Proutist Economics

This chapter presents the basic economic principles required to move from a profit-based to a consumption-based economy. A consumption-based economy is premised on the belief that the opportunity to meet one’s basic needs should be guaranteed to all the members of a society.

Section One:
Production for Human Needs and Maximum Utilization

The capitalist socio-economic system is based on the motivation of the individual for financial profit. In the pursuit of profit, human beings are treated as capital input, equal to land and equipment. According to PROUT, such a system is the exact opposite of what a socio-economy should be. We hold that meeting the needs of human beings is the reason that economies exist.

Treating people as just another form of capital has allowed for great social injustice and exploitation. Today many hard working people face the loss of their jobs as companies under pressure to increase profit margins look towards downsizing as an easy way to cut costs. Many more people remain chronically unemployed and underemployed due to lack of jobs. For the majority of jobs, related purchasing capacity continues to decrease.

In the capitalist system, production, distribution, and regulation take place through the so-called "free market" mechanism. Consumers are free to purchase or not to purchase goods, and the ensuing
competition between uncoordinated manufacturers allegedly ensures high quality goods and low prices. Those goods which do not serve the perceived needs of the society are not bought and since the manufacturer cannot make a profit on them, production of such goods ceases. In effect, this is seen as the consumer directing the manufacturer as to which goods to produce and which not to. However, this is not the whole story. The endless quest for higher profits has led to the creation of psychologically sophisticated methods for the creation of artificial markets for unnecessary or even harmful goods and services. Through the sheer force of advertisement campaigns, markets are created and sustained for items such as cigarettes, junk foods, superficial entertainment, and a million and one superfluous items and brand names. As long as profits are the basis for production, businesses will always devise new methods for increasing the demand for products. Even if the products are environmentally or socially harmful, this will not matter, so long as it remains profitable to produce them.

Though advocates of capitalism may stress that the existing economy is neither centralized nor planned, in reality the high concentration of economic power in the hands of a few big corporations, individuals, and banks - and they truly are few in number - leads to a centralization which, though less overt than in the communist nations, is virtually absolute. Only a handful of corporations control all major industries, including military technology, energy, real estate, banking, food, and health care. Even political leaders must have their campaigns paid for by the corporate elite.

Highly sophisticated financial control mechanisms have been put in place in today's "free market" economy to increase profits and wealth for the few, while diminishing living standards and destroying self-reliance and local ownership of resources. This is witnessed in the great imbalance of consumption. Today only 20% of the population consumes 80% of the goods and services, leaving only crumbs for 80% of humanity. So too, the concentration of wealth within the fortunate 20% has been dramatically increasing while the purchasing power of the middle class and lower class has generally deteriorated. It is estimated that close to 50% of the wealth in the United States is owned by less than 1% of the population.

In the northern industrialized nations, there remains some semblance of economic self-determination and a few restrictions upon multinational corporate activity, but the poverty and disparity of wealth in the developing nations is truly pitiful.

Today the corporate elite, through institutions like the World Trade Organization, the OECD, the World Bank, and by direct interventions of multinational corporations, seek to bring all local economies under their control. They want to make it illegal for governments to control their activity in the interest of local people. In essence, they want to bind local people to a global economy that exploits their labor and local resources and makes them subservient to the decisions of distant economic masters. Fast Track and NAFTA in the United States, and the Multilateral Agreement on Investments (MAI) promoted by the OECD are geared to accomplish this end.

The primary economic goal of PROUT is to maximally utilize and rationally distribute the resources of the world. Maximum utilization means that the resources of the world should be harnessed in an efficient and progressive manner, with the sole motivation of meeting the needs of all human beings within the carrying capacity of the planetary eco-systems. This requires that local people plan their own economies and control their own resources. This is the only way to prevent economic exploitation and ensure environmental sustainability.

In this effort, PROUT does not take a technologically phobic attitude, rather it encourages constant scientific endeavor made in the spirit of general welfare and local self-reliance.

