Introduction

Life isn’t fair. If you ask anyone to make sense of the uneven distribution of wealth in the world, that is usually their final word. Nevertheless, we have a responsibility to make the unfair parts of life more fair. That’s why we wait in line, and why we have courts.

Our current economic model isn’t fair, but so far, no one has explained just what we’re doing wrong. As of this writing, half the wealth of the world is in the hands of one percent of the population. That’s not even the most shocking part. At the same time, the rich are getting richer and the poor are getting poorer. Simply put, it’s getting worse all the time. This document will explain exactly how our current economic practices are creating this problem, and exactly how we can fix it. The best part is that the solution doesn’t require government participation. It can be expressed most simply in these precepts:

1) All currency is replaced by simple, unadjusted person-hours. Hours of labor are merely recorded and exchanged equally for other labor hours.

2) Ideally, all products are sold for the cumulative person/hours of producing them. Otherwise, equilibrium pricing is used to price scarce, highly sought products above that. The excess paid above the cost of producing a product (what is now considered profit) is distributed to everyone.

3) Land is not owned and cannot be inherited, but is leased for a finite amount of time (including up to a lifetime) from everyone else. At the end of each lease, land is revalued before being leased again.

4) There is no such thing as intellectual property.

The Problem

Why do we work? Most people would probably say “for money”, but that’s not quite right. Imagine a castaway alone on a desert island. He has to labor to provide himself with food, shelter, and clothing. Two points must be made about his situation.

First, he is not working for pride or prestige or money or fame, he is working for the output of that work: food, shelter, and clothing. He may work for some wants that are not needs; he has choices. Ultimately though, he works so that he can get the results of having worked.

Second, whatever he chooses to do with his time, an hour doing one thing is equal to an hour doing any other. It doesn’t matter whether he is pursuing needs or wants, or whether he is working on food, shelter, or clothing. The cost of spending an hour doing one thing will always be that he could have spent that hour doing some other thing.

Now imagine that instead of one person getting stranded on that island, two people did. They are on a desert island, so there is a minimum amount of food, shelter, and clothing they need to just survive. Let’s say each person on a desert island needs to spend on average 2 hours a day maintaining and repairing their shelter just to keep it usable. Each person also needs to spend, on average, 2 hours a day collecting food to just survive, and 2 hours a day making, repairing, and replacing clothing. Given that it takes 6 hours of labor a day for a person to survive on the island, our society of 2 people lives on 12 person-hours of labor a day. They can each meet their own needs and wants for food, shelter, and clothing individually, or they can cooperate. They may decide one will collect food for both, the other will build and maintain shelter for both, and they will each work on their own clothing alone.

After some time, imagine that the FoodCollector says to the ShelterBuilder, “I think food is more important than shelter, so I want 3 hours of your time as a ShelterBuilder for every 2 hours of my time as a FoodCollector”. This is similar to how a doctor gets paid more than a paperboy in the real world. Upon enacting this agreement, the FoodCollector is now spending 2 hours a day on his clothing, 2 hours collecting food for himself, and 2 hours collecting food for the ShelterBuilder which he will trade for shelter. The ShelterBuilder is now spending 2 hours a day on his clothing, 2 hours working on shelter for himself, and 3 hours working on shelter for the FoodCollector. The FoodCollector is working 6 hours a day, but receiving 7 hours of output. The ShelterBuilder is working 7 hours a day, but receiving 6 hours of output. For one hour a day, he is by definition, a slave. Though it only takes 12 person-hours a day for society to stay afloat, society is now working 13 person-hours a day.

Our example using a small island economy may seem too crude to represent the real world, but the real world situation is exactly that simple. This uneven exchange of labor hours is what we call profit. It is also the cause of the wealth imbalance in the world. It is the actual occurrence of the rich getting richer and the poor poorer. Note, the rich are not just getting richer at the same time the poor are getting poorer, the rich are getting richer by way of the poor getting poorer. Wealth is actually being transferred from the poor to the rich, because wealth and labor are the same thing.

