investments for profit; patent rights; inefficiencies and ethical considerations
1.4.7 Investments for personal gain versus public interest, local and global needs
1.4.8 Capitalist for-profit corporate versus non-corporate versus non-monetary branches of modern economies
1.4.9 Alternate models of investing

• Interests, rental and lease income, dividends, and profits are similar: they are all unearned income derived from lending assets that are at the time not used.
• Lending unused assets, to younger individuals and businesses benefits the assets’ owners: it prevents assets losing their value by keeping the economy going and growing. Thus. interests, dividends and other investment earnings are generally not justified since lender and borrower benefit equally.
• Bank lending and other forms of investing do not lead to an efficient allocation of resources and do not necessarily lead to growth that is beneficial.
• Interests are a taxation for the benefit of having a circulating money supply; however, they are paid to private for-profits financial institutions.
• Unearned income from investments represent a flow of capital from the poor and middle class to the wealthy.

1.4.0 Summary
Interests are payments of a borrower to a lender, usually a bank, or of a bank to a saver. Banks earn by charging higher interests to borrowers than they pay to savers. Consequently banks benefit from lending as much as they safely can. Lending generally means shifting money from one to another account within the banking system; the money stays in the banks and the same initial investment in a region’s banks can be lent to many borrowers.
Dividends are similar to interests. They are earnings from stock, mutual funds and other securities. Dividend payments vary according to profits of enterprises in which the securities invest.
To justify interests and dividends, the usual explanation focuses on borrowers benefitting from utilizing the assets that the saver does not presently need. However, if saved financial assets are not utilized to maintain and advance the economy, they lose their value. The economy of an area would contract and lose competitiveness. Thus both savers-lenders and borrowers benefit.
According to classical economics the lower the interests, the more an enterprise should borrow for investments. If interests are zero, it makes theoretically economic sense to invest in any way in which some saving can be achieved. However, every enterprise has to consider priorities for projects. In addition, even if a stable enterprise or a government could keep replacing one zero-interest loan with another, there is at least a cultural expectation that loans are gradually paid back, particularly if the investment is expected to lose its value, needing repairs and becoming obsolete.
Interests are supposed to be an incentive to save, to avoid borrowing that is not profitable, and to help with best allocation of resources. In actuality, the poor usually overspend and borrow, paying high interests. Small savings may require a fee for safekeeping, and, if there are interest earnings, they are usually below the inflation rate. Borrowing and paying interests are not closely related to profits or benefits. Individuals often borrow for luxuries they can hardly afford. In loans for medical treatment, interest rates are not related to success and economic benefits of the treatment. Interests in student loans are hardly related to the likelihood of success in a pursued academic career. Even when corporate enterprises borrow and make investment decisions, there is much emotional reasoning. In addition, lenders choose borrowers more than vice versa and there is often irrational discrimination. Enterprises cannot offer to pay higher interests to qualify for a bank loan.
Generally, borrowing for investments should be more about progress than saving production costs and earning profits. People expect that their small savings may help community members buy homes or entrepreneurs start family businesses and develop better, affordable products and services, not to boost profits in stock and derivatives markets.
Central banks manipulate interest rates they charge when lending to financial institutions, which influences all bank interest rates and the readiness for borrowing and lending. However, the correlation between interest rates and actual lending and borrowing is not close; psychological and many other factors are important. During a recession, when borrowing should create jobs, banks are usually afraid to lend, enterprises may be reluctant to utilize opportunities to invest, and conservative politicians often worsen the unemployment, preventing job creation by governments investing in needed infrastructure improvements and other neglected governmental responsibilities.
While interests are hard to justify, low interests are reasonable if representing inflation adjustments, bank service fees and possibly insurance of loans.
Even though interests, dividends, rents, and profits have been considered a fair fee for the use of resources belonging to another person, historically, interests were perceived as unethical or evil: a person owning assets he does not need should freely lend or give them to people in need; major religions forbade interests1. Adam Smith, author of The Wealth of Nations, 1776, did not consider interests economically important. Many assets and resources, including arable land and machinery, lose much of their value if they are not properly utilized. A good renter keeps a house valuable – if left uninhabited, molds, insects, rodents, invading plants, etc, would destroy buildings. Saved money such as retirement accounts lose their value, unless younger people utilize the money to maintain and advance the economy’s productivity.