Section Two:
Rational Distribution: Guaranteed Minimum Necessities And Maximum Amenities

The most fundamental feature of the Proutist economic system is that the minimum necessities of life are to be guaranteed for all. In this age of rapid scientific advancement, it is irrational that some human beings should be deprived of their existential necessities while others amass great hoards of wealth. The determination of minimum necessities should be done in a progressive way; i.e. there must be continual adjustment of the definition of basic requirements depending upon the resources and scientific standard of the time and place. The minimum requirements are not to be handed out by the central government in a way similar to the current welfare system of liberal democratic countries. Rather, local planning should guarantee sufficient jobs to enable one to earn the required purchasing power. The guarantee of employment that provides sufficient earning power is essential to PROUT.
Only as a special contingency, or for those who are deemed mentally or physically disabled, could there be something resembling the welfare system of the liberal democratic countries.

In a Proutist framework, the people's purchasing capacity will be taken as the measure of economic advancement. In order to continually increase purchasing capacity, a number of factors are required. These include the guaranteed availability of basic goods and services, stable prices, progressive and periodic wage increases, and increasing collective wealth and productivity.

PROUT recognizes five minimum necessities of life. These are food, clothing, housing, medical care, and education. Supplemental requirements are the guaranteed availability of energy, transportation and water.

Presently, in the capitalistic countries, there is neither a guarantee of the basic requirements of life, nor is there a limit put on the wealth that an individual or corporate entity may accumulate. Insofar as physical resources are finite in nature, this creates an increasing divide between the haves and the have-nots.

Under a Proutist system the basic necessities are guaranteed to all. This is the bottom line of a Proutist economy. To accomplish this, PROUT recommends that there be a cap on the amount of earnings by an individual or corporate entity. Some have suggested that the ratio between the highest and the lowest paid members of a society be 10:1. By tying these two incomes together, society will work to raise the living standards of its poorest members, and guarantee them more of life's amenities as the collective wealth of society increases.

PROUT holds that the more meritorious, skillful, or service-oriented people ought to receive greater remuneration than the average worker. This will encourage people to do better and develop themselves and their skills. Meritorious people will earn more than common people, and this earning will include their maximum amenities. Amenities include goods and services which increase one's living standard and quality of life.

Common people should also be provided with more and more natural amenities to make their lives easier. While there will always be a gap between the maximum amenities of the common people and the maximum amenities of the meritorious, there should nonetheless be a constant effort to reduce this gap. If the maximum amenities of meritorious people become excessively high, then the minimum requirements of common people should be immediately increased. For example, if a person with special qualities has a motor bike and an ordinary person has a bicycle, there is a balanced adjustment. But if the person with special qualities has a car, then we should immediately try to provide the common people with motor bikes.

What constitutes both the minimum requirements and the maximum amenities should be ever increasing so long as the needs of the environment are also accounted for. As the need for the minimum requirements is fulfilled and the supply of the maximum amenities increases, the struggle for daily subsistence will gradually decrease and people's lives will become easier and more enjoyable. For this reason PROUT guarantees the minimum requirements and the maximum amenities to all.

In the physical and psychic realms movement toward the satisfaction of human wants and needs should be never ending. But, insofar as everything in these realms is limited, the hunger of human beings will remain unsatisfied and we will always want more. This longing for more can only be completely satisfied in the spiritual realm. Only at the point of merger with the Absolute is human hunger fully satisfied. Thus, while the purpose of PROUT is to satisfy human hunger in the physical and psychic realms, we must remember that true progress lies in the movement from imperfection to perfection. To go beyond this psycho-physical world is to go beyond the realm of PROUT and to enter the world of intuitional or spiritual science.

Section Three:
Economic Democracy

In most of the world today people have come to think of democracy as being the best system of government. But what exactly do we mean by democracy? Generally, people think of democracy as meaning the enfranchisement of the masses. It means a political system that allows all of its citizens the right to elect political representatives who look after their interests. True democracy encompasses much more than this however. In order to have genuine self-determination and economic security, the concept of democracy must be expanded to include "economic democracy."

