Curb the “animal spirits” of mankind? Spirits that in the short term lead to inflation or deflation and fabulous financial crises in the long run? Is that what we expect of the Fed? Is that the ultimate aim of economic theory? Is that the task of a “civilized” society?
If that is what we want, we fail. And we fail miserably, because we want to change human nature. This is an impossible task; it is not a task for humans.
No sooner was my piece calling for a restructure of Fed’s procedures published in the pages of Mother Pelican last year that this realization appeared to me limpidly and forcefully. After many years of working, primarily in economics, I abruptly realized that society is imposing an impossible task upon the Fed, the task of curbing the “animal spirits” of mankind. The existence of this Darwinian conception, of course, has been fully discredited in most disciplines, but it still seems to reign supreme in economics.
As usual in cases like this, as soon as I searched, I found solid evidence to support the validity of not giving such a task to the Fed. A brand new report published May 2015 by the Royal Society for the encouragement of Arts, Manufactures and Commerce, titled Wired for Imprudence, explores six “behavioral hurdles” that make it hard for us to manage money well. The report emphasizes that
“Cognitive overload, empathy gaps, optimism and overconfidence, instant gratification, harmful habits, and the influence of social norms can all be problematic for financial capability.”
Into this socio-psychological din do we want to throw the Fed? Is that what we really want? If the Fed wages this fight, the Fed is doomed to fail—again and again. There is another way. Concordian economics research suggests that the Fed will have a much better chance of success if it administers national credit on behalf of the nation as a whole. The essence of these recommendations is contained, among other places, in “The World of Economics Since 2008”. They call for the issuance of loans, not grants; loans at cost; and loans for the benefit of all members of society.
You will find there a procedure that would allow the Fed—not to work alone against, as Keynes branded them, the “animal spirits” of people. But to work together with its natural allies. Natural allies are individual entrepreneurs, cooperatives, corporations with Employee Stock Ownership Plans (ESOPs) in their constitution, government entities with taxing power, and especially local community banks. These entities are all interested, as the Fed constitutionally is, in the stability of the monetary system: steady credit at steady cost. There are many consilient reasons on which to base these recommendations. Here are 15 of the reasons:
1. The Reason of Customary Praxis
The Fed already works with these entities, but on a last resort basis. It should be the first resort.
2. The Reason of Order
The rule today seems to be “first come, first served.” This is a rule that, engendering fears of scarcity, naturally leads to disorder. The proposed procedures are rules of order.
3. The Commonwealth Reason
National credit is our common wealth. The Historical Reason HEAR YE, HEAR YE
- The Massachusetts Bay Colony was the first public organization to issue paper money in the Western world in 1690. In China, paper money was made by the Tang Dynasty in 740 B.C.
- Benjamin Franklin explained the rationale for the issuance of paper money in 1729.
As Zarlenga especially emphasizes, the American Revolution was waged to assert this right of the Colonies.
Continentals were issued by the American Revolutionary Government and counterfeited by the British Army.
Lincoln and Kennedy are two American Presidents who made use of this right.
The Populist Movement worked strenuously for a reform of our monetary system.
“Depression Money ” was formed as local currencies that kept many communities afloat during the Great Depression.
All this history points to the surging of an innate right to national credit in the spirit of every true American.
4. The Legal Reason
The proposed recommendations spring directly from the intent of the framers of legislation that established the Fed in 1913. At Paragraph 2, Section 13 of the Federal Reserve Act you find the straightforward injunction that the Fed has to satisfy the financial needs of the nation by “discounting” eligible industrial, commercial, and agricultural paper. There is no eligibility for faltering financial paper there.
How, when, and why the Fed lost its way is a rather well-known story that cannot be recounted here. Here it is only important to realize that in implementing the proposed recommendations the Fed would respect fully the legislative intent of the United States Congress—and might open the road to monetary reform in many other countries of the world as well.
5. The Constitutional Reason
That legislative intent, in turn, is in full agreement with the Constitutional mandate of Article 1, Section 8, which maintains that, in the United States, the power “To coin Money, regulate the Value thereof, and of foreign Coin” belongs to the people, not the bankers.
6. The Reason of Unity
If its natural allies are steadily provided with credit, the job of the Fed is done—and done well. A huge sigh of relief will be heard on Main Street. Our communities will be united.
7. The Political Reason
Our country, and most of the world, is ideologically split as never before. At bottom, the reason is money. It seems that people on the left of the political spectrum want to take money from some people and give it to others. They make an appeal to compassion. The right answers with undeniable issues of justice and efficiency. Neither position is amenable to compromise. And yet, full agreement can be developed on monetary ground. Concordian economics advocates that new money, money created by the Fed be allocated—not as a grant—but as a loan to all qualified “natural allies.” National credit is like a lake; it needs to be replenished. Once the issues are thoroughly examined, both the right and the left will agree that this is the right and just way to proceed. Most factions will disappear.
