The second paper is entitled "Arguments For and Against ITQs. It was prepared by Dr. Carmine Gorga, Mr. Edward Lima, and Dr. Damon Cummings for presentation at the National Academy of Sciences Hearing on IFQs in Boston, Massachusetts on May 7, 1998. This paper is of basic importance to the local fisheries industries. The paper tries to spread knowledge about the fact that, while there are a few points in favor of ITQs, the bulk of the reasoning and evidence militates against the institution of ITQs. If ITQs are established, the social and economic composition of the industry is going to change drastically, and not necessarily for the better.

The third paper is entitled "The Dynamics of the Economic System." It was prepared by Carmine Gorga on October 1991. As it can be seen from the attached report (# 91297, 12/31/91), a referee for the Journal of Economic Theory found that the paper contains a "new analytic engine." The paper is important because, using that engine, we can develop the theoretical framework for an integration of the economics of the proposed surimi plant into the economy of the city as a whole.

If you go down to the Gloucester waterfront today, you can plainly see that the seafood industry is in a state of disorganization and despair. You see few fishing boats hailing out to sea to fish for cod, haddock, and flounder, the mainstay of the fleet, because, with the aim of increasing their stocks in the long run, fishing for these species is being drastically curtailed by the Federal Government. You see seafood plants that, due to the decreased catch, have been forced to close their gates. Upon consideration, you will quickly realize that wharf space left idle for a number of years naturally invites aspirations in the soul of the service industries to fill it with condominiums, motels, and retail outlets. Very few will disagree that if these aspirations become a reality, the soul of Gloucester -- a 370 year-old fishing port, the oldest fishing port in the United States -- will be inalterably changed.

What will you see thirty years from now? Even though they are combined now and will undoubtedly continue to be combined in the future, we would suggest that for clarity of perception we contrast two distinct visions of reality: (1) A dispirited people, paid low wages, hurriedly going about serving tourists in motels and retail outlets; (2) Or proud people, paid a living wage, working together with other people in modern ships and plants, producing valuable products, from seafood to biochemical products. Reduced to its bare essentials, the issue is whether we ought to create institutions that foster dependence and control over other people's lives or institutions that foster interdependence among self-reliant people.

Assuming the latter is our choice, how do we go about realizing this vision? Technically, the need is to find resources, natural and financial, in such quantity and of such quality as to allow this community to be in charge of its own destiny. The complexities of the situation stem from the intricacies and interrelationships among three topics that are indispensable for fisheries development: Conservation, Financing, and Organization.

Beyond all technical features, the main point of this article is the realization that to have true renewal of the fisheries, as distinguished from one or another specific development project within the fisheries, we need to have a thorough renewal of our economic policies and practices. As the discussion progresses, it will become apparent that the obstacles to economic growth are within ourselves. We will see that the need to find natural and financial resources is ultimately transformed into the challenge, simply expressed, to become more virtuous as citizens and to create institutions that help rather than hinder us in the practice of all our virtues. In sort, we are challenged to become "fishers of men," before we symbolically, and fishermen in reality, can once again become fishers of fish.

Let us explore the political environment first. You probably expect fishermen and fish processors to be the most prominent players in fisheries development today. And they are. But if they open their hearts to you, they will reveal that at the bottom of their trials lies the feeling that they are being led by strings that are not in their own hands. The strings, in fact, today are in the hands of environmentalists, whether or not armed with government regulations, and in the hands of national fiscal and monetary planners. This is a new political reality.

Traditionally, fishermen and fish processors in this country would have relied on engineers and accountants to have their business plans approved by the local bank and accepted by the community at large. No longer. Today, they will not go far unless they find ways to embrace the essential concerns of environmentalists and to adapt to the goals of national monetary planners. It is a relatively new story, a story common to nearly all economic development projects; and a relatively well-known story. During the last thirty to forty years, often at risk and peril to their own safety and fortune, environmentalists have saved us from environmental disaster, and financiers have saved us in trying moments from financial ruin. The environmental disasters that have been skirted are too well-known to be recounted here. Who can forget Love Canal? How many such dangers have we avoided? The chief financial disaster that was averted as recently as the late 80s is the danger of galloping inflation. The decisive actions of the Federal Reserve System put a stop to that. In brief, environmentalists and financiers have gained their present place in the sun because there were excesses in the past: Forests were -- and still are -- destroyed; financial resources that perhaps ought to have been more sparingly used were -- and still are -- unnecessarily squandered.

However, the pendulum now seems to have reached the end of its arc. A growing number of people no longer unquestionably accept the assumptions of environmentalists and financiers. Rather, they see those assumptions as creating, unwittingly perhaps, the first set of obstacles in the path of economic growth. The new concern, to be precise, is with environmental alarmists and apologists of the financial status quo. Largely because of opposition from these two groups, the country is littered with development projects that cannot take off. Right here in Gloucester, two major -- indeed pivotal -- projects have been blocked for years: A protein recovery plant and a fish farm out at sea. So many other projects hinge upon the existence of these two entities that both can now be considered as essential parts of a viable seafood industry infrastructure.

This political reality is not without consequences. Environmental alarmists are in danger of making us a nation of impotents, powerless to create the structures that we need. They are reducing many of us to automatons capable only of uttering such expressions as: No, No, Not In My Backyard (NIMBY). Apologists of the financial status quo are in danger of making us a nation of beggars, powerless to create the financial resources that we need. They are reducing us to automatons capable only of uttering such expressions as: Give Me Grants, Give me services, Lower my tax Burden. Does not the combined result of such actions produce a vacuum in our lives? Is not this vacuum necessarily filled with the growth of government intervention in human affairs beyond any tolerable bounds, and certainly beyond the imagination of the Founding Fathers? In short, are not these policies leading to social disintegration? Passivity reigns, until resignation prevails. In the meantime, anger accumulates.

Before catastrophe befalls us, let us be clear about the nature of the concerns of financial apologists and environmental alarmists. Their thought processes, interestingly enough, appear to be tightly joined at three key nodes: One is their apparent disregard for vital lessons of history, the second is their intolerance for risk, the third is their notion of scarcity of resources. These are issues too large to be adequately treated here. For the moment, it is sufficient to ask three questions: How many financial and environmental catastrophes predicted in the past have, in fact, occurred? Is it ever possible to build a risk-free society? Is it true that there is a constant scarcity of natural and financial resources?

Is there scarcity of natural resources? To accomplish their goals, environmental extremists often use alarm to frighten us and, unwittingly, to render us powerless. Specifically, in the fisheries, they paint ghastly pictures concerning potential irremediable damage to the stocks of wild fish, even their total extinction. And, since traditional fish stocks are indeed depleted, they conclude that there is nothing we can do but shut the fisheries down. Currently, that is the aim of some of the most talked about policies: Closure of fishing grounds, boat buyback arrangements, limited-entry programs, individual transferable quotas (ITQs). All is sugar-coated with the promise of rather massive federal aid -- as if federal aid meant something other than a transfer of money from taxpayer pockets. Curtly expressed, this is a defeatist program.

Our effort is to show that there is plenty we can do, and indeed must do, to keep the fisheries alive and vibrant -- at no cost to the taxpayer. The solutions start by meeting head on a problem of definition, proceed along the path of understanding the dynamics of fish stocks, and branch out into questions of financing and organization.

When we think of fish, we tend to think of individual species. But that, it turns out, is not a pragmatically viable definition. Fish do not exist as individual species separated from one another; rather they are part of the total marine biomass. And it is with the total marine biomass that we ought to be primarily concerned. To tackle the problems of any one species, in other words, we need a multi-species management plan.

Of course, there is plenty that we must do for each species of fish as well. First of all, we need reasonable conservation measures; then, depending on the specific species and the specific environment, we can think of reseeding the oceans with the assistance of hatcheries or removing obstacles in salmon runs. Yet, the pay-off lies in concentrating our efforts on the total biomass.