1.4.1 Interests, theories: justification, appropriate rates, expected effects on economy
In classical economics, interest refers to increased productivity consequent to an investment. A peasant buys fertilizers; the increase in the harvest’s value is more than the cost of the fertilizer. A carpenter buys better tools and can now finish a 10-day job in 9.5 days. The annual net gain in income resulting from the investment is the interest, defined as “the rate of return for capital invested”; examples of capital investments include buildings, machines and raw materials; other investments include education of workers, and ‘research and development.’
Economically it makes sense to accept charges when borrowing money for investments, e.g. to acquire better equipment, further develop an invention or expand an enterprise; but the rate of interests should not be closely related to likely rates of return; borrowing should often yield much higher returns than the contracted interest rate. When investments lead to progress and when they create jobs, progress should benefit all parties. When there is progress, it is reasonable that people expect to pay less for better goods and services and that workers receive higher salaries, rather than progress primarily or exclusively increasing profits for investors. A machine made carpet should be much cheaper than a handmade one, even if its quality is excellent, the machines are new and their patents are not expired. While the price of consumer goods generally includes profit, part of earned profits should be reinvested to further progress.
A correlation between interests and benefits is, in many cases, not considered at all. Advancing non-pharmacological treatments, instead of ‘treatment as usual,’ may help more patients to recover and function than previous treatments – but measuring results may later be a research project, designed to advance teaching, not to guide investors. If patients borrow money to pay for treatment, we hardly try to measure, in monetary units, a decrease in suffering and increase in functioning; and professional fees are not correlated with treatment outcomes. Even if economists try to correlate reasonable interests for borrowed money with expected returns from a planned investment, there are far too many unknown factors to calculate appropriate rates of investors’ earnings, and biases may determine decision-making more than economic considerations.
Earning interests is not an effective incentive for people to save; interests often have the opposite effect. The poor within all societies relatively over-spend: lacking adequate savings, they borrow in emergencies, and, because of unaffordable interest payments, they have to borrow more, usually with even higher interest rates. Conversely, the wealthy of all societies relatively under-spend and save some; however, earning interests, dividends, rental income, and profits entices wasteful consumption rather than saving for meaningful investments. When and how middle-class people borrow to invest often follows more instinctive-emotional factors than sound reasoning, for instance a loan to improve a house may lead to more financial worries than improved quality of life; easy availability, pressure by lenders and a propensity to gamble often lead people to accept hardly affordable loans for luxuries and even for risky investments.
Economists reasoned that interests and profits guide the efficient allocation of financial resources leading to optimal growth. However, investors do not have adequate information to predict the future of an enterprise. Novice investors sometimes do better than the professionals. More importantly, presumed efficiency mainly relates to the short-term exploitation of natural and human resources for profit, primarily to the benefit of the wealthy, hardly considering negative consequences of investments and needs of societies. Financial institutions’ strategies of moving assets (money, securities with money-like functions, etc.) are designed to skim profits from people’s work, not to promote genuine progress.

1.4.2 Interests’ function in modern economies added 12/2016
Central banks, in the USA the Federal Reserve System, utilize interest rates to manipulate the money supply. After large banks caused the crisis of 2008, our Federal Reserve Board of Governors decreased interest rates to below inflation levels in order to encourage lending and in this way increasing the circulating money supply. Thus interests and dividends from many types of investment ceased to be a form of income.
Savings of the middleclass, rather than growing with compound interests, lost some of their value, and most elderly people can no longer retire without a significant decrease in their standard of living. Consequently they want or have to keep working past retirement age. As a result much less job positions open up for the young people who finish their education. Unemployment decreased, but many people are underemployed, often working one or multiple part-time jobs without benefits, sometimes without regular work schedules. Most are unable to work in their field of expertise. Salaries of young people often are, inflation-adjusted, lower than decades ago.
Large banks caused a severe contraction of the money supply, central banks infused much new money to save the financial institutions and interests have been kept very low or zero; some European banks even introduced negative interest rates on deposits. The middleclass paid for the bank bailouts by losing interest earnings and the generated mild inflation.