Certainly it is true that political democracy has given people the right to vote. But what is the practical use of this right? In some democratic countries, such as the United States, many voters have become so disillusioned with the choices offered to them that they do not even bother to vote. Many who choose to vote, do not study the issues involved but base their vote on a candidate’s political affiliation, the effectiveness of their advertising, or other issues which ought to be peripheral to the selection of the best candidate. Due to financial and political interests, the media is often ineffective in its portrayal of issues that have the greatest impact on people. Thus, in most instances, political democracy creates the illusion in people that they do indeed have a say in their own future, while the real power continues to lie with the wealthy and powerful, who have a vested interest in seeing that their interests are served at the expense of the great majority. The choice Americans typically make between the two main political parties is a choice between two parties serving the same masters. Having put one or the other party in power, people then sit back in dismay as they watch decisions which affect them and their livelihood made against their best interests. Or if some action is taken on behalf of the majority, the allocation of funds is never enough to change conditions or alter the distribution of wealth.

The underlying idea of economic democracy is that humans should not be exploited by those who are in control of capital. On the political level, democracy may mean a certain degree of choice and freedom; but on the economic level little has changed since the days of feudalism. Workers are still forced by necessity to provide their labor to those controlling capital resources. Their only right is to quit. Although they do the work, they have little or no say in managerial affairs and rarely receive a share of profit. Those with capital are able to compel others into a sort of bondage by force of circumstances - and this is accepted as natural. Allegedly the controlling mechanism is again the free market system, which is supposed to guarantee sufficient competition between employers that they are compelled to make jobs appealing. The reality for many workers is quite different, as they are increasingly compelled to work on others' terms - if at all - even in the industrialized nations.

According to PROUT, one has an intrinsic right to the fruit of one’s labor, and an intrinsic right in managing the products of his or her actions. To accomplish this, PROUT recognizes the need for a decentralized economy based upon cooperative management as far as is possible and practical. These concepts will be further discussed in subsequent sections and chapters.

Economic democracy entails the planning of economic development in a particular region by the people of that region. This type of democracy represents a truer freedom than the high sounding but ultimately ineffectual and incomplete political democracy. Political democracy without economic democracy becomes less meaningful as purchasing power is drained from working people to fill the already overflowing coffers of those few with capital.

For economic democracy to come about, four requirements must be fulfilled. The economic ideas of PROUT are geared toward meeting these requirements.

The first of these is that there must be a guarantee that the minimum requirements of a certain time and place are available to everyone, as discussed in the previous section. This will increase the all-round welfare of a society by removing existential fear.

Secondly, people must have increasing capacity to purchase goods and services. Their incomes must be constantly rising. In order to achieve this in an economic democracy, the raw materials and other assets of a particular region ought to stay in that region for purposes of refinement and manufacturing. As improvements in production occur and new, more efficient uses for resources are developed, the benefits should accrue to the local inhabitants rather than to outsiders. Such advances will increase the standard of living rather than making select individuals wealthy. Such a system will help to bring about full employment and raise the standard of living in a region.

The third requirement for the establishment of economic democracy is that local people must have the right to make all decisions in regards to the local economy (that is, the creation of a decentralized economy as discussed in the next section).

Finally, the fourth criteria is that all outsiders must be prevented from interfering in the business of the local economy. Ideally there will not be outside ownership. Such a restriction will serve to stem the outflow of local capital, so that those living near a source of raw materials will be the rightful beneficiaries and also the rightful stewards of that wealth.

Section Four:
Economic Decentralization and Socio-Economic Units

For accomplishing its economic ideals, PROUT advocates an economic system based on decentralization. In a capitalistic system, the quest for profit directs the economic activity. In PROUT, the meeting of human needs is the underlying goal. Production based on this goal is best accomplished in a decentralized manner. Decentralization is the direct expression of economic democracy, insofar as local control of resources allows the best means to achieve maximum utilization and rational distribution of those resources. Conversely, centralization is the direct expression of capitalism because it allows maximum control of local resources by the capitalists.