Anecdotal information yields always the same result. In periods of crisis, there is not a fish to be had. But is this condition permanent? Is one entitled to extrapolate future trends from this type of "research?" Long historical -- as distinguished from anecdotal -- statistical series, mathematical models, and biological theories clearly show that in nature we are faced not with stasis, but with dynamics.1 The dynamics of fish stocks is uniquely grasped with the assistance of a Predator-Prey Model developed in 1925 by Lotka and Volterra, respectively a mathematician and a biologist. Through this model, they explained the ebbs and flows of the sardine fishery in the Adriatic sea. The model is sketched, in simplified fashion, in Figure 1. The simplification consists in the elimination of the cycles in which both predators and prey either fall or rise together.

When overfishing of traditional species occurs, this model leads to the question: Who does the overfishing? Could it be that natural predators -- rather than, more than, fishermen -- do the overfishing? Whatever the specific answer to this question, it is evident that, while at present such traditional species as cod and haddock are depleted, the ocean is teeming with their natural predators: Dogfish, menhaden, mackerel, herring. We ought to focus our attention on these species. Once we do that, we switch our frame of reference from the relative scarcity of any one species to a framework of plenty -- or at least to the framework of "The Feast of the Enough." Within this mental framework, we say good riddance to powerlessness. Good riddance to retrenchment. Good riddance to the miasma of boat buyback programs, through which, as Ed Lima, the executive director of the Cape Ann Fishermen's Cooperative Association, says, "The owners go to Florida, and the crew goes to hell." If de-industrialization is not working within the rest of society, why would it work in the fisheries?

Powerlessness can be replaced with activity and with self-reliance.2 Under the leadership of Angela Sanfilippo, the current president of the Gloucester Fishermen's Wives Association, we will develop a 2020 Vision, a Vision for the year 2020 for the Port of Gloucester and gradually we will cooperate with the rest of New England. Then we will resolve the issue of sustainability for each species. Once the "maximum sustainable yield" is set and accepted by all participants in the process of fisheries management, we will focus on the marketability of abundant underutilized species.

There is much that can be done in the way of systematic effort to bring these species to market. New ways of advertising for them and preparing them for the table will be developed. School lunch programs will help introduce fresh underutilized species into the diet, and so will army lunch programs. But what else can be done to speed up the necessarily slow tempo of their market penetration? What else if not their indirect utilization? The indirect utilization of these renewable resources will be the result of two factors. One is technology; the other is financial resources. We will not insist on the technological issues, except to remark that our scientists and engineers are exposing us to an embarrassment of riches. We have many choices. Underutilized species can be transformed into such marketable products as surimi, fish oils, fish flour, fish food pellets, leather, biochemicals, and on and on. The bottleneck is not in the inventiveness of our scientists but in the obstacles unwittingly placed in the implementation of those ideas by over diligent environmentalists. By prolonging the process for obtaining all necessary permits, these environmentalists have a major impact on financing. Some projects, in periods of escalating costs, are dangerously delayed; others become so uncertain that start-up financial resources vanish.

Given the implementation of the two pivotal projects we have singled out earlier, namely a protein recovery plant and a fish farm out at sea, it is easy to sketch the overall picture. Underutilized species are reduced to fish food pellets that are fed to salmon raised in fish farms. Underutilized species are thus brought to market via salmon. The entire fish is utilized by producing biochemical by-products. No waste is tolerated.

We have never advocated nor are we advocating here a protein recovery plant or a fish farm at any cost. These and any other endeavor have to be environmentally sound. But the standard ought to be science, not ideology; knowledge, not hearsay; present possibilities, not memory of technologies that failed in the past. The old fish dehydration plant, for instance, was so malodorous at times as to be not only a public nuisance (many nostrils still remember those choice summer nights); it was even a health hazard. Its existence was tolerated for too long; eventually, it was shut down. It should have been shut down much earlier.

The point is that the pendulum has swung far on the other side. Environmentalism has to be taken into due consideration, but it cannot be made so dominant as to be the exclusive concern. We need to reach a new sense of balance. Two of the most important considerations to enter this balance can be easily pointed out. First, since fish is a quasi-vital food, the demand for fish is destined to grow. Seafood will either be produced nationally or it will be imported. Fish, in fact, has consistently been one of the top ten on the list of imported items for the last few decades. Second, the harsh reality is that, in August 1994, the unemployment rate in Gloucester was 10.5%. In August, mind you, not January, about 1,500 people were in vain searching for work. Multiplying this figure by an average number of dependents, the harsh reality is that 4,500 people were in rather tough straits. How is our community going to satisfy those needs? How are we going to create 1,500 jobs? Where are the opportunities for Gloucester, if not within the broad range of maritime industries? Which other activity has the same potential for growth? Are not tourism and the service industries in our city, ultimately the two most talked about alternatives to the renewal of the fisheries, dependent upon the attraction of the fishing fleet? For sure, change is inevitable. But change for the worse ought not to be easily grasped.

If tourism and the service industry win the day, the traditional character of Gloucester is lost. "In the middle of the night," says Josephine Russo, a fishing captain's wife who, still relying on a thread of hope, recently joined with other women to form the Cape Ann Fishermen's Cooperative Association, "you used to wake up your men and prod them to go to work. Today, there is no future in fishing. What will my son do?"

The essence of the many issues involved here is pithily expressed by Lena Novello, the first president of the Gloucester Fishermen's Wives Association. She proudly quotes her father saying that "Boats build houses. Houses do not build boats." This quote can be rephrased in many different ways: Boats produce income with which to buy houses, houses do not produce income with which to buy boats; or, capital goods pay for consumer goods, consumer goods do not pay for capital goods; or, save first, spend later; or, produce first, consume later; or, work now, play later. The essence of the issues can also be put in these terms: Do we want to be a nation of producers or a nation of consumers? Do we want to utilize our resources fully, or do we want to exploit other people's resources? How long will other people have patience with us?

At a point, the soul of America will be lost. The process of de-industrialization can go just so far. If the work ethic goes, the attempt will be made to replace it with empire building, with the exploitation of other people -- both within the United States and abroad. Then the American dream recoils into a nightmare. Alexis de Tocqueville, the famous French observer of our society during the last century, expressed this vision quite precisely and eloquently. He said: "America is great, because America is good. And if America ever ceases to be good, she will cease to be great."

The issues are that important. They clearly affect more than one fishing community. Indeed, they affect the status of economic growth as a whole -- in this country as well as in many other countries of the world. These are not abstract issues. They affect the quality of community life. They affect the life of each one of us.3

Is there scarcity of financial resources? Where are the financial resources to create schools in which consumers are educated by the industry as to the essential characteristics of each species of fish, how to treat that fish from store to skillet, how to best prepare for the table each portion of each species of fish, and schools in turn to educate the industry as to consumer preferences, consumer limits of patience with the requirements of each species of fish as well as consumer financial preferences? Where are the financial resources to retrofit existing vessels so they are able to catch underutilized species? (While groundfish, as the word implies, is caught at the bottom of the ocean, most underutilized species are caught in the middle of the water column.) Where are the financial resources to create hatcheries, to build fish ponds and fish farms, to build protein recovery plants, to introduce new technologies in existing processing plants, to build entirely new plants for the creation of biochemical products, to build laboratories in which alternative futures are tested? Are not financial resources scarce? This is a nation that is supposed to save little (and, certainly less than Japan, for instance).

Let us pause for a moment to consider some of the consequences of this widespread notion. The notion of the scarcity of money has made a beggar not only of the general public but even of a great many captains of industry. Is not the corporate agenda today increasingly occupied by the constant search for grants, subsidies, and tax deductions?

