Introduction
This book, the Utopian Financial Infrastructure, introduces and describes a new financial infrastructure that is necessary to support and implement the ideas mentioned in Building Utopia.
But why? Our current financial system has evolved over several millennia, and it has accomplished many good things. But, it has many deficiencies. The current financial system is just not good enough to deal with the ideas mentioned in Building Utopia. The current system is not even close to achieving goodness. A few enhancements to our current financial system would not make it much better. The current financial system simply cannot serve as the financial infrastructure for any Utopian society.
The Utopian Financial Infrastructure is about money, wealth, ownership and accurately accounting for it. From the perspective of "leading a good life", money or wealth is not the end in itself, they are just the means to an end. While money and wealth are not sufficient for us to lead a good life, they are necessary to enable us to have the good life that we seek. This book focuses more on these "means". Thus, we will discuss ideas like money, wealth, assets, ownership, transactions, payments, money transfer, etc.
This chapter has two goals: The first is to introduce the core idea on which the Utopian Financial Infrastructure is based. The second is to introduce all chapters in the book. By the end of this chapter, a reader would have high-level information about the contents of this book.
The Core Idea
To implement the ideas mentioned in Building Utopia, we need to know "who owns what". Hence, we need to be able to identify the "who" and the "what" and we also need to establish the ownership relationship between the "who" and the "what".
The "who" are the legal entities that can own something. There are three kinds of legal entities: the individual citizens, the self-owning entities and the organizations. Of these, citizens are far more important than the other two.
The "what"s are the things that we own. These things usually have a monetary value or can potentially have a monetary value or have monetary consequences. Generally speaking, we call these things "assets", but these "what"s are not always as simple as the idea of an asset, as they can be a combination of both an asset and a liability.
Ownership, that is the idea of "who owns what", is an association between an entity and an asset. Conceptually, the things that we own can be listed out. This list of the things that we own could be very long. For example, one of the items on the list could be "money" and the number associated with that item tells us the amount of money we have. Another item on this list could be the number of ownership shares of some specific organization that we own. Yet another item could be the number of cans of a specific kind of soup we own. In accounting terminology, such a list is called an "inventory" of items. When we know all the things that each of the entities in a society owns, then we know about every conceivable thing that can be owned and is owned.
During the course of each day, people engage in exchanging the things that they own. People may buy some things and people may sell some things. People may work for others and earn a salary. People may take ownership of some investments and may sell some of their investments. All these activities change the records of inventory of the things that we own. For example, when we purchase a can of soup at a retail store, we exchange some of our money for the can of soup with the retailer. This reduces the amount of our money and increases the number of cans of soup we own; it reduces the number of cans of soup from the retailer's inventory and increases the amount of money for the retailer. Thus, our activity of purchasing a can of soup from a retailer changes the inventory of things owned by us as well as the retailer. These kinds of interactions are the "financial transactions". We would keep track of all financial transactions and hence we would know the most up-to-date ownership of everything that can be owned.
Almost everything that we own has a monetary value. For example, when we buy a can of soup, it has a monetary value; when we buy ownership shares of some specific organization, it has a monetary value. This monetary value is the price that we pay for the thing that we buy.
There can be some things that we own that don't have a monetary value associated with them. For example, we may have created a drawing and hence we own it; but it has no assignable monetary value; we would own the copyright for it and yet its monetary value is unknown. The various kinds of certificates and licenses that we possess are examples of the things that we can own that have no monetary value. For all such things, we will assign it a monetary value of zero.
The monetary value of the things that we own can change every day. For example, the shares of the specific organization that we own may rise or fall in the stock market, and that changes the monetary value of the shares that we own. For example, the can of soup that we buy has an expiry date and on that date, it will be deemed worthless. So from the point in time when we buy that can of soup till that expiry date, while the can sits on some shelf in our home, the value of the can of soup is reducing. If we consume the soup in that can of soup, its value reduces to zero immediately.
We can know the "current" monetary value of each of these items by either knowing their current market value (like ownership shares of some organization) or knowing their current depreciated value (like the can of soup sitting on our shelf) or by knowing that it has been consumed (like the can of soup that we used). This idea forms the basis of the mechanism to measure our wealth; not just on some days in a year, but all the time.
Thus, everything that we own has a monetary value, and this value can change every day. When we assign a monetary value to each of the things that we own and when this monetary value is kept up-to-date with each passing day, then every day we will know the exact value of each of those things and hence the exact value of the wealth owned by each of the entities and hence the exact value of all the privately owned things in a society.
Knowing the exact wealth of every entity every day enables us to implement everything in Building Utopia that depends on knowing the wealth. This includes wealth redistribution, wealth based taxes to support social spending, monetary policy and the Utopian Payment Model.