Measures to save the financial system and prevent further crises were temporary and the most important law to prevent worst excesses was essentially repealed (Dodd-Frank). Investors and account managers have been looking for new ways of ascertaining that they can increase the value of securities and profits.
Wall Street has been in favor of very low interests to encourage investors to move assets into the stock market, not to stimulate bank lending to small businesses. ‘Normal’ interest earnings, above inflation rate, would arguably stimulate the economy by returning more money to middle class and retired people with savings, rather than leading to decreased investments in local businesses. If the real estate market would cool in growth areas of the Western, Southern and Northeastern states, land values would stop rising and there would be an incentive to build smaller and more affordable houses, making condominiums and houses accessible to the middle class in spite of higher interest rates.
In addition to risky investments, financial institutions have been willing to invent new “instruments” to squeeze profits off people’s productivity. Particularly very large banks appear to have been taking extraordinary risks. In addition, derivatives and financial institutions’ complex dealings, often involve grossly unethical if not fraudulent practices, costing consumers and adding to the cost of investing. Some profitable financial dealings have been part of a shadow, rather than the recognized, “real,” economy. Instead of lending to businesses for research, development and growth and to start new businesses, financial institutions’ assets often serve as collaterals for credit that is used to speculate on existing assets, such as commodities and real estate. Many well-educated people earn high incomes, and bank owners and their CEOs profit greatly; but the dangers to the money supply are substantial. Many who have been following these developments expect another, worse collapse of the U.S. and world economy in the near future2.
Central banks, treasury departments and lawmakers are not dealing with the principle issues: 1. financial institutions control and allocate the supply of the circulating money and of financial instruments with money-like functions; their dealings are motivated by profits; 2. low bank interest rates are hardly beneficial; 3. banks create too much debt, and gamble with their assets; 4. financial institutions create ever more complex ‘financial instruments’ in a precarious “synthetic” shadow economy that is largely separate from and in no way helpful to the ‘real,’ productive economy.

1.4.3 Interests representing taxation of money supply; interests as flow of assets from poor to wealthy
Banks earn by lending money to borrowers and charging substantial interests; they thus have a powerful incentive to lend as much as they safely can. When lending money, the money is moved to other accounts within the same bank or other banks within the local banking system; thus the initial investment that was needed to start a bank stays within the banking system and can be lent to many borrowers. Since cash is used less and less, banks hold most of the money we use day to day and they lend it to multiple borrowers, and credit card lending encourages people to use others’ bank savings to spend, often recklessly, at a high fee (even if the credit card holder does not incur charges, the merchant who accepts credit cards pays high ‘interests’ and/or service charges).
In effect financial institutions lease the money supply to individuals, industries and governments. Essentially, interests represent a substantial tax people have to pay for the service of having a money supply that allows them to efficiently interact economically without having to barter. For almost all the circulating money, there is a debtor paying interests to a bank.
Interest payments represent an unjustifiable flow of financial assets from poorer borrowers to wealthy bankers and investors. Close to half the population rarely own much and have significant debts other than mortgages. Even if not personally indebted, a substantial part of all economic transactions represent interest payments; almost all producers and service providers lease real estate or make mortgage payments; they may need loans to train and educate employees, to build, to acquire equipment, etc. Rental and interest payments are passed on to their customers, clients, students, and patients. Governments usually borrow money, mainly by issuing bonds; additionally, whatever governments pay for includes added costs because of interests that contractors and sellers pay to financial institutions.
Financial institutions create money when lending. In recent decades, increased lending, by legal banks and less regulated financial institutions (shadow banking), has been the main way of increasing the circulating money supply while the economy has grown. Financial institutions also determine where the money supply is allocated. They ultimately determine who gets loans to buy or develop what, at what interest rate and under what conditions.
Banks also control the money supply in a negative way: if they made bad investments and they do no longer feel safe to lend, they let borrowers pay back their debt but then “sit on the money” – when banks no longer issue new loans, the money supply shrinks and the economy contracts at a time when more loans are most needed. When borrowers can no longer service their debts, possibly due to the contraction of the economy and spreading unemployment, there are vicious cycles that may lead to many bank failures and a depression.