The habit of searching for grants, subsidies, and tax deductions pits us one against the other. And engulfs us in a bottomless abyss. Grants, subsidies, and tax deductions have never been and never will be sufficient to meet our needs. East Coast fishermen are in the process of receiving $4.5 million in grants from the Federal Government; but they have already presented formal requests totalling $54 million. Pity us all: The administrators of the grants, the grantees, and those who will be losers at the grantsmanship game. A thought process that starts with scarcity is unavoidably led through a tortuous route back to scarcity. In the meantime, taxpayers, who by definition have scarce resources, are forced to foot the bill left behind by the pursuit of grants, subsidies, and tax deductions. Are these not the forces that lead to disintegration within our communities? Are these the proper principles with which to organize society?

The financial reality is diametrically opposed to what is generally believed. Just as there is no scarcity of natural resources, so there is no scarcity of money. Those who believe in the scarcity of money see only one source of money. In fact, there are two. Financial resources exist not only with savers, but also with the ultimate (modern) creators of those resources: The Central Banks; here in the United States, the Federal Reserve System. Figure 2 suggests that entrepreneurs -- to obtain their loans; loans, not grants; loans, not subsidies; loans, not tax deductions -- have the choice to ask their banks to go, not laterally to private investors for their savings, but vertically to the Federal Reserve System for newly created money. Government agencies with taxing power also ought to use this avenue to satisfy their financing needs in the process of creating and modernizing our crumbling public works infrastructure.

Technically, this proposal calls for the use of the Discount Window as the first, rather than last, resort. This proposal is in keeping with the original spirit of the Federal Reserve Act, a spirit expressed especially in Section 13 of the Act of 1913, a spirit uniquely infused into it by the then Senator John W. Weeks, who, as a member of the Senate Banking and Currency Committee, was responsible for over four hundred amendments to the original bill. That spirit was not destined to bear full fruit because it was guided by a flawed economic theory, the Real Bills Doctrine. Yet, an echo of that spirit still resounds in today's policies that permit the use of the Discount Window as a means of "last resort." The Discount Window is used for overnight loans to banks and for exceptional rescue mission. In times of crisis, its gates are flung wide open to avoid financial panics. The question is: Why wait for strictures and panics to make full use of this resource? If the Discount Window can produce so much good in abnormal conditions, how much more good would it produce were it used everyday under normal conditions? Of course, as specified below, proper guidelines would have to be followed.

The flawed Real Bills Doctrine was allowed to die, to be replaced by two equally flawed theories, the Gold Standard and the Fiat Standard, according to which money is created either on the basis of the amount of gold in the nation or on the basis of a fiat, an autonomous decision of the central bank. The authors, and other people across the country, are advocating the adoption of a different standard, the Productivity Standard. This standard assumes that the money supply is created on the basis of national credit, that national credit is uniquely related to the productive capacity of the country, and that national credit has to be administered by a central bank, like our Federal Reserve System. From these propositions it follows that people, provided they use it responsibly, have an unquestionable right of access to national credit.

Procedurally, this doctrine inspires a monetary policy in which We, the People, decide how much, when, and why we need to use the specified amount of national credit. Provided the request is legitimate, the Fed and the financial system as a whole simply validate those decisions. Then "papers," namely all necessary documentation -- just as in today's system -- are presented to the Fed via the financial system, and money comes down to individual entrepreneurs, corporations, and government agencies with taxing power.

Substantively, the essential provisos of this doctrine are that newly created money be issued: (a) at cost; (b) to benefit all citizens through individual ownership, ESOPs, or cooperatives; and (c) only to create real wealth -- not to cover operating costs nor to purchase consumer goods, goods to be hoarded, or financial paper of any sort. Without exploring all the techniques that ought to be deployed, with the strict adherence to these basic requirements, it becomes self-evident that, if real wealth is created, the Federal Reserve System can literally create as much money as necessary without sowing the seeds of inflation at the same time. If this policy is followed, it is also self-evident that there are and there will always be enough financial resources to match real wealth with real needs. Real needs have to be distinguished from fanciful desires; real needs are those that try to make full and wise use of existing resources.

Where is the scarcity of financial resources, then? There is no scarcity of financial resources. This is not to deny the institutional limits of the past or those of the present. This lament is real; but only as a consequence of the bewitching power of negativism to become a self-fulfilling prophecy. Assuming that the financial resources of the nation are scarce, apologists of the financial status quo quite naturally conclude that it is better for the few to appropriate the largest possible share of those resources. "The devil take the hindmost," it used to be said. Woe to the rest of society! Financial apologists maintain that the money newly created by the Fed ought to be exclusively put at the disposal of the owners of existing savings. Open Market Operations are ideally suited to this type of monetary policy.

Financial apologists also have a prima facie justification for their claims. They say that, in case of default, savers alone have the resources to repay the loan out of their savings. In most cases, this is entirely true. In fact, this objection cannot be overcome by recalling the infinite subtleties of financial shenanigans. This objection must be met on its own ground; it must be covered from a substantive point of view. The resolution of this issue is this: There is not one specific way in which the newly created money can be borrowed by people who have no previous savings, and still the Federal Reserve System is given all the necessary assurances for the repayment of the loans; there are five such potential solutions. They are as follows:

Solution # Two. The second solution is the use of ESOPs -- and, as we will suggest in a moment, SuperESOPs. This is a generally successful financing technique that achieves many goals, including that of using the assets of existing corporations to let employees -- by definition, mostly people without savings -- attain access to capital credit and repay the loans out of future profits. Apart from a full understanding of its rationale, the ESOP Movement is a "revolution" that has already largely taken place in the United States. More than ten million people are benefiting to one extent or another from the blessings of this financial technique.

Solution # Three. The third solution is the traditional, old-fashioned one. Let private investors pay for those premiums. And let them gain the benefits of ownership afterwards. Here the "revolution" is all to come. While we make consumer credit abundantly available to nearly everyone, capital credit is kept under strict wraps. And yet, while consumer credit enslaves, capital credit makes us free. Recall Lena Novello's statement of the economic relationship between boats and houses. As Louis O. Kelso, the father of ESOPs, long but not always consistently advocated, to make capital credit available to the many, private insurance must cover the risks of default. This is a whole new field of enterprise that will become a reality as soon as our financial wizards open their imagination to it.

Solution # Four. The fourth solution is to have a community-wide subscription to raise the funds -- for eventual profits -- needed to insure those loans. Is this approach a "revolution on top of a revolution"? Not necessarily. Community-wide appeals have a long tradition, especially in periods of crisis such as the one currently enveloping the fishing industry; but the details of implementation of this fourth solution are undoubtedly daunting. Computers will help.

Are not all the inhabitants of a country creating, through their own sweat and tears, the specific value embodied in its national credit? It is not the loan, by and of itself, that creates new wealth. Rather, it is human labor that ultimately creates real wealth and makes the repayment of the loan possible. Should access to national credit, therefore, be reserved to the few? Or should it be granted to all inhabitants of a country as an essential economic right?

The natural resources are there. The financial resources are there. Are these convictions putting us in danger of going overboard and letting us fall into a presumed Age of Plenty? Between the scourge of scarcity and the corruption of abundance, enough is a feast. This issue deserves a moment of our attention. It is the ambitious subtext of this article to convert the reader to a mentality in which, in Stuart's felicitous phrase, "Enough is A Feast." Between abundance and scarcity there is the golden mean of sufficiency.

We fully realize that this vision is so different from our usual horizons as to require a sea change in us and in our environment. It takes a real effort of the imagination. After all, are we not supposed, obsessively, always to want more? This is the conclusion effectively reached by Paul Margulies, founder of Anthroposophy Working, while observing the dynamics of Rocco's desires. Rocco is the gangster in the movie "Key Largo" who, in response to Bogart's challenge, "I know what you want. You want more," blurts out: "Yeah, that's it, I want more."

In the scramble to divide either the fruits of scarcity or those of abundance, some acquire more than they need and others do not have enough. Enough. Is not that what we are really after? Do we not hope to have always enough of whatever we want, whatever we need? When there is enough, wants and needs become one. Of course, we are and we must remain the ones to define how much is enough for us; yet, this is not absurd individualism. By ourselves, we will never be able to achieve much. We need to join forces with others. We even need to institutionalize our beliefs. We need to create appropriate institutions to help us practice all our virtues. We need to create institutions that become intermediaries between us and the state: Institutions that enter into combat with our own worst individual instincts as well as the worst instincts of society as a whole.