This analogy may seem like it doesn’t apply, because we deal with each other day to day using currency, not exchanging person-hours of labor. But what is currency? Currency serves a couple of purposes. First, dollars are a convenient medium of exchange. For example, a laborer gets paid for his work at a furniture shop in dollars, which he can then use to buy groceries. Second, dollars are easy to stockpile, which allows us to do things like save for retirement. But most important to the conversation about wealth imbalance, dollars allow us to assign different values to different jobs. When we said the FoodCollector will trade 2 hours of his food output for 3 hours of the ShelterBuilder’s shelter output, we could have just as easily switched the numbers and said the FoodCollector makes 3 dollars an hour, and the ShelterBuilder makes 2 dollars an hour. Whether or not a currency is backed by a precious metal is irrelevant. Ultimately, it is just an arbitrary expression of the value of an hour of your labor as compared to an hour of someone else’s (or more accurately, everyone else’s) labor. That is all any currency is. We already are exchanging person-hours of labor, we just use currency to camouflage the fact that we are not exchanging those person-hours equally.

The Solution

We aren’t working for money, we’re exchanging person-hours of labor and calling them money. We will begin to solve the problem if we begin to exchange our labor hours equivalently. The reason why is obvious. When the FoodCollector requested 3 hours of the ShelterBuilder’s output for 2 hours of his own output, the ShelterBuilder could have simply said “No. Do it yourself”. The FoodCollector would then have to work exactly one extra hour on his shelter himself to get the extra output he was seeking. The exploitation only happens if the ShelterBuilder agrees to it. If everybody is meeting all their own needs alone, then an hour of their time doing one thing is equivalent to an hour doing any other thing. There is no reason for us to differentiate between our hours when we choose to divide up labor and specialize.

This uneven exchange of person-hours is one of a number of practices that causes the flow of wealth from the poor to the rich. Equating person-hours of labor is a big step, but there is more to fix than that, like land ownership and intellectual property. We have to step back and redesign commerce from the ground up, removing methods that create unjustified advantage. To do this, let’s break it down to it’s simplest parts and start over. In simplest form, an economy is only three things worth discussing: labor (our purchasing power), desirables (the things we want to acquire), and transactions (exchanges of labor for desirables). Desirables are made up of land and products.

Labor

All wealth is an expression of labor. Everything you’ve bought was paid for with money you were paid for your labor. The things you inherited and didn’t have to work for were purchased by someone else’s labor. If you sell something you inherited, someone will pay for it with their labor. Money does not exist apart from labor, it is a symbol of labor, and only exists to be a tangible representation of labor. We currently pay different amounts for different trades, but if we had them all to do ourselves, an hour of one type labor would cost us an hour that we could be doing any other type labor. The economic model proposed here requires all labor to be exchanged equally, an hour for an hour.

Transactions

Transactions are the exchange of labor for desirables. For example, let’s say our original lone castaway sees bananas hanging from the top of a tree. They are the desirables. He recognizes the only way to get the bananas is to climb the tree and pick them; that is the labor. Expending the labor to get the desirable is the transaction. In this example, it’s unnecessary to identify the transaction as separate. This is because if there is only one person involved, it’s easy to see how the labor is directly related to the desirable.

But what if there are three people trying to buy a banana, there is one person selling only one banana, and each potential customer wants the whole thing? How do they decide who gets it? The answer to that question exists in practice today, and it is called equilibrium pricing. If the number of people who want a thing (the desirable) is greater than the number of those things that are available, then the price (as labor) of the ones that are available is raised above their true cost. As the price is raised higher and higher, more and more people who originally wanted one will decide it is not worth the new higher price. These people didn’t want one as badly as some of the other people did. The price is raised until it is high enough that the number of people willing to pay the asking price is made equal to the number of items available. Equilibrium pricing creates transactions between buyers and sellers that are more complicated than one castaway picking bananas for himself.

In our current economy, the difference between the seller’s cost of producing a desirable and the buyer’s price in labor to purchase it is called profit, and it goes to the proprietor. This seems to introduce a conundrum. Earlier, we explained how exchanging our person-hours at different rates is the very cause of one getting rich while creating the poor; in other words, “profits are bad”. At the same time, equilibrium pricing is a perfect regulator of excess demand for desirables in short supply. So how do we benefit from equilibrium pricing without giving the seller an unjustified advantage (an unequal exchange of person-hours) through profits? The answer is as simple as it is shocking: divide the profits among everyone. There are very good reasons to do this.