8. The Neutral(ity) Reason
Money should be created and allocated by the Fed without political interference; this is well-agreed upon in our society. And it is confirmed in Concordian economics. In the proposed restructure of the procedures of the Fed, the call for a loan is initiated at the local level; it is vetted as any other loan by a committee of bankers well-experienced in dealing with fiduciary issues of money. Neither the Fed nor any other government agency has any right to deny or to approve the loan. There is no possibility of “political” influence on the issuance of such loans.
9. The Economic Freedom Reason
Political democracy is empty without economic democracy. That is why the political class is in such low repute today.
If new money created by the Fed is indeed allocated on the basis of economic meritocracy, a huge step will be taken toward establishing economic democracy in this country, and eventually in the world. Democracy means freedom—freedom for all, not only for the few who know how to play the political game. Make no mistake, no monopolies and no outrageous aggregations of wealth in a few hands would be possible within the sphere of true economic democracy. The ownership of any “natural” monopoly, for instance, will be fully shared among all the participants to their economic success.
10. The Political Freedom Reason
Do we want political freedom for all? Let us start with the assertion of the right to a fair allocation of the new money created by the Fed. And when that is done, let us have a thorough review of the need for governmental regulations of economic affairs. That is the road we have to travel to regain the political freedom we have lost in this country.
11. The Sovereignty Reason
Who issues the money is the sovereign.
12. The Justice Reason
The reason for the existence of so many important and concordant foundations of the proposed recommendations is that their ultimate source is justice. The value of money is created by all the people in a nation—yes, all the people, consumers included. Hence it is right and just to allocate the new money on the basis of rights rather than privilege. Rights unite; privileges divide.
13. The Virtue Reason
Only virtuous people can create and keep their money in a virtuous way. In time, the Fed will accommodate the virtues of the right as well as the left of the political spectrum, and thus ease the dangerous political impasse that has lately enveloped our country—and, indeed, the world.
14. The Practical Reason
Einstein pointed out that it is insanity to pursue the same course of action, again and again—and expect a different result. Whether knowingly or even fully unknowingly, the Fed has tried to curb the “animal spirits” of mankind for over a century now. We have had one worse financial crash after another. Is not time now to change approach?
15. The Concordian Reason
Chief expected benefit of the proposed recommendations is that the next financial crisis would not threaten the stability of the monetary system, a scary event indeed in a monetary economy. At the same time, the Fed would allow the forces of the market to play themselves out, and thus the Fed would work in accordance with the best available economic theory. No need to curb animal spirits any longer. “Animal spirits” should be left free to roam the country and the world. No one should interfere with the use of PRIVATE money. No one can.
Thus we would move along the road to the creation of a Concordian world in which we do not vainly attempt to curb the animal spirits of mankind. Our purpose is much more modest and achievable: Free capital from the capitalist who is wicked; the wicked are the creators of poverty.
In fact, these recommendations are rooted in Concordian economics, the result of 50 years of research and publication—27 of them assisted by Professor Franco Modigliani, the eminent Nobel laureate in economics at MIT. In addition to the papers published mostly in peer-reviewed journals, a current paper titled “The Concordian Challenge” that summarizes this new paradigm is available upon request.
Needless to say, these recommendations will not be implemented without much discussion and vetting. Your assistance, O Reader, is essential. Many indications also suggest that time is of the essence.
Jesus threw the money changers out of the Temple; and they came back; and they came back. They will stay there until, not Jesus, not any external force, but we the people will throw them out. But how? By exercising our rights, our political and economic rights. Let us exercise our right to national credit; let us take money out of politics through people, informed people, as Dr. Peter Bearse recommends, entering the political process in force.
Afraid of the wrath of old economists and bankers, perhaps, because these recommendation are not coming from their ranks? Be more afraid of the wrecking they are inflicting upon the economic system. Economists know economic theories; they know nothing of the economic process. They believe the economic process is mainly made of money; they do not recognize that even in the sale of a car there are three elements: the car, the money, and the deed of ownership. Bankers, on the other hand, know how banks operate; but they know not the interactive cultural system in which banks operate.
Do not wait for the approval of old economists and bankers. We might wait in vain and until it is too late.
Old economists and bankers are not openly against a Concordian world either. They cannot be. They would not be able to defend their positions. In fact, quite a few economists and bankers who have entered the Concordian world are all for it.
This Part 4 of a series on monetary reform.
Part 1 of this series: The World of Economics Since 2008
Part 4: This article.
This article was developed from an article posted at Mother Pelican, October 2015.