Instead, are not too many existing institutions helping the modern world to go fast forward into social disorganization? The peculiar forms of this disintegration might be totally different from one country to another, but the general trend is evident. In the North as well as in the South, in the East as well as in the West, we bemoan some aspects of contemporary life. The very roots of each one of our ancient civilizations are being threatened by forces that no longer operate from the outside in. They operate from inside our very soul.

We need to create new institutions in conformity with a new principle, a principle that we like to call Functional Integration. This is a form of organization that attempts to obtain the complementary benefits of vertical or horizontal integration as well as those of total independence. The Functional Integration (FI) Model attempts to gather activities together that are already related in accordance to their function. This is a new form of organization that is designed to lead to social harmony and civic responsibility. After all, do we not all share a common goal? Simply put, is not this goal the achievement of a civilized society?

Figure 3 suggests the forms this type of integration might assume within the seafood industry. Let us conceive of all participants in the seafood industry as owning in common all the hardware: From fishing boats to seafood processing plants; from institutes for the industry to educate the consumer, and be educated by the consumer, to laboratories for the research and development of all possible means of utilization of renewable marine resources; from trucks to stores. The hardware would be under the stewardship of a group of people organized into a SuperESOP, whose Board of Directors is elected by all the owners. The owners exercise all the rights and enjoy all the privileges of owners, as the stockholders of democratic organizations do and ought to do. The SuperESOP would attend to the financing and maintenance requirements of the hardware, and independent teams of entrepreneurs would be making that hardware operational, by leasing it -- from whom? from themselves. If each team organizes itself with the assistance of individual ESOPs, so much the better. The essential point is that the independence of each team is fully preserved by concentrating the operation of functions, rather than concentrating control over people.

The nearest equivalent to this type of social integration is a shopping mall that would be owned by all owners and employees of stores operating within the mall. This is in contrast to the conventional structure in which the malls are owned and operated by independent concerns, in which instance stores simply rent space within the mall, pay rent, and are provided with all the services that are needed in common. In this case, quite rightly, all capital gains (or losses) that accrue from the operation of the mall belong to the owners of the mall. In the FI Model, capital gains or losses accrue to owners of the hardware; and whatever profits accrue from the rental of the hardware belong only to the teams that rent the hardware. Beyond the legitimate concerns of health, safety, and public welfare, the state, or the public in general, has no say on any of the operations of the FI Model.

This structure might not be born full blown. It might be necessary to assemble it piece by piece. And there might be two or more SuperESOPs for each port. But, clearly, the more trust, the more cohesion, the more benefits. If, through a SuperESOP, the participants in the industry own as much of the hardware as possible, many things can be done more efficiently. At a bare minimum:

The SuperESOP can enforce the requirements of quality assurance to the consumer: This assurance can be provided only if the various elements of the industry collaborate with each other. Today this collaboration occurs quite rarely, and when it does it is mostly due to chance: One processor here, two fishermen there;

The SuperESOP can enforce efficiency standards for the utilization of each and every piece of hardware undreamed of by individual entrepreneurs. Unnecessary duplication of equipment and even operations would cease. For instance, boats might be treated like airplanes, they would not be waiting for the crew to rest before they would be turned around to go fishing again. And the boats might not need to be the same as those of today. They might be smaller, faster, more efficiently operated and equipped;

The SuperESOP can create and administer a first rate information system regarding marketing and biological data with the aim of rationalizing the capture and raising of each species as well as the timing of landings of fish, thus ensuring that temporary gluts -- with their depressing effects on pricing -- would no longer occur;

The SuperESOP can foster specialization of activities that small, independent, individual entrepreneurs cannot achieve. A boat owner, a fish farmer, or a seafood processor today has to be at least an expert in finances, engineering, and real estate. What do these operations have to do with catching fish, raising it, or processing it? With a SuperESOP, the boat owner, fish farmer, and the seafood processor would simply organize a team of people and devote all their time and expertise to catching the fish, raising it, and processing it. And all teams would preserve their independence at the same time. Whatever money the team that leases boats or fish farms or stores makes is its own money, its own reward.

This model of social and economic integration can be applied to any set of industrial or commercial enterprises. To name one specific example, one day it might be possible to organize along these lines commercial establishments on Main Street of any city or town in the United States. The first such SuperESOP might even be called "Main Street USA".

So far, we have dealt with largely mundane issues. Can we now elevate the discussion a notch or two? Let us think about the issues in the broadest possible terms for a moment. At the core, the issues dealt with here are not technical issues at all. They are issues of economic justice. And issues of liberty. Issues of liberty and justice for all.

We have been repeating these words for a few centuries now. And some might say that they have led to the excesses of the French Revolution and the Red Revolution. In the United States, those excesses are parodied in the excesses of the "Age of Entitlements." The way to avoid all such excesses is not to leave the content of the expression "liberty and justice for all" to the imagination, but to define it precisely. The economic content of that expression can be defined by these four rights: 1. The right of access to land and natural resources; 2. The right of access to national credit; 3. The right to own the fruits of one's labor; and, 4. The right to protect the blessings of one's wealth.

And then these rights have to be anchored to the reality outside us as well as to the reality inside us. As believers, we reserve the right to speak of God, but we fully accept the wish of others who might want to speak of Nature or Chance. For us, the most fundamental proposition to consider is this: To think that God would not provide for all his children is blasphemy. For others who might prefer to speak in secular terms, we would like to submit the following equivalent reasoning: To think that Nature or Chance would not provide for all their children is contrary to the factual propositions that Nature is bountiful and Chance is infinite.

Leaving the reality outside us well alone, we can now attempt to relate our discussion to the reality inside us, by asking: In practical terms, what is the sin that all of us who share the biases of environmental extremists and financial apologists commit? We submit that, to the extent we share those biases, to that extent we sin against all virtues. We sin against the four cardinal virtues, because we lack prudence, justice, temperance, and fortitude. We sin against the three intellectual virtues, because we lack wisdom, science, and understanding. We sin against the three theological virtues, because we lack hope, faith, and, last but most, charity.

Let us turn our sights once again to more worldly issues, and consider the experiential condition. Were those who adhere to extreme forms of environmentalism and financial apologetics reaching their most cherished goals, we would have reason to pause. But the proof of the pudding is empirical indeed. To the extent that we are infected with the strain of environmental extremism and financial apologetics, to that extent we consistently end up defeating our own purposes. If legitimate demands for goods and employment are not fulfilled, greater needs are created and their satisfaction is eventually shifted down the slippery slope of welfare and third-party payers, industrial grants and subsidies, tax reductions and tax evasion. There, waste reigns. As in all self-fulfilling prophecies, scarcity is thus attained. The detailed chain of events that leads to this conclusion can be much refined; but the gross effects are all too evident. Look at the physical landscape. Are we saving the rain forest? Have we saved the downtown of our cities? Are we preserving the integrity of the suburbs? Look at the financial landscape. Do we ever achieve the goal of a stable value of money? We seem to be going from one financial upheaval to another. And we never seem able to taste the sweetness of economic serenity.

That is the ultimate reason why, while appreciating their good reasons, we cannot join the ranks of environmental extremists and financial apologists. Despite their good intentions, they are unwittingly helping to destroy what they love most: Precisely the natural world -- a world in which there is room for everything and everyone -- a world in which there is enough of everything for everyone.

If the results achieved by following the biases of environmental extremism and financial apologetics are unsatisfactory, ought we not to strive to reach a better balance between their concerns and those of society? In each specific case, let us define the work to be done, and let us do it. We began this century with the passage of important environmental and financial legislation. Was that not an attempt to embrace both realities? Was that not an attempt to realize America's promise to achieve a society in which the ancient ideals of truth, beauty, and goodness could blossom? Let us return to this challenge as the century concludes, and a new millennium arises on the horizon.