First, proprietors don’t “deserve” profits. Consider our banana seller. He might be good at it. He might work hard and be clever about keeping his costs down as low as possible, which of course, increases his profits. He might also have a competitor who is not good at it. His competitor may not do a very good job of keeping his costs down, so even though he still makes a profit, he may not make the same profits as the better seller. Given what we’ve established about equilibrium pricing, the buyers of bananas are going to pay pretty much the same price, regardless of which seller they go to for their banana purchase. The efficient seller may get paid 32% more for his bananas than he expends, while the less adept seller gets paid 28% more for his bananas than he expends. One is doing better than the other. But they are both getting close to 30% profits for no other reason than there aren’t enough bananas for all the people that want them. The profit margin for coconuts might be 80%, simply because more people want coconuts than bananas, and coconuts are more scarce than bananas. That has nothing to do with the proficiency of the coconut sellers. There isn’t any justification for proprietors to keep profits because profits are more a function of supply and demand, and less a result of the efforts of the proprietors.

Another reason to give the profits to everyone is because that gives them something for losing out on the sought good. In the previous example when three people wanted the same banana, one person was willing to pay more than the other two. It should still be noted that the other two may have been willing to pay very nearly as much. In the current economy, one person gets the banana, the other two people get nothing. In the proposed economy, one person gets the banana, the other two share the excess labor the one was willing to sacrifice to get the scarce desirable.

In the proposed model, there are two sources of income for everyone. One is “earned” income, where each laborer receives exactly one person-hour of output from someone else in exchange for a person-hour of their own output. From this standpoint, one can work as much or as little as one wants, depending on how much they want to spend on their life, and can attain the same standard of living per hour of labor as anyone else doing any other task. The other is “unearned” income. This is where each laborer gets an equal portion of the excess expenditure of every land lease and product purchase in the economy. Because it is an equal share of the excess, it does not give anyone an advantage; everyone gains equally.

Desirables

Land. Land is not an output of anyone’s labor, it is immovable, and it is never consumed. Its relevance can change over time as populations move and nearby land is developed or abandoned. The value of land lies in its use for a certain thing, like a residence, a factory site, or a farm. The use of a parcel of land for one thing usually precludes it from being used for another. For example, you can’t have an open pit mine and a farm in the same place.

In the existing economy, land can go up or down in value over time, and be sold at a profit or loss. The value of land will fluctuate as land is earmarked or zoned for different use. This is inside knowledge that can be leveraged and exploited. Land can be inherited and accumulated over generations, creating concentrations of economic and political power.

In the proposed economy, land is not owned, but leased from everyone else for a finite amount of time. It cannot be inherited. For example, consider an island with only five inhabitants. Conveniently, there are six plots of land suitable for making a residence. One is poorly located and not in high demand by the inhabitants. One is located with a beautiful view of the beach and easy access to necessary resources, making it highly sought. The other four are pretty average, not very wanted or unwanted. As with all transactions, the only purchasing power of the inhabitants is their labor. According to the concept of equilibrium pricing, the lease price of the one highly sought place is raised until only one inhabitant is willing to pay that much. That amount is divided among the other four inhabitants. The second, third, and fourth inhabitants each lease one of the four average lots. All three are leased for the same price, and the amount from each lease is divided among the four inhabitants who were not the lessee in each respective sale. The remaining inhabitant chooses to reside on the below average, unsought lot. He pays a lower price than everyone else, which is divided among the other four inhabitants.

Each inhabitant received an equal share of the proceeds from all other land leases, so if all the lots had the same value, no one would actually pay anything for a place to live. This makes sense: if there is no competition for a given thing, it is basically free. That was not the case in our example, where ultimately someone paid a premium to live exactly where they (and others) preferred to live. Conversely, someone else actually “got paid” to live where no one else wanted to. In the case of highly sought scarce desirables, everyone else gets something in return for some other person getting it. At the same time, those who choose to purchase items less sought by others are rewarded for that behavior. This is a self-regulating pressure on all demand. Everyone is making a similar income, so each consumer must balance their more extravagant purchases with other less extravagant ones, according to his or her own preferences.

Products. Products are desirables that are the result of labor. Canned vegetables, copper wire, and lumber are examples of products that exist because of labor applied to land, natural resources, or other products.

Currently, products are purchased with currency, in the pursuit of profits. They can also include intellectual property.

In the proposed economy, products are purchased at equilibrium price. From that comes payment for the person-hours required to produce them, the exact cost in person-hours of the inputs to the products, plus any excess that makes up the equilibrium price. That excess is distributed to all of society as previously explained.

