3.1.2.2.5 Working Capital
Socialism will organize an entirely new form of production. At the same time, privately owned enterprises will continue to operate according to the principles of the capitalist market form of the economy as they do today.
The commune will have common funds realized by exchanging money from the inhabitants with the past labour points and taxes. In this way, the commune can accumulate significantly more money than is needed for the population’s spending in the accounting period. The surplus of funds represents the monetary accumulation of the commune. From that monetary fund, the commune must keep a certain financial reserve to cover possible investment disturbances, then to cover damages caused by natural or other disasters. With these funds, the commune ensures itself. The rest of the money will be used as the working capital of the public company of the commune.
Working capital is the accumulated means of past labour of producers and serves as a means of payment to other producers for products, semi-finished products, and raw materials that the commune’s economy processes in its production processes.
Socialism can allocate working capital to its economy without interest, provided that the economy repays the borrowed money in the settlement period. In reality, the commune is becoming something like a corporation, and companies do not charge themselves for working capital. Therefore, the commune would have no interest in charging loans to itself.
In the capitalist system, producers and consumers who do not have cash take out loans to buy goods. Loans burden the price of goods with interest determined by the market based on supply and demand. Interest requires a higher return on money than borrowed. On the one hand, it is a form of exploitation of people unacceptable in socialism. On the other hand, money intended for interest does not exist in circulation, so it must be created to enable the return of borrowed money with interest. Interest does not contribute to the production of value in society, so it is not rational and, at the same time, brings problems to the monetary policy.
Interest-free lending does not increase the cost of production and eliminates the exploitation of society. If the commune can credit production without interest, then the economy may, according to its possibilities, postpone the collection of the payments for its goods with interest-free loans. When the commune grants loans without interest, private creditors would no longer be able to make money by borrowing money, thus reducing the use of interest as a form of rent. It is important to note that interest rates will not be abolished. They will exist as long as necessary, but the commune will form such credit policy conditions, discouraging interest in borrowed money.
In the western world, interest rates are already low today because only a slight increase in interest rates may lead to business difficulties that can cause bankruptcies. An additional reduction in interest rates would practically abolish interest rates and rent-seeking on borrowed money. A further reduction in interest rates is, in fact, the end of capitalism.
With the disappearance of interest, banks would lose their function of earning rent based on accumulated money. They would no longer be profitable enterprises but could perform the role of individual and social bookkeeping of the monetary transactions in the community. Aided by computer technology, banks may keep records of earnings and expenditures of the population and companies of the commune.
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However, interest can contribute to the efficiency of the economy. A more extended loan repayment period increases the amount of money paid for interest, so it is in the interest of loan users to repay loans as soon as possible.
By introducing a system of non-interest-bearing loans, it will be necessary to set up a new method of monetary distribution that will, in trading and financial terms, be as efficient as the interest lending of capitalism. Since the quantity of working capital is limited, it may happen that such money will not be sufficient to cover the needs of all beneficiaries. In this regard, the working capital needs to be distributed among the beneficiaries in the function of turnover time, which may be presented in the following formula:
The working capital beneficiary who repays the borrowed money in a shorter time will realize a more significant C-of working capital. Therefore, all larger working capital coefficients will ensure non-interest-bearing credit financing by the commune, irrespective of the quantity of the assets claimed, as long as the working capital fund shall have become exhausted.
The system predicts a higher chance of getting money to the economy that envisages a shorter turnover time of commodities. This is understandable because the money repayment is faster and can be again used for lending. Production that finds its spending in the payment period of one month will be able to use working capital with the help of the described distribution system because it returns them practically immediately.
The economy, collectively owned by the commune’s population, uses the commune’s working capital according to its needs. It is bound to repay the borrowed amount of money within the accounting period. The economy can return the working capital provided if it produces commodities the society needs and gets paid for it. In case of failure, the producers will not make enough money. If profit is greater than the amount of working capital spent, companies are still operating relatively positively because they can return working capital. On the other hand, low profit in the accounting period will reduce workers’ income.
If the realized profit falls below the amount of used working capital, the enterprise then registers a loss in working capital. Toleration of such a situation would reduce the amount of working capital in the commune’s money fund, and producers would have difficulties renewing production. No economic system can tolerate financial indiscipline, so neither can socialism. Therefore, the commune will introduce measures for bearing the responsibility of workers. In socialism, all workers are accountable when companies lose money and compensate for such losses collectively through past labour points they possess.
Companies’ production intended for unknown consumers need not be placed immediately on the market. In that case, the turnover of commodities may last longer than the one-month accounting period, and the enterprise may realize less profit than the working capital amount spent in the accounting period. However, as each company operates continuously, it can make the necessary profit and ensure the return of working capital based on the collection of manufactured goods from a previous production period.
The responsibility of workers needs to be taken independently of cyclic oscillations of profits. Over the course of one year, each enterprise takes the working capital as many times as it needs and repays it after realizing a profit on the market. Suppose such an enterprise fails to repay the entire working capital within one year. The difference between the borrowed and refunded assets shall be subtracted from the past labour points of all workers, proportionately to the coefficient of their responsibility. If an enterprise loses money, workers’ higher coefficient of responsibility will bring a more significant loss of past labour points and a lower income. And vice-versa, a lower coefficient of workers’ responsibility, in this case, will bring along a minor loss of the past labour points and a smaller decline in the level of income. The initiator of the wrong borrow decision will also be sanctioned by workers’ negative evaluations and special commissions. In this way, borrowing money involves a great responsibility of the whole collective, which is a precondition for productive production. The technique of adding and taking past labour points is presented in detail in the chapter: “The Development of Economy.”
Non-realization of the envisaged profit due to natural catastrophes such as earthquakes, floods, and fires need not be considered as lousy productivity of the economy. The commune’s reserve money fund would cover such losses.
The working capital in the commune’s reserve fund is always limited, and it may happen that some producers do not get the necessary working capital. The economy can’t produce without working capital, and such plants would need to be closed. For such cases, the commune envisages a reserve source from the development of the economy where working capital may be allocated. If neither of these are possible, they can seek it from private banks with the market interest rate.
However, as the working capital of the commune will be distributed interest-free, the demand for interest-bearing loans will fall, and the holders of accumulated money will have difficulty earning a commission. Then the owners of the funds will be more interested in exchanging them for past work points, enabling the commune to possess money for interest-free lending to the economy and consumers. That will strengthen the socialist economy
It is worth saying that irrespective of the extent to which the economy will be associated, the market economy will never be insensitive to oscillations in trends. By tightening the requirements concerning risk-bearing that will result from the work competition, the failures of producers may be markedly inconvenient. In this regard, producers will have to seek a higher degree of certainty in doing business and find it in the production for the known consumers.
The associated producers will question consumers’ needs and gradually organize production on their order. The economy can successfully manage production with known spending, and labour competition will enable the most successful work performance. It should be emphasized that such economic production of goods will occur less and less in the market economy and more and more in the planned economy.