1. Data published after these pages were written confirm the validity of our analysis. The reader might be especially interested in these three statements from a recent Science report concerning the dynamics of 128 fish stocks. One: "Spring-spawning Icelandic herring constitute the only population we examined in which the fishery collapsed and remained commercially extinct" (italics added). Two: "In (the case of Pacific sardines and Georges Bank herring), no recovery was observed for decades, but now both stocks are appearing to increase." Three: "We conclude that the effects of overfishing are, at this point, still generally reversible."

For more detailed statements on some of the issues treated in this article, see the following publications by C. Gorga: "The Productivity Standard: A True Golden Standard" (with Norman G. Kurland), in Dawn M. Kurland (ed.), Every Worker an Owner: A Revolutionary Free Enterprise Challenge to Marxism, Washington, D.C.: Center for Economic and Social Justice, 1987, pp. 83-86; , "Bold New Directions in Politics and Economics," The Human Economy Newsletter, March 1991, 12 (1) 3-6, 12; "Four Economic Rights: Social Renewal Through Economic Justice for All," Social Justice Review, January-February 1994, 85 (1-2) 3-6; "Quality Assurance: Internal and External Organizational Requirements," and "Quality Assurance: Internal and External Financing Opportunities," in Gilbert Sylvia, Ann L. Shriver, and Michael T. Morrissey (eds.), Quality Control and Quality Assurance for Seafood, (Corvallis, OR: Oregon State University, 1994), 109-114; 158-163; "Aquaculture, Marketing of Underutilized Species and Depletion of Species," in David S. Liao (ed.), International Cooperation for Fisheries and Aquaculture Development: Proceedings of the 7th Biennial Conference of the International Institute of Fisheries Economics and Trade, Vol. 2, (Keelung, Taiwan, R.O.C.: Institute of Fisheries Economics, National Taiwan Ocean University, 1995), 235-241. And, with Louis J. Ronsivalli, Quality Assurance of Seafood (New York: Van Nostrand Reinhold, 1988).

Dr. Gorga's practical expertise lies in fisheries development; he is also the author, with Louis J. Ronsivalli, of Quality Assurance of Seafood (Van Nostrand Reinhold, 1988). Mr. Lima is the former Executive Director of the Cape Ann Fishermen's Cooperative Association, Inc. Dr. Cummings is a former Professor of Hydrodynamics and Control Theory at the Massachusetts Institute of Technology.

We are thankful to this distinguished panel of scientists for the opportunity given us to present a series of arguments for and against the institution of Individual Fishing Quotas (IFQs), especially in their incarnation as Individual Transferable Quotas (ITQs). The arguments against ITQs are based on experience and theory, and are very strong. The arguments in favor of ITQs are theoretical and do not apply to the concrete case of management of natural resources that are identified in the literature as common pool resources such as maritime fisheries.

The arguments for ITQs are arguments for privatization, the arguments for private management of wealth. They are ancient and powerful. From Aristotle to St. Thomas Aquinas most thinkers have recognized the many advantages of private management of wealth. These arguments have become even more solidified during the last half of this century through the formalization of the discussion as represented especially by the work of two Nobel laureates in economics, Kenneth Arrow and Gerard Debreu.

There is an implicit distinction in this type of argument, however, that needs to be made explicit. Since wealth, as Jean Baptiste Say especially made clear, is always social wealth, the arguments for privatization apply to social wealth that can somehow be made private. It does not apply -- it should not apply, and it should have never been applied -- to natural resources that, by definition, are common wealth.

Thus we start our presentation of arguments against ITQs. Following the inner rationale of these arguments, we consistently reach conclusions that -- startlingly -- suggest a reversal of conventional wisdom. We would doubt our own logic if our conclusions were not backed up by a long series of well-known facts that confirm the validity of this logic.

First, there is the legal argument. ITQs are issued on natural resources that are "common wealth," namely, common property of present and future generations who, by dint of geography and tradition, are somehow tied to those resources. As such, no government has any right to alienate those rights in perpetuity. Those resources are common resources. They belong to all generations, present and future ones. The government cannot alienate property that it does not own and that in fact is owned by someone else. If the government cannot alienate this property, the government cannot even give it away free of charge to anyone -- as generally proposed with ITQs.

This argument is mostly presented as an argument of "natural law," and thus it gets entangled in the overall issues surrounding this brand of jurisprudence. The argument can also be presented as an argument of positive law, however. Where is the party entitled to common law rights? The answer is clear. The party is represented by those future generations that are entitled to present a "welfare bill" to a certain society. The kind and the quantity of people needing welfare assistance during the last five hundred years, the Age of Enclosures, as we might dub it, has changed to a type and size unknown to any earlier age in the history of the world. It is future generations, made pauper through enclosures, which have presented their "welfare bill" to society. These demands of future generations are generally met, not so much for practical or even moral reasons, as for the economic contribution that those generations bring to the overall welfare of society. The poor contribute their "consumers' power," a power without which many economies would not survive.

Second, there is the issue of irreversibility of the decision to create ITQs. Once ITQs are created -- however illegally -- they cannot be taken back. With an enormous will power that has never been exhibited so far, those rights might be taken back, but only at great cost to the general taxpayer. Why incur this future liability?

Third, there is the issue of economic dynamics. The present dynamics, in the absence of ITQs, essentially is this. Presently capital is required to enter the fisheries. However, in practice, the investment is made slowly over time in the traditional fishing communities. Young crew members work on boats until they assemble funds to enter inshore fisheries, for example lobstering, on a small scale. As they progress, they are able to invest in larger boats and work their way up to the offshore fishery. Needless to say, not all purchases constitute net additions to the fleet. Some represent only changes in ownership. The introduction of ITQs changes this traditional system entirely. The major investment in purchase of a quota must be advanced on the initial entry to the fishery. For instance, the market value of a quota for 500,000 lbs of cod per year can be estimated to be $833,330. This initial cost shifts the entire industry to a capital-intensive regime, and the industry will eventually converge to large corporation domination with the small fishing communities excluded. Let us follow the process through its major stages.

With the presence of ITQs, the internal dynamics of present fisheries economics would essentially be transformed into this. The process is self evident at the second generation pass. But it is present even if the first generation owner has not paid any price for ITQs, because the rights of exclusion of other people from the utilization of natural resources included in ITQs do automatically possess a market value. In their essence, ITQs are a means to monetize natural resources. This market value must be realized whether through direct exploitation of the property right or by sale to a third party. The dynamics of this market value has historically led to overcapitalization, namely the use of inappropriate technology to make the ITQs market value as real, as high, and as immediate as possible.

The trigger force of this dynamics is the very act of "naming," the very act of creating market value where none existed before. Does the "state" have such a power? Indeed, do people have such a power? The place where this power can be most easily observed is in monetary affairs. It is people and governments that create money. While a moment before creation nothing existed, the moment after creation everyone wants that money. Acts have consequences; to every action there is a reaction. In order to obtain this value, some extra effort is required -- hence overcapitalization, when no overcapitalization was necessary before the creation of that market value.

That is the first stage. Stage two, all too briefly, is this. Once ITQs exclude people from fishing for certain species, where do these people get their fish? From the persons who have been granted exclusive fishing rights, naturally. But then, to meet the demand, the holders of ITQs -- even while remaining within the overall limits set by the quotas -- will consolidate quotas and will serially harvest bigger catches than they would have individually had to catch before the institution of ITQs. The catch must be larger because there will unavoidably be a bigger amount of waste involved in catching large catches and distributing them to a large number of people over a large geographical area. Waste will also result from the opposite effect. Since the holder of ITQs can only land X pounds per year, he will throw back any fish that are not maximum price fish, exactly the right size, fat content, etc. If the market goes down during a return from a trip, the skipper may throw the whole catch over the side after hearing the radio message from his shore captain and go fishing again when the price goes up. Also what happens when a herring trawler catches some cod? That boat has no cod quota, so will of course throw it back.

