Written by Carmine Gorga, The Somist Institute
Two petitions circulating on the Internet are designed to stabilize our monetary system. Their purpose is to hopefully avert the next financial crisis and, if the crisis occurs, to be in a position to set things right in relatively short order.
The first petition incorporates the following principles: The Federal Reserve System (the Fed) in the United States, and any central bank in the world, creates money, not out of thin air as it is commonly believed, but on the basis of our national credit—the credit, the creditworthiness of the people.
The value of the money created by central banks is given by the blood, sweat, and tears of the people of the nation. Therefore, that money, by right, belongs—not to bankers, not to financial speculators—but to the people, as it is recognized by the United States Constitution.
Democratic sovereign people of a nation have the right of access to national credit, not as a grant, but as a loan. National credit is a pool of common wealth; it is our common wealth. The integrity of the pool must be re-established by returning to it the money we have borrowed. After doing its good work, by repaying the loan we destroy the money that was first created. This is an important distinguishing feature that separates this proposal from other similar-looking “money creating” proposals like those of Milton Freedman, Ben Bernanke, or Adair Turner.
The ordered destruction of the money created as loans is one fundamental reason why the call to exercise our right of access to national credit will not create inflation. Another reason flows from the conditions of the loan, conditions that form the suggested new regulatory procedures of the Fed. By its own will, the Fed can issue:
- Loans only for the creation of real wealth such as tables and chairs and professional services;
- Loans at cost;
- Loans to benefit all people of a nation.
Hence, loans, vetted by committees of local bankers, can be issued through local banks to individual entrepreneurs, co-operatives, corporations with Employee Stock Ownership Plans (ESOPs) in their constitution, and public institutions with taxing power, so that they can repay the loan.
Just as banks use our credit to give us a loan, so the Fed can use our national credit to issue loans that will be repaid by us, thus making good on our credit/credibility. Unlike other money creating programs, this proposal is distinguished also by the fact that the initiative for the creation of new money in the form of loans resides, not with the Fed or the central bank or the Treasury Department, but with the people. Thus it is very unlikely money creation under the proposed regimen will be influenced by political factors and favoritism and corruption in high places.
The last but not least distinguishing feature is the call for the creation of new money, not on the basis of arbitrary hunches and figures, but in response to real needs, real needs that are expressed as real resources to be energized by the pointed infusion of money into the economy. A chain reaction of positive events is thus expected to be set in motion:
- innovation and entrepreneurship will be unleashed;
- human beings will reach their full potential in freedom and dignity;
- needs will be satisfied;
- a fair distribution of income and wealth will ensue; calls for redistribution of wealth will cease;
- infrastructure will be improved;
- politicians will no longer be subjected to inherently conflicting demands;
- citizens will act as sovereigns.
Money will get out of politics, because people will get into politics. The monetary system will be placed on a most stable and just basis: Federal Reserve loans will be issued through local banks, the banks that nearly never failed during recent financial crises. And the world can let the too-big-to-fail operations fail, if they fail, without tearing the national monetary system apart.
The taxpayer will no longer be pressed to bear the cost of market failures: no need for bail-outs; no need for bail-ins. Let The Market rule, as it is supposed to do in theory. Let The Government rule over a legal framework designed to foster an economic system that serves men and women, rather than enslaving them.
This proposal results from much history and respects the very dictates of the United States Constitution.
The second petition calls for the introduction of the Mosaic Jubilee Solution into the complexities of the modern world. It calls on the International Monetary Fund, central banks, or newly created institutions to conduct an organized reduction of debt, through destruction of zeros in existing financial accounts. Debt that benefits both creditors and borrowers is a wondrous thing. Debt that crushes the borrower is a destructive thing that benefits neither the lender nor the borrower. The community, just as the Israelite community of old, ought to be aware of this distinction and act accordingly. If zeros are systematically destroyed in financial accounts in a way to preserve relative relations among lenders, no harm is done to anyone; indeed, much good is done to everyone.
Strong support for these proposals is expected not only from staunch secularists but also from faithful people of all three monotheistic traditions. They will find here the means for the realization of their deepest aspirations. Members of other religious communities are expected to help unite the world around the programs of action contained in these two petitions.
This Part 2 of a series on monetary reform. In Part 3 the two petitions introduced here will be discussed further and access to them for review and support will be available.
Part 1 of this series: The World of Economics Since 2008
Part 2: This article.
This article was developed from an article posted at Mother Pelican, September 2015.
Leave a Reply