Decentralization is also required for sustainability, because in this system the local people become responsible for the stewardship of resources. This is completely different from the current system, wherein profits are often made at the cost of social and environmental degradation. Under PROUT, resources are protected and enhanced because the standard of living of the local people is directly dependent upon it.

In order to accomplish decentralization, PROUT seeks to formulate "units of economic self-sufficiency," or socio-economic units. The formation of such a unit would be the decision of local people. Such a decision would be based upon such factors as common economic and social problems, common geographic potentialities and problems, common cultural legacy and language etc. Cultural and ethnic factors are quite relative, and they may or may not be helpful in establishing economic divisions. More to the point is that there should be a sentiment for cooperation among the local people to meet the common goal of economic self-reliance. Local people are those who have merged their economic interests in a particular region. Anyone may settle in any socio-economic unit. Current political bodies (countries, federations, states, etc.) may contain one or several socio-economic units.

For planning purposes, each socio-economic unit is further divided into "blocks," based upon economic, geographic and population considerations. The goal of a decentralized economy is to make each block (perhaps one to two hundred thousand people) self-reliant.

One of the major defects of capitalism is the drainage of capital from local areas and its concentration into few hands outside the control of local government. A company owned in New York may have a parasitic relationship with the economy of the Haitian countryside, thwarting the economic progress of the locals. Resources taken from under-developed areas are extracted at low cost and used to benefit capitalists elsewhere. Centralized economies also lead to high industrial and urban concentration. In a decentralized economy, there is no such problem of industrial concentration and excessive urban growth, or the problem of a growing migrant labor population. There is local control of resources and capital, and opportunity for every locality to develop its socio-economic potential. Each area strives for self-sufficiency and maximum development in all sectors of the economy with due regard for protecting the natural environment. Each is free to develop its own economic plan and methods of implementation.

Guiding Principles of Economic Decentralization

PROUT proposes five guiding principles for economic decentralization. These are:

1) There should be local control of resources. This is especially necessary for those resources that are involved in the production of the basic necessities. Raw materials must be utilized as close to their source as possible for maximum efficiency, sustainability and benefit to the local people.

2) Production is need-based, driven by consumption rather than profit. Commodities should be produced primarily for the local market to prevent the outflow of capital. The socio-economic unit should be of sufficient size to create stability in the local markets and economy in general.

3) Production and distribution should be organized mainly through cooperatives. Cooperatives are largely incapable of competing in a centralized, capitalist environment. With a decentralized economy, however, the cooperative system will provide the means to ensure that everyone at the local level has employment and decision making power in the economy. This is a critical component of economic democracy.

4) There should be local employment in local economic enterprises. This is contingent upon strong local education so that skilled people are available in all fields. Cooperatives can play a role in this process by providing on-going educational opportunities for their members as well as opportunities for implementing this knowledge. This also ensures that very talented people can be properly utilized and will not succumb to "brain drain," moving to more developed and affluent areas as is happening all over the world today. Many of the most skilled and talented move from rural areas to urban ones, and from the developing nations to the developed.

5) As far as possible, commodities pertaining to the basic necessities which are not locally produced, should be removed from the local markets. It is essential to the development of local production that this rule be applied. Initially, people may have to accept lower quality goods, higher prices, or less availability, but with proper development in accordance with the desires of a population, good results can be achieved by retaining capital within an economic unit. If there is enthusiasm and pride in locally produced goods, this process will proceed very well.

