So, now what?

In order to develop a financial system that is both stable and ensures fair distribution we should reconsider the way we create money and the way we tax inheritance of capital. Central banks might want to consider annually withdrawing an amount of ϴY’ minus a natural increase to compensate aggregated capital gain away from the financial markets by issuing riskless bonds to maintain a balanced amount of money in the financial markets relative to the aggregated value of assets. It could then estimate real growth based on labour volume and productivity increases and proportionally deposit an amount of gY on bank accounts of households and government as a gift to maintain price stability (preferably without inflation). Arguably, another part should be reinjected this way to cover for the drain of money from the real economy due to savings (ϴY’i). This way, the public sector can grow its level of consumption in line with economic growth without borrowing from the private sector, which yields to debt markets driven by natural dynamics (i.e. size and interest rates based on the time value of time and the chances on default).

Secondly, annualised inheritance tax rates on capital should be larger than the spread between capital return and nominal growth, such that inherited capital gradually transfers to public ownership over generations. Preferably, inheritance tax is paid in kind, such that the public sector is increasingly exposed to return from capital and public wealth is protected against inflation.

These measures yield dynamics that will drive the financial sector into a sustainable situation with converging inequality, whilst maintaining the incentives for entrepreneurship that currently work so well in capitalism-based economies.