It is not MC2 though this has led to much scientific progress though perhaps not always cultural progress or an enhanced civilization.

The worlds more important formula is from a more lowly, some call it the dismal science, or economics.

Mathematics is generally thought of as the Queen of the Sciences and so economics is generally placed somewhere below this as befitting perhaps a discpline that is incapable of anything truly discriptive let alone predictive or prescriptive.

Most people with a passing familiarity with business or economics is has seen the E = A - L or Equity equals Assets minus Liabilities formulae. It has not received the attention it deserves because the implications that flow from it have not been appreciated.

If we modify it slightly the importance of the E = A - L equation can be better appreciated.

(S/L)1

Where S is sustainability and L is Liabilities and 1 is a constant. In other words sustainability is inversely proportional to the liabilities in a system. We can now write our expression as

(S/L)1 E = A - L

 As liabilities increase whether relative to assets or absolutely the sustainability of a system declines. So even if assets increase so long as the liabilities within the system increases sustainability suffers.

A person may have a million dollars worth of assets but if his liabilities go from $100,000 to $200,000 his risk of default increases even if his assets increased proportionately more simply because assets can lose their value and future choices can be less well rewarded. In other words assets can disappear whilst debt is far more resilient.

Sustainability requires we increase assets but not liabilities and so the common misconception that it is ok to go into debt so long as the purchase pays for the interest is based on a self-serving conception about what ‘pays for itself’ means. There is a line of thinking that equates delayed gratification as a cost. Borrowing to obtain consumer goods gives the purchaser the benefit of the use. According to this thinking it pays to borrow money for a car because one gets to use the car rather than having to wait.

This line of reasoning fails to recognize that for the duration of the debt the buyer forgoes the money used for the car payment, the insurance and maintenance payments and ultimately the depreciation of the vehicle. The benefit without any corresponding loss, accrues to the seller who sells the car though the buyer cannot in reality afford to purchase it.

An economy based on debt must continuously seek new ways to create debt and new areas in which to nurture it. At one time the nation or more correctly the king, borrowed to finance wars sometimes based on the assumption of the booty the victory would bring. Then commercial debt became more common as shippers borrowed money to finance caravans and shipping. Only in very recent times has pesonal debt become common.

During these same period the types of debt multiplied. Debt has become such an integral part of the economy it is next to impossible to say what money is and how much of it is in the form of debt. However we do know that debt will by the necessity inbuilt into the system by interest payments, continue to climb until collapse and that if debt is repaid the economy will collapse as a result of the reduced Demand brought on by the reduction in the money supply

This is why Rational Exchange advocates a cooperative monetary system. It is the only way that a community can have ready access to the money it needs without creating debt.



The Worlds Most Important Formulae