Section Five:
Trade

Under PROUT, the issue of trade must be carefully considered. Guidelines should exist so that trade is beneficial to all parties concerned and to the economy as a whole. In an economic democracy, resources are considered the property of the people of that socio-economic unit. Furthermore, one of the maxims of economic decentralization is that refinement and manufacturing should take place as close to the source of raw materials as possible. Hence, the export of raw materials is considered inappropriate in such an economic framework. An exporting socio-economic unit would lose valuable opportunities for the creation of new jobs and economic vitality. Often, economies which depend upon the export of raw materials are economically underdeveloped and have a low standard of living. Depending upon the nature of the raw materials, the importing socio-economic unit might run the risk of overemphasis on industry; or if food is involved, it may harm the socio-economic unit's ability to become agriculturally self-sufficient. Generally, such kind of trade is not conducive to economic decentralization or to a balanced economy (see next section).

However, when a socio-economic unit has insufficient raw materials to meet the minimum requirements of its populace, the importation of raw materials may be allowed. It should be carefully verified that the imported raw materials are indeed surplus to the socio-economic unit of origin.

Once a local economy is able to meet the basic needs of its people, finished goods which are not and cannot easily be produced should be allowed to enter an economic unit. Care should be taken, however, that they do not undermine the market for local goods. It is good if such kind of trade takes place through barter.

As an infrastructure develops for the exchange of manufactured goods, the free trade of surplus, finished goods between fully self-sufficient socio-economic units should be encouraged. This will help to facilitate prosperity and socio-economic parity amongst units. As this occurs, socio-economic units may begin to merge. This is a positive development if decentralized production and economic democracy are not jeopardized. One final and important point should be made in this matter. In order to avoid the emergence of a class of rich traders and middlemen, transactions between socio-economic units should be conducted only through producer and consumer cooperatives.

It should be clear how this approach differs from the capitalistic notion of freedom of trade. In quest of higher profit margins, capitalists seek cheap raw materials and cheap labor while targeting markets for finished goods which can give high returns. This is beneficial neither to the people living near the raw materials (who do not reap the benefits of ownership and may simply be employed in low wage mining, agricultural, or other jobs) nor to the populace of the more affluent market, for employment opportunities decrease as industry moves to cheap labor areas. And it is only marginally better for the areas which provide the labor for manufacturing because labor conditions, wages, and benefits will be as low as the capitalists can get away with. It may or may not stimulate much local economic growth or raise the standard of living. Furthermore, tremendous energy is wasted in shipping goods and raw materials between the sites of origin, sites of manufacturing, and the final markets.

Section Six:
Balanced Economy

In PROUT, the need to have a balance between the agricultural and industrial sectors of the economy is emphasized. Each and every country needs to have a steady and reliable source of food, yet too often, especially in Western society, the agricultural sector tends to be overlooked in favor of the industrial. Over industrialization and urbanization have resulted in many social and environmental problems.

The idea of a balanced economy can be defined by the percentage of people employed in certain industries. PROUT suggests that the following percentages can serve as a guideline for a balanced economy: about 30 to 40 percent of the population should be employed in agriculture (this also includes extraction of natural resources); 20 percent in agrico-industry (i.e., pre-harvest industries serving agriculture such as the manufacture of farming tools and fertilizers); 20 percent in agro-industries (i.e., post harvest industries such as food processing, flour and cloth mills, paper mills, etc.); 10 percent in general trade and commerce; and 10 percent in intellectual and white collar jobs. Those involved in industry should be 20 to 30 percent, drawn from the agricultural sectors. The veracity of these general figures can only be determined by practical experience but they are based upon the following considerations.

If more than forty percent of the population depend directly on agriculture, there is a high probability of excess pressure on the land, and this generally indicates the existence of subsistence farming. It is unlikely that sophisticated farming methods will be used, and many farmers will not be able to earn adequate wages for subsistence. In general, the living standard will be low and such an economic unit will not be able to become highly developed. On the other hand, if too great a percentage of a unit’s population is employed in industry, that country becomes over-industrialized. Besides the social and environmental effects of over-industrialization, these countries will need to seek raw materials from underdeveloped areas in order to fuel their industries. A parasitic relationship develops and becomes necessary to maintain. The quest for cheap raw materials was largely responsible for the colonial expansion of the last centuries. This underlying arrangement continues to exist although its present form has changed.

