by Carmine Gorga, The Somist Institute
Appeared originally in Mother Pelican, May 2016.
Why did we ever think that the rich few know how to administer money?
This is a companion piece to the series on Monetary reform. See Part 7, which has links to all parts.
Very few will deny that the current monetary system, which in the United States was fashioned at Jekyll Island in 1913, is broken:
- It is not working for the poor;
- It has led to the collapse of the middle class;
- It is not working well for the rich, except in an illusory and transitory way.
The Federal Reserve System (the Fed) has pursued roughly the same type of policy for over a century now. To expect different results from the same actions, as Einstein warned, is insanity. We have to turn the Fed, our central bank, from serving the few, rather badly, to serving everyone well. If we do this, as William Jennings Bryan pointed out long ago, “all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished.” The Fed is the pivot.
How can the Fed be transformed into an institution that serves all the people well?
John Kenneth Galbraith was absolutely right, “The process by which banks create money is so simple that the mind is repelled.” They create money on the basis of our credit, our national credit. The Value of the national currency is created by the blood, sweat, and tears of all the people of a nation. Therefore, that value should be returned to all the people of a nation.
As we have seen in previous communications to Mother Pelican, this goal can be reached by establishing the following three simple procedures for the creation and distribution of new money issued by the central bank: 1. Money has to be issued only for the creation of real wealth, not for the purchase of financial assets; 2. Money has to be issued as a loan at cost, not at arbitrary interest rates; and, 3. Money has to be issued to people who offer an assurance of repayment of the loan, namely individual entrepreneurs, cooperatives, corporations using an Employee Stock Ownership Plan (ESOP), and public entities with taxing power.
It is all that simple, but not simplistic at all. Once these three procedures are in place, a shift will be operated in the monetary system of any nation of the world that adopts them: from money controlling people, we shall pass to a monetary system in which people control money.
What does this mean? Specifically, recognizing that the main prerogative of the Sovereign is to issue money and that in a democracy the citizen is the Sovereign, we shall pass
From privileges that divide to rights that unite *
From begging for fairness to exercising rights, the right of access to national credit
From passive voters to active Sovereigns
From automatons, pulling down an electoral lever every so often, to becoming personally and socially integrated citizens
From sporadic interest in public affairs to continuous control
From electing Representatives “to rob Peter to pay Paul” to instructing them to let us exercise our constitutional rights
From vain vengeful attempts at retributive justice to economic justice for all
From vain programs of redistribution of wealth to fair distribution of wealth
Without taking any privilege away from anybody,
but letting everybody meet their own specific economic responsibilities
To repeat: Not one cent of wealth that belongs to others needs to be redistributed
Nay: A program of amnesty for past wrongdoings needs to be instituted
But: A program of severe justice needs to be instituted
Deceit and lies will be of great concern to people practicing justice
From creating money out of thin air to explicitly using national credit
No need to worry about lack of money for capital expenditure any longer
You can protect your personal, private money only by investing it in your community
hence, the wisdom of Local Interdependence Funds (LIFs)
Mutual Assurance Funds (MAFs)
From bankers’ valuation to value of blood sweat and tears of the people
From “End the Fed” to “Mend the Fed”
From a Fed governed by no rules to a Fed governed by firm rules
From credit to financiers to credit to the people
From consumer credit to capital credit
From money that enslaves to money that liberates people
From a Fed directed by vague goals to a Fed directed by one clear goal: monetary stability
From inflation and deflation to monetary stability
From scarcity for the many and abundance for the few to sufficiency for everyone
From the whim of bankers to the will of the people
From benefiting the few to benefiting everyone
From financial assets to real assets
From consumers to producers
From workers to owners
From creation of money as debt to creation of money as an asset
From acceptance of market failures to refusal of taxpayers‘ burden
From obfuscation to information and accountability
From private money for public projects to public money for public projects
From misguided service to world-wide financiers
to providing credit
to national agricultural, industrial, and commercial interests
From financiers’ wealth to common wealth
From control by politicians and bureaucrats to people’s control
From centralization of power in Washington and New York to decentralization
From working with financiers to working with business and enterprising people
From berating “animal spirits” to appreciating the business and enterprising spirit of mankind
From vain attempts to shackle private money to liberating private money
From money as a tool to control people to money as a tool to build community
From mainstream economics to Concordian economics
From a methodology (the use of supply and demand) in search of a subject
to study of the economic process
From economic independence to economic interdependence
From a world of competition to a world of economic interdependence
From morality and justice as an afterthought to the integration of ethics in economics
From morality and justice as disposable “values” to morality and justice as our guide stars
From an economy composed of money to an economy composed of things, money, and rights
From misunderstanding (or not-understanding) to understanding money
From money as a “veil” covering real wealth to money representing real wealth
Away from, often, money representing only zeros
From economic justice to political freedom
From a pittance of wealth created in the past to sufficiency of wealth we are going to create in the future, while fully respecting ecological and esthetic good sense.