Banks do not take responsibility for bad loans, even though they chose and advised their borrowers. Bankers may claim that something is a safe investment when they do or do not know that a loan is ill advised. They act like consultants who advise enterprises and foreign governments on investments they want to finance; but when borrowers default, they punish them, foreclosing on properties rather than lowering or temporarily foregoing interests. Financial institutions shamelessly encourage economic transactions from which they can extract profits, often offering ill-advised credit cards and loans. By the time a borrower defaults and the bank forecloses, the bank is likely to have already extracted more profits from high interest payments than it loses. Most affected have been the lower middle class and governments of poor countries. In the late 20th centuries, debts of many developing countries were unmanageable and many debts were forgiven; a similar development has started around 2010 Much of these indebted countries’ budgets are needed to service foreign debts.

1.4.4 Lenders and borrowers; prejudices; allocation of resources
There is always investing or lending and borrowing within families and in everyday economic interactions. Children “borrow” from their parents and governmental institutions, and there is some expectation of reciprocation or them later paying back. Adults ‘give back’ by paying into the Social Security system and otherwise supporting the elderly, by spending significant resources on their own children and/or helping other members of the community. By paying taxes and by putting money into retirement accounts, savings, and other investments, adults invest in infrastructure, in research, educational and other institutions, and in private business ventures. When paying for products, part of the price pays for earlier development costs and part usually pays to further develop products. In an implicit social contract we expect, in return for our investing, a functioning, essentially peaceful and positively evolving civilization.
Commercial interests influence whether individuals, businesses and governments borrow. Interest rates influence whether potential business investments are profitable, bringing more savings and additional profits than the cost of borrowing and whether an investment that is expected to bring significant benefits in the future is, on the short run, affordable. Theoretically, the lower the interests, the more businesses should/would borrow. For instance, if there were no interests, railroads should invest in bridges and tunnels until there are few curves and hardly any inclines and descents.
In modern economies, decisions regarding borrowing for investments have to be mostly viewed from the lenders’ perspective since the owners of assets and their representatives determine who gets a loan and for what. People aspiring to become entrepreneurs do not determine what money they may borrow or receive for their projects. Investors and financial institutions choose borrowers, family members choose to whom they might lend money, and people’s wills determine who will inherit what assets. Based on very limited knowledge, lenders estimate the likelihood of a borrower’s ability to make agreed-upon payments, and what assets lenders can obtain if the borrower defaults. Hardly qualified bank employees and investors play a critical role in determining what jobs are created, what technologies further developed and what products produced and marketed.
Enterprises, when considering loans, must determine whether they have the material and human resources to utilize loans in beneficial ways. When interest rates are very low, enterprises should benefit from extensive borrowing, however they must focus on the most beneficial and cost-effective projects. The economic situation of potential customers may determine whether a business should accept loans to expand; for innovative projects, major risks and limited human resources are an issue.
Individual consumers often borrow to pay for what they want to use but cannot afford to buy with savings. Corporations exploit human weaknesses and try to amplify them. Rather than primarily focusing on insulating houses, replacing inefficient appliances, or buying camping equipment for affordable vacations, sales persons and lenders encourage people to use credit for goods that hardly improve buyers’ quality of life and often increase their costs of living. Buyers then try to rationalize imprudent purchases.
Decisions concerning lending are to a large degree driven by emotions, cultural values and false assumptions. Investors gain in the average because economies are growing but their decisions are rarely supported by factual knowledge.
Profit driven decision-making theoretically leads to equal opportunities for all qualified people, however, free market economies hardly changed persistent biases that lead to grave inefficiencies and indirect negative consequences. Racism continues to be pervasive. Third World industries hiring women greatly added to these countries’ rapid development. Even though paid little and being exploited, having access to a commercial job rather than being forced to marry in her teen years has been a small but significant step towards enhanced women’s rights. It is usually not recognized that in virtually all cultures, professions that attract mostly women are relatively undervalued and underpaid. In traditional male jobs, special needs of women in childbearing age are inadequately considered. Modern capitalist societies have not changed the very pervasive devaluation of the economic functions exclusively or primarily accomplished by women, including childbearing, breastfeeding, child and elderly care, etc.