Section Seven:
Three-Tiered Ownership

In accordance with the principles of economic democracy, it was mentioned in previous sections that cooperatives will be the mainstay of a Proutist system. In a decentralized economy, all industries, agriculture and services can be effectively managed in a cooperative way. This does not mean, however, that the cooperatives will own the local resources. Rather the public sector will have to control raw materials as well as certain key industries (industries upon which other industries are built) on behalf of the people as a whole. An example of a key industry is a public utility, an iron and steel mill, a mining operation etc.

Another area where cooperatives may not be efficient is in the small-scale private sector. In some instances, individual private initiatives may better foster economic efficiency and productivity. Family run restaurants or small retail shops, artistic or entrepreneurial ventures, independent research etc., are some examples.

Therefore, according to PROUT there is a three-tiered economic structure. It is composed of key industries controlled by the local government; cooperatives for industry, agriculture and service (including finance) and thirdly, small privately-owned and run enterprises.

Section Eight:
Planning and Development

Planning is essential for decentralized economic development. It is required to ensure the coordination of the production and distribution of goods and services, particularly, the basic necessities. Proutistic planning differs from communistic planning in several respects. In communism, central planning takes top priority, while local planning is only a reflection of the central planning. In PROUT, decentralized, block-level planning is the basis of the economy. This is called intra-block planning. Blocks (of approximately one or two hundred-thousand people) are divisions of socio-economic units. Planning will certainly occur on district, state, national and global levels, but bottom-up planning is the foundation. Each higher level of planning will involve the coordination of various blocks, districts, etc., rather than making decisions for the lower levels.

Since there are problems that traverse block boundaries and cannot be solved by one block alone (examples are flood control, river valley projects, communication systems, higher educational institutions, afforestation projects, the environmental impact of development, the establishment of key industries, soil erosion, water supply, power generation, the establishment of an organized market system, etc.), cooperation among blocks is necessary. Planning among blocks is called inter-block planning. Inter-block planning is an economic venture into selected fields to organize and harmonize socio-economic development in a few adjoining blocks through mutual coordination and cooperation.

In order to ensure a balance in economic planning, the following factors should be considered:

· The present demand and the demand of the near future.
· The present supply and that of the near future.
· Availability of the factors of production.
· Ensuring basic necessities of life through the application of the principles of PROUT.

As per PROUT, there are also four fundamental principles to ensure efficiency in planning

· The cost of production
· The productive potential of the economic unit
· The purchasing capacity of the unit
· The collective necessity.

Other considerations include natural resources, geographical features, climate, river systems, transportation, industrial potentialities, cultural heritage and social conditions.

Planning should be consistent with the overall goals of PROUT to achieve maximum utilization and rational distribution. Planning must be short term, keeping in mind long term goals and considerations. PROUT suggests six months as the ideal for short term and three years as the ideal of long term planning and projection. If planning reaches far into the future it will become impractical and will fail to adjust with scientific advancement and other unpredictable factors. But, if planning does not keep long term objectives in mind then it will be difficult to fulfill the economic necessities of an area.

Section Nine:
Quadri-Dimensional Economics

According to PROUT, there are four distinct parts to a developed economy, and hence four branches of the science of economics. This four-fold division of the economy is a feature unique to PROUT. The divisions are: 1) People’s economy, 2) Psycho-economy, 3) Commercial economy, and 4) General economy.

Of these, the people’s economy is given the most emphasis. This field of economics analyzes the lives of individuals in relation to the economy as a whole, including their living standard, purchasing capacity, and economic problems. The most important aspect of the people’s economy is ensuring the guarantee of minimum requirements for everyone. Aspects included under this heading are most aspects of the production, distribution, storage, marketing, pricing, etc., of consumable goods. Hence, the people’s economy deals with producing necessary goods and amenities and getting them to the people in a timely and useful fashion.