Time is running short
As against such a bright long-range future, we have a short-range future that is fraught with horrible possibilities. Let us remain positive. Let us remain focused.
Some plaintive questions
Can we ever rebuild our infrastructure without Mending the Fed?
Can we ever restore our educational system to its former glory without Mending the Fed?
Can we ever peacefully enlarge the ownership base of our economy without Mending the Fed?
How are we going to accomplish all this?
The Fed has the legal and administrative power to adopt the three procedures pointed out above. I have entered into conversation with the Fed. Here is where we stand so far: After putting together in one document a group of articles published in Mother Pelican, I sent it to the Fed and the Fed has shown some interest in these proposals.
Clearly, these proposals will not be implemented without much vetting through a national discussion. So, please analyze these two petitions:
Sign them. Discuss them. Circulate them.
When implemented, we will finally have rules to which central banks will be moored, as Peter Conti-Brown in The Power and Independence of the Federal Reserve (2016) is implicitly recommending; we will obtain The End of Alchemy (2016) through which central banks create money today, as Lord Mervyn King is explicitly recommending; and money created in accordance with the above proposals will be one of the major generators of Good Profit (2015), as Charles G. Koch is proving can be generated even under prevailing unfavorable business conditions. Out of the good profits from innovation and entrepreneurship we will be paying for the “entitlements” which we feel entitled to receive. No more vain calls for and dangerous expectations to receive the wealth of others. Of course, charity will cover the remaining cases of people who cannot or do not want to participate in the economic process. Peace and prosperity shall return to our land.
O Men of little faith. Why should you assume that the Fed will not implement these proposals? Why should you assume that the Fed, and all other central banks of the world, will not have a profound interest in serving the public good—when they know how to serve it?
If the Fed should refuse to do so, the Congress has the constitutional power and the duty to instruct the Fed to adopt those rules. And if the Congress should refuse? Well, the traditional recourse is a well-established one: We shall throw the “rascals” out and elect true representatives of the will and the interest of all We the People.
Underneath it all, what becomes painfully evident? An age-old truth becomes manifest: We have met the enemy and it is us. We the People have to agree as to what is that we want. Today we all have our favorite solutions to our problems.
We must stop fighting each other and agree on what comes first. We must do it. We will do it, because God has so created us that we accept a good thing when we see it.
* As explained throughout my work, four economic rights are essential for the construction of a sound and sane society. While the right of access to national credit is one, two more rights will be gradually implemented as stated conditions for access to national credit: the right to the fruits of one’s labor by restricting such loans to corporations that use ESOPs, and the right to the protection of one’s wealth by excluding the use of such loans for the pursuit of the Pac Man Way of mergers and acquisitions. If public entities raise taxes on land and natural resources to repay such loans—and correspondingly reduce taxes on buildings and improvements—the pursuit of the fourth economic right, the right of access to land and natural resources, will be automatically favored. By rising taxes on land, hoarding of land will be penalized and the price of the land will go down; hence, more people will afford to buy land.