Experimental approaches in recent decades led to more investing in new and very small enterprises in poor countries, starting with microcredit lending and more recently Western people directly lending small amounts to entrepreneurs they learn about through specific internet-based organizations. Micro-saving, usually meaning women preventing men’s spending small savings on alcohol, is a new concept that allows many to buy valuable animals, start small enterprises and send their girls to schools.

1.4.5 Forms of borrowing and investing; private versus public interests
To live and work, start a family and/or an enterprise, people may
• Borrow money from a financial institution with expectations of significant interest payments. [Theoretically we should have access to grants or interest-free loans.]
• Rent or lease land for horticulture, farming or ranching, or for an enterprise.
• Lease a building to live in and/or for a business, lease tools and machines, etc.
In addition, people may hire, employ or contract experts for advice and consultation and/or to be part of a development and production team. Entrepreneurs then have to hire or employ more or less educated workers who help with development projects, building production plants and assemble equipment, and do production work.
Main forms of unearned investment incomes consist in interest, rent and lease income, profits, usually paid as dividends, and capital gain when selling a property or security that appreciated.
Economists often see renting land, leasing a building or tools and obtaining a loan as essentially equal economic activities: the person works with what he did not own and pays a fair fee. However, land is part of the earth that ethically cannot belong to individuals. Buildings, vehicles, machines, and tools are real, useful, manmade items; sometimes, lease fees are inappropriate because utilizing and maintaining buildings and equipment prevents deterioration, in some lease agreements it is appropriate to compensate owners for wear and maybe loss of utility because of obsolescence. Conversely, money is only a representation of value, what we hold between earning and spending, between producing value for others and consuming value others produced.
Money should be accessible or owned, as grants or as interest-free loans, to all families, entrepreneurs, businesses and government agencies in adequate quantities for efficient economic transactions without one-on-one or complex barter and reciprocity contracts. The role of for-profit financial institutions should be minimal.
There are many forms of investing in an economy. Investments may be private by individuals, small enterprises or large corporations, or public, contracted and paid for by government agencies. Some investments, including much of the ‘financial services industry’ and particularly military and space program expenditures are of questionable value; they are counterproductive in that they compete with civilian industries for valuable resources, human and material.
Investment earnings may start immediately, for instance from leasing owned property. Within the conventional economy, savings and bonds pay contracted, usually low, interest rates. With most stocks and complex securities, dividends are shares of profits but contracts distinguish between different types of investors and contractual fees significantly diminish small investors’ earnings. Much of investment earnings or losses result form changes in the value of the securities (stock, bonds, etc.).
An example of an investment with delayed temporary earnings is farmers’ recurrent use of fertilizer. More lasting improvement in productivity may result from buying farm animals or machines, and/or building irrigation systems.
Private enterprises may make long-term investments, for instance buying hotels or founding a hospital. Particularly valuable is investing in research and development, developing new or significantly improved products and services.
Governments are mostly responsible for important long-term investments. Governmental basic research does not directly lead to profits but helps industries; and governmental support of the arts, of museums, zoos, etc. enhance people’s quality of life. Good governance needs to invest where later benefits are hard to measure and predict: efforts in improving infrastructure with projects such as expanding (electric) rail lines; expanding universities and schools that teach sophisticated skills; and improving health care including prevention of many diseases. Most valuable are investment with very delayed benefits: investments such as building or expanding research laboratories; providing publicly subsidized or free-of-charge early childhood programs; improving public schools and addressing children’s mental health, instituting effective ethics education and crime prevention programs; also countering greenhouse gases by restoring forests in most parts of the world; etc.
There is also a whole economy outside the realm of monetary payments: women baring and raising children are huge investments; and there is home child and elder care, temporary care of ill relatives and friends, informal teaching of young people, many forms of volunteer work, etc.

1.4.6 Investments for profit; patent rights; inefficiencies and ethical considerations
Our ancestors drove progress through their work and inventiveness; by building schools and infrastructure projects they invested in the future for their progeny, which became our societies. They established the foundation to modern sciences and technologies. Small inventions gradually led to sophisticated goods, services and production processes that increased the value of work. In many inventions, most valuable applications were not found until decades later.