In addition to waste, and hence unavoidable ecological degradation, there are all other issues concerning prices and costs. Larger waste implies larger risks that somehow need to be covered by higher prices. Higher prices upset the equilibrium of the original economy. Some people will undoubtedly be unable to meet those prices and fall into higher degrees of deprivation. Others will stop working for themselves and go to work for others. But then they will ask for higher wages than they would have naturally paid to themselves. Hence costs of production rise and selling prices rise ever more.

In stage three one finds the elimination of less efficient competitors and the buying out of smaller and/or less efficient holders of ITQs. Thus, the market that essentially starts with the granting of small and official monopoly rights, without provision to compensate in perpetuity through taxation those who have been excluded from access to natural resources, ends up in unofficial enforcement of monopoly privileges -- unless either innovative forces create new markets or, less likely and frequently, the government intervenes to break up monopolies. One needs to ask, why willingly and consciously go through these destructive economic cycles?

The source of all misunderstanding is that there was indeed a tragedy experienced by humankind during the last four to five hundred years. But this is not the tragedy of the commons. This is The Tragedy of the Enclosures. It is the ecology of the enclosures that has collapsed, and as we have all too briefly seen above, it was doomed to collapse.

Ninth, limiting our observation to our North Atlantic marine resources, we have discovered that the depletion of traditional commercial species might have been due to overfishing by predators rather than (in addition to?) by fishermen and that an observable change has occurred in the internal composition of the biomass. In other words, there is as yet no tragedy of marine resources as a whole in the North Atlantic Ocean. There is only a depletion of some highly valued commercial species of fish and their replacement with less commercially valuable species such as herring and mackerel. Trustworthy literature has also established that many species worldwide that appeared to be almost extinct have, after a lapse of time, generally been plentiful again. There is no tragedy of commons yet, because there has not been an enclosure of those areas yet. Indeed, there is no need to enclose those areas. At least, there is no urgent need to do so.

In brief, we would like to stress that, while we find no compelling reason for establishing a regime of ITQs, we find extremely compelling reasons to stay away from them. We trust that this distinguished panel of scientists will act accordingly and not be swayed by faddish opinions in support of ITQs. All predictions in support of ITQs have never been validated by the facts.

If you support ITQs, you will not only support a wrong solution to a non-existing problem, namely privatization of common resources to avoid overexploitation by small traditional fishermen. You will also stifle innovation to solve real problems with real solutions: lack of coordination and integration of management functions to avoid periodic occurrences of glut and scarcity with attendant negative consequences on costs and prices. Many such creative solutions are outlined in Elinor Ostrom's Governing the Commons (1990), or Susan J. Buck's The Global Commons (1998). In fact, we would like to suggest that, given time and perhaps some degree of protection from human and natural predators, local communities will come up with solutions that are indeed workable and to the advantage of all those concerned. For instance, here in Gloucester, MA, working within the context of Vision 2020, the planning arm of the Gloucester Fishermen's Wives Association, a sizable group of people from various walks of life, is developing a Strategic Plan for the Fisheries, a plan that -- as a substitute for ITQs -- includes a proposal for a new type of fisheries management system, namely, a Functional Integration Model of Management (FIMM). As against the micromanagement of any form of IFQs, with all its attendant difficulties of enforcement as stressed especially in the works of Parzival Copes, the FIMM would allow for the macro management of fisheries resources. The plan is following a bottom-up strategy, it is being formulated as a nested plan, and its focus can be drawn port by port.

Both the Management Model and the Strategic Plan are based on a restructure of contemporary economic theory. This work is the result of more than thirty years of work. It includes many innovations, the most relevant of which to the present context is the insertion of stocks as well as flows of real wealth into the very structure of economic theory. This work has been powerfully assisted especially by Professor Franco Modigliani, the Nobel laureate in economics at MIT. An unpublished paper, included here as Attachment 3, presents an outline of this work. The paper is entitled "The Dynamics of the Economic System." An anonymous referee for The Journal of Economic Theory has reviewed this paper and recognized that it contains a "new analytical engine" (Referee Report, Manuscript # 91297, 12/31/91).

A fundamental restructure of Keynes' model leads to a system composed of three modules: real wealth, ownership rights over wealth, and monetary wealth. They provide a complementary and mutually enriching understanding of the economic reality. The description of their dynamics is greatly assisted by recent developments in nonlinear mathematics and fractal geometry. While the system as a whole can be studied as three solids moving -- singly and jointly -- in space, the internal dynamics can be studied as a system of interacting interferences.

The paper starts from an analysis of the weakest aspect of Keynes' model, the model on which most contemporary economic theory rests; namely, the characteristic that the model is static. While this fact has been recognized since Harrod [1937], neither the explanation of this fact nor the road to the elimination of this weakness is a matter of common agreement.

A procedure for possible agreement runs as follows. Logic, mathematics, and geometry provide an integrated set of reasons why the model is static, and implicitly suggest that the dynamics of the system can be observed only if the structure of Keynes' model is changed. In fact, once that structure is changed, the new construction inexorably unfolds by the force of its inner dynamics.

During the first two decades of its life, Keynes' [1936, p. 63] model was converted to a series of functional relationships: e.g., S = f(Y,r) in Harrod [1937]; S = f(Life Cycle Hypothesis) in Modigliani [1954]; S = f(Permanent Income Hypothesis) in Friedman [1957]. Some of those relationships gradually blossomed into econometric models that are now composed of several thousand equations. Yet, model specification analysis conducted during the last decade has confirmed that this array of sophisticated tools produces only individual picture frames of the economic reality and yields no precise knowledge of the transition from one frame to the next. The fundamental reasons for this condition are more clearly observed by deconstructing current models and focusing on the structure of the original model. In symbols, that model reads

In logic, a relationship of equality leads to circular reasoning. The point can be made most emphatically by using Bertrand Russell's version (in Bronowski [1978, p. 82]) of the liar's paradox enunciated by Epimenides. On the face of a piece of paper one writes: "The statement on the other side of this paper is false." And, on the reverse: "The statement on the other side of this paper is true." Clearly, that cannot be. Both statements cannot be true. They have equal value, but which one is true? Which one is false? Logic is made impotent. Within the confines of the relationship of equality, logic gives no assistance. The discussion comes to an end. Stasis is reached.

In mathematics, the relationship of equality yields two sets of data. Two sets of data lead to stasis. They give rise to many questions, but produce no answers. Why are the two sets bound together? Can they be bound by any other relation? How does one pass from one set to the other? Where does each set lead the system? Where do they jointly lead the system? Mathematics gives no guidance. The indefinable mathematical state of these fundamental questions has traditionally left economic theory free to pursue the course it wanted. And economic theory has consistently given rise to differing interpretations of each question. Indeed, under certain specifications, it has even reduced the relationship of equality between Saving and Investment to an identity -- namely, one set of data. Namely, absolute stasis.

Either one or two sets of data, in the Euclidean world, lead to plane geometry. This is in fact the type of geometry that has been mostly used in economic analysis before and after Keynes. (As an interesting aside, it is well known that Keynes resisted not only the introduction of mathematics but even of geometry into the General Theory; its one linear diagram is there at the insistence of Harrod.) The geometry of economics, after Keynes, has mainly taken the forms of the IS-LM diagram, the 45o diagram, and the Aggregate Demand - Aggregate Supply diagram. What is common to all three diagrams is that -- no matter how overburdened with symbols they become (see, e.g., Patinkin [1976]) -- each diagram is static. The reason is fundamental. plane Euclidean geometry is static.

Ultimately, it is the unity of space-time to determine the stasis of plane Euclidean geometry: from any point of origin to infinity, one occupies the same space and hence the same time. The impression to the contrary is given by the fact that lines on a two-dimensional graph can be made to represent a sequence of events. Yet these lines represent, not movement itself, but the result of the movement of an object -- i.e., a solid -- through space-time. A line is but the trace, the historical record left by the movement of such an object. The trace is left, but the object itself is lost to view.

