FAZ, Financial Autonomous Zone

The FAZ, FINANCIAL AUTONOMOUS ZONE is an alternative economic system based on abundance rather than scarcity.

The FAZ is a concrete proposal for a structural economic change through an innovative and sustainable socio-productive model of aggregation, based on participation, which facilitates the creation of wealth and its social redistribution both, providing support, protection and development of the economy, protection of the population economically weaker sections and funding increase of public utility services, without increasing debt. Entering into the FAZ, companies, associations, institutions and individuals will have the opportunity to manage their own economic and social relationships using the unique tools provided by the FAZ: a currency, to be spent within the FAZ, loans without interest, basic income periodically distributed equally to all participants as a function of the wealth produced in the FAZ.

Post-scarcity economy. To facilitate change in our society it’s necessary to change the economy, basing it on the abundance rather than scarcity. According to Richard Stallman (GNU Manifesto, 1985) and Cory Doctorow (Down and Out in the Magic Kingdom, 2003), an “economy of post-scarcity” is a system for the management and allocation of resources always sufficient to meet the needs perceived by individuals. Instead the economy as we know, or the ‘”economy of scarcity”, is a system in which there is an efficient allocation of scarce resources for definition, or always below the needs perceived by individuals.

According to Frank Tipler (Physics of Immortality, 1988), resources are unlimited – so abundant but, of course, not endless – on the physical realm, in the sense that they are always sufficient for each living unit in the time of his life. Concrete example of unlimited abundance and yet finished, is solar energy: mankind receives from the sun 3,850,000 exajoules of energy each year, while the total power consumption is less than 440 exajoules (Wikipedia).

The fact that this abundance is not yet available shows that the problem of resources is an issue to be seen as not-objective but in perspective, that needs to be placed on a conceptual level and not on a mere accounting one, given a certain capacity utilization. This, in fact, depends on the scientific knowledge, that has a capacity of growth at least equal to the growth of the life in the universe.

The demonstration provided by Frank Tipler is based on considerations of Friedrik Von Hayek (Selected Writings, 1972) according to which the capital of a company is given by the revenue streams generated from the company itself. The corporate capital is not a sum of goods which have their own intrinsic value and it’s how the existing resources are used, that determines how the income streams are generated. Income opportunities generated by how the company’s total assets are used is a function of information flows, that can be managed by the company itself. It is possible, therefore, to define the resources in terms of opportunities and therefore of information flows, manageable by an organism. Tipler comes to the conclusion that the resources in the universe are always sufficient, since it is demonstrated that the amount of information that can be managed in the lifetime of an organism is necessarily less than the total available information, whatever the speed of management of such information. This organism could be an elemental life, a society, a galaxy or the entire universe and does not change the nature of the phenomenon.

If resources are not infinite but abundant and their use is related to knowledge, must be redefined the concept of wealth. The wealth of a community is given by the ability to organize information flows that generate income opportunities and this organization ability depends on the creativity and the cultural level of the given society. If wealth is not material, it follows that it is no longer necessary to be accumulated. That changes the idea of money, paving the way for the emergence of a new kind of money that is a flow before than a status, so – as in the case of gift – is possible to conceive a money that can be spended without causing an impoverishment.

The first and most revolutionary consequence of this assumption is that there is no need for any material accumulation of capital. The capital required for the development of a company is given by the knowledge of a society and their ability to organize it. Without this element, all the raw materials of the world would be useless and could not produce anything.

Social Capital, Life Credit, Investment Credit. This body of knowledge is the “Social Capital”, the engine of development and growth of a society that should be considered as a factor of production along with other commonly considered necessary for the production, such as raw materials, labor, financial capital. It is formed by the multiplication of the knowledge of all society members and is a reciprocal function of the division and specialization of labor. In fact, the division of labor increase involves the collective knowledge increase, but also the increase of that, involves a division of labor increase.

The remuneration of Social Capital as a factor of production justifies, at a theoretical level, the establishment of an Universal Basic Income (UBI), that we define “Life Credit”. All the members of a society have the right to participate in the distribution of the income resulting from the use of a factor of production. The formation of which everyone participates, regardless of any measure of participation, since the capital would serve no purpose without the contribution of all. Without that knowledge it would not be possible any activity of production. The Life Credit is a basic income and as a redistribution of the Social Capital proceeds, generates an idea of social equality that does not involve leveling of differences and individual merit, these differences do not translate into economic inequalities but tend to place themselves on the level of social recognition.

Is well known that for the Kahn and Keynes multiplier, the investment of a sum involves a return into wealth, ranging from two to five times the investment done. The basic income must be commensurated with the scale of the investments being made in a society and must be derived from the effect of the multiplier that any investment produces in the society. A portion of each investment goes to remunerate the production factors and the risk of enterprise, but another part must remunerate the Social Capital. Currently, however, this part goes into the financial speculation in a downward spiral that can not come to an end because the interest on the monetary capital always tend to grow and to be repaid must generate more debt that will add to the interest component of the total capital.