Enterprises, including self-employed people, generally borrow to invest in facilities, for research and development work, and also for marketing. Goals then diverge: initial goals probably focus on ideas being developed to produce marketable goods and entrepreneurs wanting to develop their inventions further in order to become leaders in a field; secondary goals include making profits to make loan payments, a reasonable income and investments, in enlarging the enterprise, possibly soon also diversifying. A bank is likely to give additional loans to expand a new enterprise if it shows profits; but if the founders keep investing earnings in further developing their products, not yet demonstrating profits, banks may refuse to lend more, thus slowing further developments. Consequently, many products are marketed that clearly could be improved without increasing the cost of mass production.
Once ‘going public’ and selling stocks, the corporation has a fiduciary obligation towards the investors; there will be pressure to make profits and distribute dividends. While working some on improving products, it appears that enterprises often mass-produce products with easily correctable shortcomings so that they can later market an improved new model.
Much progress resulted from the work of inventive, dedicated individuals who had some luck and “lived at the right time at the right place.” More recently, most inventors have been employees with no rights to their patents; inventors rarely benefit much from their dedicated work and ingenuity.
Patent rights are designed to create incentives to develop innovative products, but they have an opposite effect. While rewarding research and inventions, patents give the corporation a monopoly for many years and, for some time, there is little incentive to continue developing a product. Instead, monopoly profits may be used to destroy potential competitors and finance hostile takeovers. Patent-protected large profits that raise the price of a product exclude many from benefitting, even when there is no shortage; this is particularly unethical if an invention is not luxurious, related to health care and safety, protection of environments, and people’s quality of life.
With a well-educated work force, most advanced enterprises should be able to stay ahead of competition without patent protections. True free enterprise economies allow that competitors may copy others’ inventions. If there is no public funding, it is reasonable that small temporary bank loans and initial earnings from a new, valuable product are utilized for further research and development as well as to build production facilities, retooling obsolete production plants, etc. With low profit margins, many people can afford a new product or service, and enterprises that lead in a field should be able to do well.
High, hardly necessary educational requirements for licensing professionals may have similar effects as patent rights; they help a professional groups maintain a monopoly positions. Licensing requirements must be reasonable, designed to protect the public and adapted to local needs, not to ensure high incomes of the professionals.

1.4.7 Investments for personal gain versus public interest, local and global needs
Many investments combine personal gain with some public interests.
Examples of private versus public interest in investments: If a toll bridge is built in a mountainous, poor area, tolls that seem reasonable may force poor people to drive their pack animals through a dangerous gorge. If a new medical device or medication is developed, the patent holder usually charges whatever will bring the highest profits: [profit/item sold x number of users – production costs] must be maximized – the use of the product is intentionally limited to the middle class of highly industrialized countries and the wealthy in poor countries. To maximize profits, the invention of the obstetric forceps was kept a family secret for two generations, not allowing others to buy, use or copy the ingenious instrument, thus allowing many women with arrested labor, who could have been saved, slowly die. Protection of professional services through licensing requirements is similar to patent laws: while a copy of a patented device may be inferior, if it works, it is usually much better than no device; similarly, even if long medical training is valuable, many people could be treated by non-physicians, if laws would allow it. Many women still die because performing C-sections is illegal for non-physicians, even though illiterate people have learned to perform difficult surgeries and nurses are usually serving as anesthesiologists and infection control specialists3.
Ethically and rationally, investments in meaningful progress should benefit all without delay, e.g. there must not be a calculation of highest profit when introducing a new patented medication – will it be sold to few with very high profit per unit or will it be produced in large quantities and sold to most afflicted patients with very low earnings per unit and lower total earnings? Particularly labor and life saving devices should be made available to all people as quickly as feasible, not patented and reserved for a limited market of the upper middleclass. Infrastructure developments should be built with public support and become broadly usable at low cost. Private enterprises offering education and health care should be integrated in public service systems. Taxation of wealthy members of societies may subsidize privately built infrastructure, schools and health projects.