Consider a lumber supplier. He must purchase an inventory of logs, apply labor to them by cutting them into two-by-fours, and then sell the resulting lumber. Anyone buying the lumber will pay a competitive, supply/demand equilibrium price, just as happens now. Three things will come out of that price. First, the supplier’s initial purchase of logs must be covered. Second, his labor costs (in person-hours) must be covered. Third, that part of the supply/demand equilibrium price that was over and above the costs of production would be divided among everyone else in the population. It also functions as a feedback of inadequate supply.

If there are too many lumber producers, equilibrium pricing would dictate that the price would drop below cost, but with this model, they can only drop to “at cost”. That will make a lower price for some producers than others. As each producer’s sales diminish because of the glut of suppliers, eventually the worst performers would struggle enough to be forced to change jobs.

At this point, resources should get some special attention. In the current economy, buying land entitles one to any resources accessible from that land, thus making resources “part of land”. If I buy a plot of land and discover gold or oil underneath, I own those resources, and profit from their sale.

In the proposed economy, resources are essentially products, in that they enter the marketplace as a result of labor, and they are not part of land. For instance, I lease a plot of land as already discussed. I can then labor to mine any resources found there. Those resources can be put on the market like any other product, and sold for their own equilibrium price. I get reimbursed for my labor, person-hour for person-hour. The excess expenditure (the difference between the market price and my labor cost) is distributed to everyone as in all other purchases. I don’t own the resources nor profit from their sale.

Intellectual Property

Intellectual property is an extension of the exploitation of profiteering. Patents and copyrights are currently used to leverage more person-hours of reimbursement than the person-hours invested by the producer. They are essentially artificial constraints on supply. As such, they have no place in the new model. Patents also interfere with the improvement of processes. If farm company A and farm company B each come up with process improvements which they patent, then neither company can benefit from the combined use of both companies’ patents. Patents are for the benefit of each companies’ profits, and not for getting society the best possible or lowest cost products. This is not to say that there is no value in “giving credit where credit is due”. An ideal patent/copyright mechanism would serve the purpose of certifying one’s contribution or accomplishment for the sake of protecting and publicizing their reputation. The current patent mechanism is basically a license to exploit.

Among intellectual property are things that live in the digital domain like books, movies, and music recordings. These things are easily copied and are an example of the perfect commodity, where supply can be made to always match demand. For example, consider music albums. A performer spends a finite amount of time writing an album, more time of a finite amount recording that album, and a finite amount of time promoting that album. If those three values equal 1,000 person-hours, and if 1,000 people express interest in that album, then they can each expect to pay 1 person-hour for it. Later, if 1,000 more purchasers “buy” it, they pay 0.5 person-hours for it, but the payment goes to the accounts of each of the previous purchasers. The performer had already been paid in full, so each batch of future purchases goes toward leveling the original actual cost of the album (1,000 person-hours) across all purchasers of the album. As more and more people purchase the album, the price that all buyers have paid will remain equal and continually go down.

The Action

We currently have a capitalistic economy because we all are motivated by the same driving force: to have the most and the best of life at the least cost and effort possible. It’s doesn’t seem to make sense at first glance, but pursuing a “profitless free market” economy with equal exchange of person-hours is the MOST DIRECT PATH to that goal. The majority of the cost of living we are experiencing is because of how we are exploiting each other.

The beauty of switching to this model is that it doesn’t require government action to get started. Society can start the transition at a grassroots level, with only two initiatives. The first is the equating of all person-hours of labor, explicitly in the form of payment in person-hours. It’s reasonable to expect that if a handful of people walk out of their jobs when denied equal pay with the CEO, then those people will probably just be replaced, and everything will return to normal. But if a lot of people do it at the same time, then the world will come around and see that it isn’t a bad thing.

The second is the abolition of intellectual property. If a couple of companies or individuals ignore other companies’ patents and willfully start infringing, they will probably be taken to court and beaten in the manner that currently happens routinely today. But if enough companies do it, the system will be overwhelmed, and will become meaningless and silly. It is our own willful compliance with these mechanisms that gives them their credibility and power. If we all just started to disregard them, they would literally cease to exist.