To meet the minimum requirements for all requires that everyone has a large enough purchasing capacity. Therefore, another aspect of people’s economy is ensuring employment for everyone. This includes the eradication of mass poverty, the development of rural economies, skill training and work placement programs. One further concern of people’s economy is assisting the development of both private and cooperative industries. This would include measures to help privately-owned enterprises which grow too large to develop cooperative management.

The psychic aspects of economic activity are addressed by psycho-economics and pertain to the psycho-economy. At the present time, economists pay little or no regard to this aspect of economics. Once the basic needs have been attained, the psycho-economy will take on a much more important role. This field covers the relation of psychology to economic activity.

There are two branches of study within psycho-economics. The first is the psychology of exploitation. It is concerned with the elimination of unjust and exploitative economic behaviors. This branch of economic research makes people aware of how capitalism creates demands that are ultimately dangerous to the development of human beings. The second branch of psycho-economics is concerned with nurturing the mental needs of the people and with finding creative solutions to economic problems. Production of goods which have more impact in the mental than physical sphere is also an aspect of this branch. The economics of ensuring wide distribution of, and access to, all sorts of information, entertainment, arts, and crafts is an important aspect of psycho-economics.

The last two sections of the quadri-dimensional economy are the commercial economy and the general economy. These two sectors roughly correspond to what is recognized today as the field of economics, and as such there is no need to deal with them at length here. The commercial economy looks at how to develop more efficient and scientific methods for the production of goods and their delivery into the people's hands. General economy includes the overall organization of the structure of industry and the coordination of all levels of the economy, the goal of which should be to satisfy the collective needs of the society.

Section Ten:
Economic Depressions

From the very beginning, the industrial economy has not been a smooth journey. Years of industrial expansion have consistently been followed by years of depression - the bull market by the bear market. What is at the root of this? Should it be accepted as natural and inherent in any economy, or is it related to a specific mode of production?

All phenomena, whether social or economic, undergo systaltic movement (see social movement). Hence, pause is a natural state in the economic life of a nation. However, depression is not a natural state. It results from a defective socio-economic philosophy and practice. According to PROUT, depression is the net result of suppression, oppression and repression i.e. exploitation.

First, we have to say that before the development of the modern industrial economy, there were no industrial depressions as such. The economy was, of course, much more geared to "production for subsistence" and less market-oriented. There were economic disasters but these were generally due to scarcity, famine or war. In contrast, the modern industrial economy produces depressions accompanied by surplus products. The problem here is that the working people lack the purchasing capacity to buy the produced goods because capital has become too highly concentrated in the hands of the capitalists who see no profitable opportunity to invest their money.

At the root of economic depressions is the inner contradiction of capitalism. Here industries seek to maximize profits while reducing costs, as well as maintain or increase their market share. But in order to increase their profits and decrease their costs, there is a constant pressure to increase efficiency and reduce labor costs. As the economy slows, people’s jobs are terminated. As the purchasing capacity of the workforce is undermined the consumption of goods decreases. In this way modern industry constantly cuts away at the branch on which it sits. Under such circumstances, the capitalists can only gamble on the stock market, centralize capital more through mergers and acquisitions or expand there markets in other countries. The net result of this approach is that profits do indeed rise while costs decrease. The problem is that it also results in a tremendous income gap between owners and workers. Ultimately depressions can be tracked to four causes: 1) great concentration of wealth, 2) blockages in the circulation of money, 3) curtailment in the purchasing power of people, and 4) monetary devaluation and the resulting inability of the unit of money to be the unit of economic stability.

Institutions and practices which support these factors become the instruments of exploitation and cause the death of a society.

These factors are not inevitable. They are not inherent by nature in every industrial economy. Rather we can say that the law of productivity is benign when its goal is to meet the needs of the people. Under PROUT, if efficiency increases production beyond the need, "downsizing" will mean reduced working hours at the same pay rather than layoffs. In a cooperative economy there may be no limit to increasing productivity, while maintaining full employment, so long as the carrying capacity of the resource base is not violated. This is because the goal of the economy would be a higher standard of living for all.