From the perspective of a society, the focus on profits is misguided. Entrepreneurs set prices to include reasonable incomes for founders and owners, reimbursements with low interests for previous investments in the enterprise with low interests, and research and development, but it should not include dividends for investors. Enterprises often advertise bad products when they estimate that it is less costly to deceive potential buyers than to improve the product. Sometimes a product is good, but assets budgeted for advertisements could be more ethically used to decrease prices and improve workers’ benefits, or to invest in research and development.
Risky investments may resemble gambling; they are ethical when pursuing positive goals. Many for-profit investments may not only be risky but also unethical; example: developing cars that are built and marketed to exploit people with whimsical wishes and/or poor self-image rather than following an uncompromising pursuit of efficiency, safety, and expediency. Work that has a high likelihood of failure is ethical if a pursued goal would enhances many people’s safety, health and/or quality of life.
Today, investors and corporations do not properly consider likely long-term effects of their decisions. Industries should pay for economic damage to environments. Governments should give corporations strong incentives to protect ecological systems. Presently a high tax on all major greenhouse gas production appears most important. Transporting goods by truck long distances should be discouraged by way of taxation to account for greenhouse gases, dangers to people, damage to roads, and wild life, etc. Air, agricultural and natural land, waterways and oceans are being polluted by the problem is not adequately addressed by regulations and hardly ever taxed. Major clean-up operations are often needed long after exploitative corporations went out of business, and restoration efforts are usually partial at best.

1.4. 8 Capitalist for-profit corporate versus non-corporate versus non-monetary branches of modern economies
Profits are central to capitalist market economies. Economists, journalists and politicians mostly focus on development work and production by corporate for-profit enterprises. Other important economic activities include work in academic institutions and the arts, services by small organizations, the work of self-employed professionals and artisans, and small family enterprises. Maybe even more important is work within the privacy of families.
In the first model, the primary goal is to squeeze profits out of any possible endeavor, to please and find more investors. Quantity of production and profits are primary. In the second, people’s primary goal is to realize their potentials out of pride and sense of mission, while earning a fair income; quality is a main concern. Within families, work correlates with social instincts, cultural expectations and emotions that are based on ethical thoughts. While some form of reciprocation is consciously or unconsciously expected, there is hardly economic calculating as to what is a good investment.
In academia, researchers aim to further sciences to reach true progress, and art is developed and taught for its intrinsic values. Basic research that is publicly funded is particularly valuable. Rather than profits, idealistic goals and maybe hope of honor, prizes and recognition guide serious researchers to deepen knowledge, which may indirectly lead to the development of better products and services. Even privately employed engineers and scientists do most research and development without directly getting monetary benefits from their inventiveness. Research is done with the goal of publishing results that may be used for further developments or are imminently applicable. However if not publicly funded by a non-partisan agency, research projects are often designed in ways that favor results benefitting the sponsoring agents; studies with undesired results tend to be suppressed, maybe interrupted or not published.
Self-employed persons, such as artisans, contractors, and physicians, develop and practice skills that pay them an income but do not profit investors, except by their borrowing capital through banks. Most important services, such as raising children (own or others’), teaching, offering contract services, repairing goods, medical care, providing utilities such as water and sanitation, police protection, as well as much research, take place in an environment that is partly market driven but, to a large extent, outside the ‘for profit’ model. Social service organizations may perform services that are important for societies without seeking profits. Good physicians and teachers do not protect their ideas and do not directly benefit from others applying them, but they may be honored while others freely learn from them. Good educators, therapists or artists may work on publishing some of their thoughts and discoveries, but if successful in getting a book published, income from such work is unpredictable.
In for-profit corporations, goals are always skewed. A hospital that is incorporated must pay its investors; ethical, high quality treatment is no longer the primary goal. If a school is responsible to investors, teaching valuable knowledge, arts, and life skills becomes less important than attracting paying students and realizing profits by keeping teacher salaries low. Corporate manufacturers have to consider short-term profits more than long-term sustainability of the enterprise. Effects on communities and the environment are not a high priority, unless there is major pressure from grass roots movements or effective government agencies.