There is no need for a march or a demonstration. Just do it, and get others to do it, too. If we all refuse dollars, and go on strike until we are paid in person-hours, the “dollar” will become irrelevant and worthless immediately. In the same moment, all the holdings of the extremely wealthy (which are stated in dollars) will become worthless as well. The extremely wealthy will suddenly become worth only as much as they can earn, which will be the same as everyone else. This looks a lot like an economic collapse, but really, it’s only the collapse of an exploitative institutional slavery. The person-hour could immediately replace the dollar, and commerce could resume.

Secondary Benefits

If person-hours were exchanged equally for person-hours, all wage discrimination would cease. Even with laws prohibiting wage discrimination, the subjectivity of different experience and education levels combined with individual wage negotiation currently makes it possible for camouflaged discrimination to persist. In the new model, discrimination would be impossible.

Specialization (thus trade) would be much more advantageous. At present, it’s worth it for an average do-it-yourselfer to attempt a bathroom remodel in spite of a lack of experience. Even if they break a couple of parts and have to re-do a couple of tasks, the do-it-yourselfer will still save money because of the profits charged by a vendor. In the proposed profitless model, the only concern will be whether travel costs of a vendor are less than the learning curve costs of the do-it-yourselfer, which will more often be the case.

In an equal person-hour economy, the quality of products would immediately increase. Commerce claims to be about “meeting the needs of consumers”, but the prime directive of capitalism is to maximize profits. This has devolved into a self-cannibalizing market of products with engineered obsolescence and built-in maintenance needs. It is designed specifically to transfer as much wealth (labor) as possible from the consumer to the proprietor. How well a need has actually been met is debatable.

The cost of living would immediately go down. This is somewhat a derivative of increasing product quality, but more a function of the new underlying prime directive of commerce: to reduce the amount of effort it costs to meet one’s needs. The current economic model seeks to increase the amount of effort customers make to acquire proprietors’ products/output, thereby increasing profits. With profits taken out of the equation, the de facto prime directive of the new model would be to always reduce the amount of effort expended by customers to meet their needs.

There would be no unemployment. Jobs aren’t “created” by entrepreneurs. Jobs exist because everyone generally needs to eat regularly and sleep indoors, and it takes labor to acquire food and a dwelling. In a more primitive society, everyone would be able to simply add themselves to the effort of hunting and gathering and farming. Similarly, in an economy where all labor hours are valued equally, each new member of society brings with it new labor, as well as demand for food, shelter, and clothing, thus trade. An argument can be made that unemployment is strictly a result of the exploitation of unequal person-hour exchange.

All stockpiled wealth like savings and retirement withholding would continuously appreciate in value. This may seem weird because we’re talking about simple, rudimentary person-hours and not some mysterious fiat currency. We have also done away with the concept of interest. It’s because all processes improve over time; shortcuts are found, or technology improves, reducing effort. Ultimately, the number of person-hours required to produce a pound of beef or a can of beans slowly but continuously decreases. The quality of life that ten person-hours will buy me now is lower than the quality of life it will buy me thirty years from now.

More production would become localized. As all inputs into commerce are expressed strictly in person-hours, transportation costs would make shipping advantageous only in specific circumstances. Local output would become more competitive.

Crime would hardly be worth the risk. In an equal person-hour economy, there will be little difference between the poorest and the richest, and no unemployment. Who would risk criminal punishment when they could easily be one of the richest people in the world just by showing up for work at practically any job?

Cleaner, more cost-effective energy sources would flourish. Energy generally cannot be done without, and the energy industry is wildly profitable. From the perspective of the profiteer, it is sound business policy for any entity in the energy industry to actively suppress any technology that represents a threat to their products. They certainly have the resources to do it effectively. Given that technological advances fall under “intellectual property”, such suppression is completely plausible. For all we know, clean, free energy could have been a reality decades ago.

There would be less war. It doesn’t take a lot of imagination to conclude that politics is an extension of business. If resources couldn’t be sold at a profit, there would be no value in fighting over them.

Conclusion

This is not a novel or inventive way of looking at the economy that one may or may not accept. It is the most accurate, most elemental way of looking at the economy.

In this model, no one gets an undeserved advantage. People only get paid for their hours of labor, and their hours are valued equivalently with everyone else’s. Anyone can increase their wealth in direct proportion to how much they are willing to work. It couldn’t be more fair.

Everyone also gets unearned income in the form of equilibrium price excess, which is distributed equally. No one will get anything for free that everyone else doesn’t also get.

Choosing to do something different is all that is required. If you are part of the 99%, doing this will give you a better standard of living for less labor.