Life Credit does not replace income from work but it complements it and its determination must tend to an amount at least sufficient to subsistence, so that everyone can have the means and the time required to develop their talent and creativity. Only stimulating creativity and freeing at least for the part relating to the vital needs, the income from work, you can get an increase of the Social Capital.

The creation of money has to be carried out on investment on a strictly automatic basis. This prevents the management of the credit to be transformed into a discretionary power which is absolutely deleterious whether it is managed according to a political criterion, whether it is instead held by financial technicians who, through it, handle enormous power. The Social Capital may be expressed by a number which substantially coincides with the money supply as a whole or a portion of it. Of course, this coincidence will be much more precise in an economic environment in which money is issued on investment, but roughly even today we can say that in essence the non-speculative money supply (i.e. the set of financial instruments, which provide money excluding substantial part of the derivatives instruments) coincides with the Social Capital.

We can determine the individual credit capacity in the amount of money supply of each member of a society. A share on which each can have credit and must have at its request, in the form of negative rate loans. We define it “Investment Credit”. This credit capacity can be transferred to another individual exactly as now you are buying shares of a company on the stock exchange or at the time of the enterprise constitution. From the individual point of view, when someone asks for a loan based on his credit capacity, this resets and reconstitutes itself as the individual returns the credit obtained.

In the FAZ, when someone requests to carry out an activity, it’s created the money by issuing a sum for the investment, (Investment Credit), and consistent with the timing of the realization of this and it’s created a corresponding sum to be distributed among all the participants (Life Credit).

This issue is fully justified in the Fisher equation on investments, since an increase of the activity must need an increase in the money supply.

While the ordinary loans are issued with a positive rate to fund the issuer and therefore must be redeemed at maturity, negative rate loans, since at the end have zero value and therefore the issuer does not have to repay the principal, may be given away for free.

This environment makes also reasonable the Say’s law, since for each issuance of money for investment we have another one for consumption.

FAZ Money. In the FAZ, the money, that we define as FAZ Money”, is charged with a a time-related fee called demurrage. The demurrage acts in a similar manner to a rental fee, the charge increasing the longer the rental is held onto. Anybody holding the FAZ Money would be charged the demurrage fee in proportion to the time it is held. Because the FAZ Money will exist only in electronic form, it is easy to know exactly how much time has elapsed between the moment a user receives it and when it is transferred to someone else.

The two important effects of a demurrage based money usage are: the first that money does not create debt and the second that money disappears from the system as the assets that it has helped to create, become obsolete. The demurrage rate depends on a function that is described by the average rate of obsolescence of the created assets. It also prevents the accumulation of financial capital and promotes the maximum velocity of money circulation.

Unlike inflation, demurrage gradually reduces only the value of currency held. It functions as a negative interest on currency held, instead of inflation that also reduces the value of savings or retirement funds and increases the value of the commodies’ basket known as Consumer Price Index (CPI). Both inflation and demurrage reduce the purchasing power of money held over time, but the demurrage does so through fixed regular fees, while inflation does in not fixed manner and in a variety of ways that is not always easy to predict.

According to Gresham’s law (“bad money drives out good”) a demurraged currency is a “bad currency” because the increased velocity of circulation stimulated by the demurrage, drives his usage and causes the thesaurization of the fiat currency (euro, dollar). This led some such as German-Argentine economist Silvio Gesell to propose demurrage as a means of increasing both the velocity of money and overall economic activity.

Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money. So we must make money worse as a commodity if we wish to make it better as a medium of exchange.”

— Silvio Gesell, “The Natural Economic Order”

The loss of value is crucial to create a not scarce money. Since the currency gradually expires and goes out the monetary mass, which decreases, it will be possible to issue currency in surplus, in fact operating a Keynes’ “deficit spending” without creating debt.

The inability to accumulate money will eliminate the problem of the Keynes’ liquidity trap that’s one of the problems underlying the current financial crisis and the inability to get out. At the same time, on the perspective view of the Fisher equation, using a demurraged currency we are in an economic environment that tends to be deflationary, since the money supply tends to decrease gradually and grows only for investments. If wealth creation is greater than the factor 2 hypothesized, the prices should tend to decline and this could justify further issues of money as Life Credit.

Conclusions. The FAZ is the most direct way to build a society based on the solidarity behavior that could use as driving force the selfish individualism. It’s a tool that supports aggregate demand, resulting in recovery of the real local economy, do not create harm to an economic system because does not affect the debt and encourages the development and the evolution of the network culture and society. FAZ prevents the accumulation of money and drives people to spend it to feed their skills and therefore their creativity. When a FAZ will be estabilished, the main stimulus will be the individuals’ creativity and the achievement of ambitious personal and collective targets. Using the same logic that drives the open source world, people will be brought to work together to seek personal glory and not money, which only becames an unit of account. It will be a long and painful process to remove from the minds of the people the money as godness, FAZ is a toolset to start it.