For example, when we know the wealth of each of the entities, we can compute the taxes for wealth redistribution and for running the expenses of the society. Thus, we would know the amount owed by each entity to the society and the amount owed by the society to the individual citizens for wealth redistribution. When we know these amounts every day and when we have sufficient automation, we can implement the taking of taxes and redistribution of wealth.
Knowing the wealth of each citizen allows us to implement the Utopian Payment Model and help those who most need such help. This implementation would engage every time a citizen needs to purchase something essential and that happens through a financial transaction.
Knowing the current privately owned total wealth in the society enables us to implement monetary policy. It allows us to create money and distribute it when total wealth falls below the desired norm, and it allows us to take out wealth when there are bubbles.
The implementation of taxes, wealth redistribution and monetary policy would occur every day, in amounts proportional to each day. We would do this kind of processing approximately at the end of each day. During this processing, we would automate the paying of bills and debts as well. Citizens will have configuration parameters that tell the automation how it should work for them. Thus, with this automation, citizens would need to expend very little effort and yet the routine aspects of all this wealth accounting, payments, taxes, receipts will be taken care of.
This is the core idea of the Utopian Financial Infrastructure.
The rest of this book contains high level details of everything that needs to be set up to bring this core idea to fruition in a Utopian way.
Chapters on Local Topics
Much of the work that the current financial system does, and the Utopian Financial Infrastructure will do, is local to our society.
The chapters that deal with these local topics are few, and each one is long. The reason for this is that most of the aspects of any financial system (current as well as the Utopian) are immensely interrelated.
Here is what you will find in each of these chapters:
The chapter, Current Financial System, describes our current financial system briefly. We will identify all the major systems that we interact with while doing something, either with our money or with our wealth. Most of these systems will be changed in some way in the Utopian Financial Infrastructure. Many of the underlying ideas and concepts stay essentially the same; others change significantly. When describing the current financial system, we will describe topics that are important and widely used and also have some problems or undesirable aspects. Those problems or undesirable aspects will be remedied in the Utopian Financial Infrastructure.
The chapter, The Overall Approach, deals with the generalities of the Utopian Financial Infrastructure. It starts with motivations, treats the motivations as requirements, and develops the overall approach to achieving the various goals indicated by the motivations.
The chapter, Records and Accounting, introduces the basic kinds of records and database structures of the Utopian Financial Infrastructure. It introduces the ideas of Entity Registry, Product Registry, Account Books and End-Of-Day Processing.
The chapter, Logins and Transactions, deals with the following concepts: identification, authentication, confirmation, authorization and financial transactions. It deals with the actual infrastructure that supports numerous real-life activities, ranging from using our phone, to browsing the internet, to buying or selling something.
The chapter, Investments, obviously deals with ideas and concepts related to investments. The primary meaning of investment is owning means of production, and that primarily means being part-owners of publicly owned organizations. Investments is a vast topic, but at its core, it is related to organizations, their ownership, the accounting of that ownership, other financial products and services, and financial markets. This chapter establishes the basics and introduces the concept of Standard Investments, which is required to discuss Lending and Borrowing.
The chapter, Lending and Borrowing, introduces a significantly redesigned system of lending and borrowing. It introduces Collective Credit and Utopian Mortgage. It discusses the Social Credit introduced when discussing the Utopian Payment Model in Building Utopia. It discusses why, in a Utopia, citizens cannot ever get bankrupt. Finally, it discusses the lending and borrowing for organizations and self-owning entities.
The chapter, Other Topics, introduces several loosely related or even unrelated topics, each of which requires only a few pages worth of description, but each playing an important part in the overall financial infrastructure.
Chapters on International Topics
Utopian societies, like any other society, will interact. These interactions are typically initiated either by citizens of the society or by an organization within the society. For any interaction that involves money or sovereignty, the society is indirectly involved. When society is involved, its financial infrastructure is involved on behalf of the society. There are many such interactions that cross society boundaries, and each such major kind of interaction is a topic under "International Topics".
Activities like importing, exporting, visiting another society, international money transfers, international investments, becoming a dual citizen, etc. are all examples of interactions between societies. Each one of these activities can be conceptually categorized under some international topic.
There are several chapters that discuss topics related to the most common international interactions between societies. They are as follows:
The chapter, Basis for International Interactions, discusses the ideas underlying all these international topics. The ideas are:
- Boundaries and Independence
- Sovereignty and Jurisdiction
- Agreements and Cooperation
- Unions and United World
For every international topic, we will discuss ideas, make choices, develop concepts, and design systems. All these are strongly influenced by the ideas mentioned above; either because we use the idea or because we refrain from using the idea.
The chapter, Currency Exchange Rates, presents all the ideas that lead us to the concept of natural currency exchange rate and its computation.