1.4.9 9 Alternate models of investing
Unearned income from interests, dividends and profits are economically and ethically hardly justifiable. However a small interest-like fee representing a loan insurance, service fee, and inflation adjustment, is justified. Bank loan fees may be charged to the borrower or divided between lender and borrower.
Farmers and other enterprises should not use Wall Street speculators to ‘hedge’ against catastrophic losses. Non-profit insurers should protect them from major losses, if they follow some guidelines on what and how much to plant/produce; peers may determine at what rate investments may be insured against major losses. Through insurances, successful farmers and entrepreneurs support less lucky ones, rather than investors making profits off diligent people’s work.
Payments compensating for inflation serve as incentive for people to deposit savings in banks. Gradual inflation is always expected and occurs for many reasons: people expect gradual salary increases, even if an older worker is not more skilled than a young one; when sectors of the economy are recognized to be relatively underpaid, salaries of affected workers are usually increased without other salaries being decreased. Historically, deflation was rare and always temporary.
Rent or the cost of borrowing valuable assets may include insurance, repair and maintenance costs, depreciation of property due to deterioration and obsolescence, property taxes, and a service fee. Even without profits, it is reasonable to build rental property; if in an economy there are no interest and dividend earnings, owning rental units is reasonable because depreciation and maintenance are paid for, and after long use, the value is maintained. It is also reasonable to build or buy a house, even if rents or lease fees are low. People may wish to buy a house so they are free to make any changes they want or they may wish to have a house built. For businesses, custom buildings are more efficient than remodeled leased spaces that are not optimal in size and layout. Local development banks should allocate financing for new construction and remodeling in accordance with local conditions and needs, and they should consider energy efficiency and factors that add to residents’ quality of life. If housing is inadequate due to lack of private initiative, local governments have an obligation to build apartments and commercial buildings of a wide range of sizes, for lease and for sale. Similarly, many people like to start small enterprises so they can direct projects according to their skills, liking, and values. Starting a family business, e.g. a restaurant, a health clinic or a highly specialized manufacturing plant, versus being an employee, may be compared with building or buying and remodeling a house versus renting an apartment.
Family enterprises may be technologically simple or highly sophisticated, playing an important part in the network of industries. Cars, pianos, appliances, etc. are built of parts that are neither manufactured by the designer of the final product nor the plant that assembles-builds it. Family enterprises may be niche industries, design products, build and further develop sophisticated parts, or assemble products according to other enterprises’ directions.
In a proposed model, instead of people pursuing investments that produce income, forms of insurances or annuities guarantee an inflation-adjusted retirement income for life. People should pay into their funds about as much as they expect to need, with people of high longevity benefitting from investments of people who die prematurely. Additionally, governments may encourage people to pay more than required into Social Security in order to later receive higher payments.
Education at all levels and health care, integrating private non-profit and public institutions, should be developed as public services. Today, privately and publicly employed engineers and scientists do most research and development work without directly getting monetary benefits from their inventiveness. Most scientific research is done with the goal of publishing readily applicable research. However, for-profit corporations and partisan groups should never directly sponsor research projects and studies, since research designs may influence results and study sponsors may suppress studies with undesired results. Idealistic goals, the desire to apply specific skills, and hope of recognition should guide researchers when deepening basic scientific knowledge or develop better products and services. Patent rights or ‘intellectual property’ must be very limited.

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1 Even Adam Smith did not consider interests to have an important economic function. In the Inquiry into the Nature and Causes of the Wealth of Nations, 1776, he advocated low, government-regulated interests, since in countries where interests were forbidden, “this regulation increased the evil of usury”.
2 James Rickard: The Death of Money – The Coming Collapse of the International Monetary System 2014
Bob Ivy: The Seven Sins of Wall Street – Big Banks, Their Washington Lackeys, and the Next Financial Crisis 2014
Mohamed A. El-Erian: The Only Game In Town – Central Banks, Instability, and Avoiding the Next Collapse 2016
Time [magazine] 5/23/2016, Cover story: Capitalism – The Markets Are Choking Our economy – How to Save It.
3 Nicholas D. Kristof and Sheryl WuDunn: Half the Sky, 2009, p. 109ff, p. 93ff)

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