Below is a visual summary of the main binary mechanism which can be used to provide a gentle but powerful solution to the global financial and environmental crisis. It will prove helpful to
study the diagram for a few minutes.

NB The banking system is gradually stopped (by a gradual rise to 100% banking reserves) from continually creating money out of nothing.
Instead it lends its own capital and (with permission) the deposits of
customers, and such lending may be at interest. As the banking system’s
money creation is stopped, a supply of national bank-issued
interest-free loans (administered by the banking system) is opened up
with the supply being directed at the development and spreading of
productive (and the associated consuming) capacity. In effect, there
will be two interest rates – a zero rate for binary purposes (but with
adminstration cost) and the other for the rest of the economy.

Please also notice that, by using the banking reserves mechanism, the national bank has a macro tool in addition to that of interest rates to control
the total volume of money in the economy..

A good understanding of binary economics can be obtained by contrasting various aspects with comparable aspects in conventional economics (especially mainstream
neoclassical economics). The first contrast is that mainstream
neoclassical economics claims to be primarily a positive
economics (i.e., an analysis of ‘what is’) whereas binary economics is
considered (by mainstream neoclassical economists) to be primarily a normative
economics (proposing an economic system that ‘ought to be’). However,
as compared to mainstream neoclassical economics, binary economics
undoubtedly has a superior account of physical reality (i.e., of what
is) − particularly in its analysis (of who or what creates the wealth)
called productiveness. Binary economics is therefore both a
highly positive economics and a highly normative one.

Secondly, in its physical analysis of who or what creates the wealth mainstream neoclassical economics upholds the concept of conventional productivity
(generally labour productivity giving virtually all the
credit to labour) while, in complete contrast, binary economics has the
new concept of binary productiveness giving fair credit to the
contributions of both labour and capital. The binary
productiveness analysis, as an understanding of physical reality, is far
superior to the labour productivity analysis of mainstream neoclassical
productivity.

Then, thirdly, conventional mainstream neoclassical economics believes that interest (as distinct from administration cost) is always necessary.
However, binary economics, again in complete contrast, states that,
certainly where the development and spreading of productive (and the
associated purchasing) capacity is concerned, interest
(as distinct from administration cost) is not necessary.

Fourthly, for newly-created money, conventional economics upholds the doctrine of the time value of money whereas binary economics, noticing that money
is created out of nothing by the banking system, denies the time value
doctrine. Consequently, binary economics rejects conventional financial
savings doctrine (that there must be financial savings prior to
investment): this is because no financial saving is necessary if money
can be created out of nothing. Indeed, what matters is whether the
newly-created money is interest-free, whether it can be repaid, whether
there is effective collateral and whether it goes towards the
development and spreading of various forms of productive (and the
associated purchasing) capacity.

Furthermore, an assumption of general scarcity is at the heart of conventional economics. Binary economics, however, denies the assumption. As Amartya Sen has shown,
starvation is primarily due to lack of money in the hands of the
starving and not the general absence of food: thus it is human
attitudes, practice and institutions which are at fault.

The contrast continues. Thus conventional economics:-

But binary economics views it as essential that:-

• the money supply be directed at the development and spreading of productive (and the associated purchasing) capacity
• the money supply be not inflationary, indeed, should be counter-inflationary
• recognition be made that humans are capable of going beyond self-interest
• ethics and belief in God be upheld
• account be taken of the imbalance in power relationships between people

Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a ‘free market’ which is free, fair and efficient. Binary economics
states that the present ‘free market’ is unfree, unfair
and inefficient not least because the ‘free market’ thinks it
does not matter who owns productive capital and how it is distributed
and does not worry if people do not have independent incomes.

Trisakti University