To become dynamic, plane geometry has to be transformed into solid geometry. But this transformation cannot occur on the basis of two sets of data that lie on one plane. Any extrapolation leads to data that belong to the same plane; and, no matter the sophistication of the method through which the third point -- or set of points -- is arrived at, three points on a plane yield a circle. From a circle one goes back to logic and encounters the circularity of argument that, as stressed by Bertrand Russell, is involved in the equality relation.

The symbols in this model represent the same words as in the original model. However, as will be pinpointed in the proceeding, their meaning is different; the internal relationships in the new model are also different and turn the original model inside out. Equation (4) is equation (2) solved for Income. The derivation of equation (5) is presented in Appendix A. The meaning of equation (6) begins to be evident with the aid of three mental operations.

Third, the formal link (X) between the two terms is determined to be Distribution (D) of ownership rights.2 The law abhors a vacuum. As soon as goods and the means to offer services are created, they are legally apportioned to someone somewhere. Through the force of the law, physical "things" are transformed into social wealth. Equation (6) thus becomes

Looking backward, the importance of equivalence (7) is twofold: it overcomes the weaknesses inherent in any relation of equality; and it extricates economic theory from the quagmire of the Saving-Investment nexus. Looking forward, as shall be seen, the importance of equivalence (7) is threefold: it completes the Principle of Effective Demand; it is the key element that shifts the analysis from a static to a dynamic mode; and it yields a system composed of three self-similar modules.

The Principle of Effective Demand is a principle whose roots extend from Steuart, through Malthus and Marx, to Keynes. With Keynes [1936, p. 25], the Principle of Effective Demand becomes "the substance of the General Theory." Keynes [1936, p. 25] stated that "...the point of the aggregate demand function, where it is intersected by the aggregate supply function, will be called the effective demand." At first reading, one concludes that the Principle of Effective Demand is determined by one point -- the point of interaction between aggregate demand and aggregate supply curves. Thus the static geometric interpretations of Keynes' thought that have been mentioned above.

Yet, as Paul A. Samuelson [1946] warned, Chapter 3 of the General Theory, the chapter entitled The Principle of Effective Demand, is "difficult." The first level of difficulty is that at the intersection of the two functions there is not one point, but the compenetration of three points: the point on the aggregate demand curve, the point on the aggregate supply curve, and the equilibrium point on the curve developed by the temporal interaction between aggregate demand and aggregate supply curves. This is clearly a third point, a point of synthesis. It exists and provides a substantive justification for the introduction of a third element into equation (6); namely, its transformation into equivalence (7). Equivalence (7) essentially reads: Ownership rights are the link that connects people both to the real and the monetary economy.

At a deeper level yet, there is one more complication in the interpretation of the Principle of Effective Demand. Demand and supply are -- Janus-like -- bilateral relationships. Thus at the point of effective demand there are, not three, but six points. In a complete treatment of the issues, one must observe the demand and supply of real goods and services, the demand and supply of ownership rights, and the demand and supply of money. Not only that, but also the interrelationships among these different phenomena. (And when that is done, Price Theory finds its natural place in this new framework of analysis. Cf. Keynes [1936, pp. 31-2]).

Taking the lead from a bare geometric expression of the Principle of Effective Demand, one is presented with six points. These points can, through ancient conceptualization, be transformed into six lines. Yet, lines -- and segments of lines -- do not favor the observation of what happens within the economic reality. With the help of Peano curves, it is therefore advisable to enlarge each line into a plane or, more restrictively, each segment into a rectangle. Benoit B. Mandelbrot [1983, p. 62] explains: "The limit Peano curve establishes a continuous correspondence between the straight line and the plane." With the assistance of equivalence (7), the Principle of Effective Demand can thus be represented with three, rather than six, rectangles. This initial simplification implies that real goods, ownership rights, and money are observed only from the point of view of supply. Synthetically, it can be said that at any moment ownership title to a specific supply of money represents the effective demand for an equivalent value incorporated in an unspecified supply of real goods and services.

At first, the three rectangles are also left independent of each other. Through this second simplification one can more effectively see that each rectangle represents a different plane. Clearly, Production belongs to a plane that is different from the plane of Consumption. Monetary wealth, in the new construction, is definitely separated from real wealth because, for a country as a whole, monetary wealth represents real wealth; by itself it is not real wealth. Even more clearly, strictly speaking, Distribution of ownership rights relates not to economics but to the law. Thus the corresponding rectangle belongs to a plane that is completely different from the preceding two; and still one does not stray away from economics, because the concern is with the economic effects of various laws, especially the laws that determine the pattern of Distribution of income and wealth.

Upon relentless probing by Franco Modigliani, it became evident that the Revised Keynes' Model offered an ambivalent view of the economic system. It did not allow for a clear differentiation between stocks and flows. Consequently, the model began to spawn a whole series of other models. The first was the model of stocks of real wealth; two more were models of ownership rights over stocks of real and monetary wealth; still another was the model of stocks of monetary wealth. For simplicity, only the first equations of these models are presented here; the rest of their structure is derived from the Revised Keynes' Model

where RW is Real Wealth, GH Goods Hoarded, KG Capital Goods and CG Consumer Goods, DW and DM Distribution of ownership rights over real wealth and monetary wealth respectively, DO Distribution of ownership rights in general, MW Monetary Wealth, MSh, MSk, and MSc respectively money supply to buy directly goods to be hoarded, capital goods, and consumer goods, MSs, MSm, and MSl respectively money supply for short, medium, and long term monetary commitments, and U Uncommitted Funds or, at the limit, funds that are hoarded. The O preceding each symbol of the right-hand side of equations (9) and (10) stands for ownership rights over the respective item of real or monetary wealth.

While these symbols represent words that preserve the meaning they have generally acquired in economic theory, the categories of Goods Hoarded (GH) and Uncommitted Funds (U) need to be further specified. Once the function of any item of social wealth is seen not as static but as subject to changing human volition, these categories can be defined as withheld resources. They represent all nonproductive wealth: all real and monetary wealth that is left in a nonproductive state by the owner for a period of time exceeding the limits of idleness determined by technological requirements. At the suggestion of M. L. Burstein, such goods and funds can be defined as having zero use rate.

Equation (10') indicates that, in equilibrium, the value of ownership rights over stocks of real wealth is equivalent to the value of ownership rights over stocks of monetary wealth. The index of proportionality between the two does not have to be in a one to one ratio. What is crucial is the avoidance of double counting that would occur if the value of an item of real wealth were to be added to the value of an item of monetary wealth. Since any monetary instrument is ultimately meant to represent real wealth, one can add real to monetary items for an individual person, but it makes no macroeconomic sense to add one to the other for the country as a whole.

At first sight, equations (9) and (10) appear to be a repetition of the measurements suggested by equations (8) and (11). In fact, equations (9) and (10) acquire independent life when their values are related to population census data. Then they come to represent the specific pattern of distribution of real and monetary wealth that exists in each country.

Geometrically, the rectangle representing Production can be subdivided into three sections in correspondence with the three categories of GH, KG, and CG of equation (8). Thus one obtains Figure I. Since the pattern of Distribution of ownership expressed by equation (10') is known to remain rather static over time, the corresponding rectangle can be left as is. Indeed, for simplicity, it can be made to represent a moment of equilibrium and thus ownership rights over both real and monetary wealth. However, to add a degree of verisimilitude by linking people to wealth, through a simple Smale transformation the rectangle is changed into a rhombus: a few people own much wealth; a few people own only debt; and most people own an average amount of wealth. Thus one obtains Figure II. The rectangle of Consumption is subdivided into seven sections in accordance with equation (11). Thus one obtains Figure III. For reasons that become apparent in the proceeding, it is not sufficient to analyze these figures one by one. It is also important to observe the three figures together at once.