The chapter, Money Transfer, discusses the mechanism of one-way transfer of money. Money Transfer is a service provided by the Utopian Financial Infrastructure that enables citizens to give monetary help to others. We will discuss money transfer within and across society boundaries; and there are differences. Money transfer is one of the two mechanisms of exchanging wealth across country boundaries; the other is imports.
The chapter, International Online Purchases, discusses the mechanism underlying a citizen's ability to buy goods from a retailer in another society. This activity is classified as imports and the chapter discusses its implications. We will discuss the accounting and records required for the financial infrastructure to always know the citizen's current total wealth, even when the citizen owns items purchased from an online retailer in another society. We will also discuss the restrictions and limits on such activity. This restriction is in contrast with a citizen's total freedom to buy whatever they want within their own society.
The chapter, Imports and Importers, has two major goals. The first goal is to discuss the importance of "Import Duty" and the second goal is to elaborate, at a conceptual level, the mechanisms of Imports. These mechanisms include: productize the to-be-imported goods, paying for them, and transferring ownership of such imported goods across society boundaries. We will also mention the benefits of imports and importers to citizens.
The chapter, International Investments, answers the following questions: Why do Utopian societies need international investments? What sort of investment qualifies as international investment? What is the method of paying for the purchase of international investments? Is it in gold or is it done digitally using the mechanism of money transfer? How is the transfer of ownership of investments handled across society boundaries?
The chapter, Visas And International Travel, answers the following kinds of questions, picked from our current context, as they apply to visits by citizens of a Utopian society to another Utopian society: How do I know that I can travel to that society? Will I carry my passport? Do I need a visa? Are there any more requirements for international travel? What are my rights and responsibilities in that society? Is the process at an airport any different from what it is today? How do I pay for things in that society? What happens if I lose my phone?
The chapter, Dual Citizenship, has two goals. The first goal is to outline the three distinct steps in which a citizen of one society can also become a citizen of another society. The second goal is to outline the mutual rights and responsibilities of such dual citizens and their societies.
A Note about Terminology
The goal of this book is to answer the question: how can we implement the ideas mentioned in Building Utopia? That "how" is a high-level how. In describing that "how", we will deal with the "what" and "why" aspects of the Utopian Financial Infrastructure.
The "what"s are the various ideas, concepts and systems included in the Utopian Financial Infrastructure. We will outline each one of them. There are many ideas, concepts and systems that make up our current financial system. All these are significantly interrelated. The Utopian Financial Infrastructure will have use for many of the existing concepts; will introduce some others; and will discard some existing ideas and practices. As such, Utopian Financial Infrastructure is a vast subject.
The "why"s are the justifications for each of the "what"s. Justifications are important because without the justification, some of the "what"s may seem arbitrary. Justifications are important tools for comparing the thematic and logical consistency between ideas, concepts, systems and proposals. Writing down the justifications helps in revealing the flaws in reasoning; and once the flaws are revealed, we can address them and that can also lead to changing the "what". Writing down the justifications ensures that we don't forget them.
This book also touches upon the "how" aspects of these "what"s and "why"s, that is the implementation details, at a conceptual level.
"Who" creates and maintains the financial infrastructure is obvious; it is the society. Thus, the "where" aspect is also answered with: "in the society". "When" can this happen? After a majority of us agree that this is for our common good.
This book treats the terms "society" and "country" as synonymous. It also requires the society or country to be a monetary sovereign. For citizens of the European Monetary Union, this may seem to pose a big challenge, but not really.
In the context of international topics, we will use the words "society", "country" and "nation" as synonyms.
When we use the word "international", we are adopting a third party perspective about interactions between two societies.
When we use the word "foreign", we are one of the parties in an international interaction, and we are speaking of the other party as "foreign". In such a discussion, the word "foreign" occurs with a neutral meaning; there is nothing good or bad implied by the word "foreign".
We will use the word "dollar" to indicate the unit of currency within a society. Across society boundaries, these local dollars would be different and can have different names. When we need to distinguish between them, we will refer to them as society-A dollars, society-B dollars, and so on.
About Version Number of this Book
Utopian Financial Infrastructure is a vast subject.
It takes a lot of effort and time to write about it. Waiting for the entire book to be completely finished before publishing is not as important as conveying the ideas that have been written up.
Everything that is critical, major and important has already been included in this version. Is it possible that something important has been missed? Sure, it is possible. Communicating the already written up thoughts can lead to detecting such oversights. Once detected, we can pay attention to these oversights and address them.
Designing and implementing the entire Utopian Financial Infrastructure will require contributions from many individuals. This book gets the ball rolling.
So, this book will be released in several successive versions. The version number of this book will be visible in the e-Book and paperback book. We will reference the future version of this book when some aspect is not fully discussed in this version.