A new approach to macroeconomics...
Buddha Banking aims to contribute to a sustainable financial system that includes fair distribution of wealth between social classes, nations and generations. We built an alternative macroeconomic framework using techniques from financial accounting and corporate finance and some common sense. We like mathematics more than arguments; we want to be fact-based and verifiable.
...that uses time to value,...
Production - Like classical economists we believe that labour (useful human time) is the only source of value and therefore we consider labour the only production factor in the real economy. This approach excludes “capital” as a separate production factor because it refers to “capital goods”, which equal to consumption goods are gradually created through the value chain exclusively by labour that transfers energy and matter (i.e. natural resources) that are freely available to humanity into useful goods. This view enables us to denote the aggregated production costs of all capital goods, consumption goods and (obviously) services in a closed economy in terms of human time instead of monetary value. The value of natural resources then is the value they carry in a final useful state (either a consumption good or a capital good) minus the investment of human time required to get there.
Consumption – Consumption of value occurs in two ways. Firstly, people consume goods (consumption of stored labour from the past) and services (instant consumption of labour). Secondly, people consume the opportunity costs of their own labour potential whenever they are not working (consuming leisure time).
Time valuation and the time value of time - In analogy with the “time value of money” we introduce the “time value of time” that states that present time is more valuable for humans than future time, which we use to discount future human time to derive the net present value of a closed economy in terms of human time instead of monetary value. It appears that there is an optimal fraction of labour that people can invest in the creation and maintenance of capital goods that maximizes the value of a closed economy.
Time accounting - Finally we show how to account for human time by introducing the aggregated time statements of a closed economy (in analogy with the financial statements of a company).
Time dividend - Time accounting and time valuation show that if the people in a closed economy invest part of their labour capacity in the creation of capital goods they will increase their future labour productivity which they can use to improve their future “quality of life”, either by reinvesting time in more future consumption of goods and services (real economic growth) or by consuming more future leisure time (time dividend).
...money to share...
Aggregated time flows and the natural dynamics of economies - Finance is humanity’s big ledger with a purpose to account for all transactions between people in the real economy to keep track of all claims they have on each other and on (semi-finished) goods, raw materials and natural resources. Since we can now denote both the costs and value of all goods and services in terms of human time we can see that money in the financial system is the equivalent of human time in the real economy. All transactions in the economy are an exchange between human time and money and jointly generate both aggregated cash flows and aggregated (human) time flows that move in opposite directions.
We relate time valuation and time accounting to asset pricing, micro- and macroeconomics to assess how well our current economic theories and practices align with what we believe are the natural dynamics of economies.
Valuation - Based on these analyses we argue that the “risk-free rate” that is commonly used in asset pricing reflects the weighted average of individual “time values of time” of investors and is not the return investors demand on a riskless asset. The individuality of the risk-free rate is not included in common asset pricing models like the Capital Asset Pricing Model (CAPM).
Accounting - Like stock flow consistent modelling we use the principles of bookkeeping and financial accounting to consolidate the financial statements of all companies and financial institutions (jointly referred to as the private sector) in a fictive closed economy which we use to derive the budget constraint of all households and governments (jointly referred to as the public sector). This way, we reveal among other things that the way most western economies create money (fractional reserve banking) is a fundamental driver of financial instability and ever-increasing inequality. We provide some guidance on how we might be able to fix this.
...and is freely available
Our theories and insights are summarized on this website. An abstract (What did we do?, 2 pages), summary (What are our findings?, 11 pages), complete theory (How did we get there?, ~100 pages) and a spreadsheet that models 500 years of a closed economy are all available at the "Downloads" page. Please send a message if you download documents. We welcome any comments and reactions you might have. Just submit a message on this website or send an email to info@buddhabanking.com. We do not claim to be right; we're just learning.