Specific questions can now be asked. What are the sparks that fuel the creation of a new monetary instrument? How does the pattern of income distribution take place? What happens to real wealth when the process of production is set in motion? Most of these are ancient questions, and some of them receive equally ancient answers. But many are questions that, as in other fields, can only now be asked thanks to recent developments in nonlinear mathematics and fractal geometry. It seems certain, for instance, that the creation of monetary as well as real wealth -- through the eventual determination of its own specific bifurcations and period doublings -- will be found to have many similarities with the onset of (the process of) turbulence. Parallel studies of this phenomenon in the physical sciences and in economics might yield very interesting results. In the present context, however, it is necessary to remain on a much broader level of generality.

The dynamics of the system is -- and, as seen earlier, must be -- determined by the interrelationships between the plane of Production, the plane of Distribution, and the plane of Consumption. The analysis of the economic system is then transformed into the analysis of the economic process. The outline of this transformation is as follows. Mathematically, the static macroeconomic moment of equivalence (7) is represented dynamically in this fashion

Geometry facilitates the understanding of this transition from static to dynamic analysis. When Figures I, II, and III are stripped of their internal complications and, to reach extreme simplicity, Figure II is reduced to a single point (a "given," established in the past), all three figures can be linked together in this fashion

This figure attempts to represent the economic process at the moment of the exchange. It can be read as follows. When the entire production passes into the hands of consumers, one cycle of the economic process is completed. Then, while goods and services reach consumers, money, or other monetary instruments pass into the hands of producers. For this to occur producers must have legal title to the wealth they have produced, and money must have already been distributed among consumers. Monetary instruments can be considered as signals of approval or, perhaps more concretely, as legal means to empower producers in the continuation of their efforts.

The functional relationship of equation (12) and the dynamic representation of Figure IV can be applied to traditional micro as well as to macro economic analysis, and one can finally answer the debilitating objection raised by Schumpeter [1936, p. 793] against the General Theory, namely, "...the old supply and demand apparatus renders its very limited service only if applied to individual commodities, strictly speaking to individual commodities of relatively small importance, and... it either loses or changes its meaning if applied to comprehensive social aggregates." The abstract demand and supply functions of Keynes and of most contemporary economic theory are transformed (in a complete treatise) into the demand and supply of (major categories within the) total production of goods and services, the demand and supply of (specific) ownership rights, and demand and supply of (specific) monetary instruments.

The observation has so far been focused on the prerequisites of the exchange, and the moment of the exchange. For a more prolonged observation, it is necessary to transform the figures representing Production, Distribution, and Consumption into three solids. Only then can one study these phenomena as real objects moving singly and jointly in space. This operation is conducted in three steps. Step one: Rotating at ever increasing speed Figures I, II, and III about their geometric center, one obtains the image of three circles. Step two: With the help of Mandelbrot's principle of self-similarity taken in the context of scaling and perspective, the image of the circle is transformed into the image of a sphere. One can then proceed to observe the spheres -- or, substantively, the processes -- of Production, Distribution, and Consumption moving singly in space-time. This task, however, is left to the reader in order to pursue the more compelling study of their joint movement.

Step three: Since Figure IV is a synthesis of Figures I, II, and III, repeating the procedures of step one and step two with Figure IV, one obtains the image of three compenetrating spheres. A dramatic fusion of physical, legal, and monetary phenomena is fully accomplished at that instant, and one begins to realize the complexity of interrelationships among all those elements.

This system has been used by Burstein [1988, ch. 5] in a different context. Aspects of this system have traditionally been explored in many fields. J.M.T. Thompson [1986, p. 36] points out that a set of three first-order equations with a three-dimensional phase space is encountered in many branches of science and engineering. Can it describe the evolution over time of the overall economic system as well?

If the economic system were composed of three identical, synchronous, and compenetrating spheres, it would leave behind only one trajectory as an indication of its dynamics. This line -- whatever its pattern -- would indicate that the three spheres were in continuous equilibrium with each other. This is not the case in economics.3 To say the least, the trajectory of Monetary Wealth (MW) can be expected to soon leave the initial condition of equilibrium (0,0,0) and grow at a faster rate than the trajectory of Real Wealth (RW). Also, the spheres representing the pattern of Distribution of ownership rights over real and monetary wealth are known to remain rather static over time; in the simplest representation, therefore, their trajectories can be represented with two overlapping straight lines to be identified as DO. In brief, over time, eliminating all (short and long term, cyclical, random, or aperiodic) loops, breaks, and turns, the system as a whole can be expected to leave behind the following idealized traces of motion

Area "a" -- with its alternative sub-areas "a'" and "a''" -- attempts to describe the condition of disequilibrium that eventually develops between monetary and real wealth and suggests that the smaller this area, the smaller the loss in real income over time. How to close the gap between the real and the monetary economy in the shortest possible time is clearly a problem of control, namely, a problem of political economy -- the problem of creation of a just and sustainable economy (see Gorga [1991]).

From the point of view of pure economic theory, the new construction should provide the foundation for much new analysis of all available historical data; new data must also be obtained, some by elaboration of existing categories of wealth, other by new collection procedures. This analysis might reveal whether, to consider only extreme cases, the system as a whole did ever expand or contract and whether it followed a linear or circular path. The canonical battery of other issues can then be investigated anew. And since all data will be anchored to the system as a whole, the traditional fields of disputation should be much narrowed.

To conduct an analysis of the internal dynamics of the system, it is necessary to transform stocks into flows. For each module, this transformation can be respectively reduced to the understanding of the laws of creation of real wealth, the laws of appropriation of new wealth through ownership rights, and the laws of representation of the existence of new wealth through monetary instruments. Detailed analysis leads to the modelling of each individual transformation. Here these movements can be presented only at their critical moments.

namely, the creation of income (Y) or flow of real wealth is a function of existing stocks of land and natural resources (LD), capital goods (KG), and labor (LB); and the net addition to the stock of capital goods is, in turn, a function of the rate of interest (r) as a pure monetary phenomenon, and the marginal efficiency of capital (mec) measured in real goods rather than in monetary values.

What is added to equation (16) through equation (18) is the explicit distinction between capital goods and financial capital that was implicitly recognized by the Classics. What is added to equation (17) through equation (19) is the pattern of income distribution as the explicit prerequisite of the pattern of consumer demand that Keynes assumed to be one of the essential determinants of the marginal efficiency of capital. Equation (19) -- rather than (18) (cf. Georgescu-Roegen [1971, pp. 234-250]) -- is a full-fledged production function.

The system is clearly dynamic. Each item in equations (19) and (21) belongs either to the plane of Production or the plane of Distribution, or the plane of Consumption. All items in equation (20) belong to a different plane that, at this stage of the discussion, is a composite of both real and financial items: the clearest example of this solution is offered by rent. Rent can still be paid either in real terms as a percentage of production or in monetary values. The system as a whole gives a first indication of the interactions that occur within it -- namely, an indication of the complex of interacting interferences that occur between the physical, legal, and monetary economy.

Given the recent findings in so many physical and biological systems, it would be surprising if the geometry of the new construction should not also be described with fractal sets and "chaotic" time paths. Current studies provide indications of the validity of this hypothesis (e.g., Baumol and Benhabib [1989]). No more than the brief Appendix C can be dedicated to this topic.

Equation (3) of the original Keynes' model states that Saving and Investment are linked by a relation of equality. Equation (5) of the Revised Keynes' Model implies that Saving and Investment are linked by a relation of complementarity. To accept this transformation, it is necessary to enlarge the definition of consumption and to restrict the definition of saving.

In the original Keynes' model one is presented with two definitions of saving: Saving is Income minus Consumption and Saving is Investment. The definition of saving is restricted in the Revised Keynes' Model to include only items of wealth that are kept in a nonproductive state for a period of time exceeding the limits of idleness determined by technological requirements. This definition becomes clearer still if it is written