Wednesday, May 1, 2013

Defining Money, VIII: The Role of the State


Given that many people seem absolutely convinced that only the State has the right to create money, it comes as something of a shock to find out that the oft-cited provision in the United States Constitution (Article I, § 8) just as absolutely gives no such power to Congress or to anyone else.

So what does Article I, § 8 actually say?  It says that Congress can set the standard and strike coinage, but the critical power to “emit bills of credit” (i.e., “create money”) was removed from the enumerated powers of Congress, and explicitly prohibited to the individual states.  This is consistent with Say’s Law of Markets (based ultimately on the fact that the sole purpose of production is consumption) as applied in the real bills doctrine.

As Norman Kurland has often pointed out, let's start by recognizing the State as a unique kind of "social tool."  It is, in fact, our only tool that was designed by “We, the People” as a potentially dangerous monopoly with the exclusive power to coerce citizens and "establish Justice."

By its nature the State produces no wealth.  Under our system all marketable goods and services are produced by we the citizens as workers and owners of productive capital assets, which are the sources of all incomes to pay for the services that will be provided by this unique "social tool."

Out of the incomes we pay in the form of taxes, our earnings will be used to hire people to perform all the limited services we delegate for performance by government at all levels under our Constitution.  If our tax system would be designed as proposed by our proposed Capital Homestead Act, we would automatically avoid all deficits and the current need for government to print money in which government spending for non-productive purposes exceeds the taxes flowing to government from income earned by the citizens.

Assume also that under the Capital Homestead Act all new capital formation in both the private and public sectors could be financed without government subsidies or grants through the creation of newly-created asset-backed money from private sector banks accepting bills of exchange for broad-based citizen-owned feasible projects (like proposed citizens land banks) that would finance the growth of the productive economy, with the debt paper discounted at the regional Fed.

Current owners would not be deprived of their property rights in current accumulations but would be encouraged to convert those "surplus" accumulations into added consumption incomes to stimulate even faster non-inflationary growth rates to be financed for new and expanded investments by all citizens under the Capital Homestead Act.

Under these assumptions, the quantity of new asset-backed money needed for new investment and for all labor earnings and other costs of production in the productive sector would be balanced by the expanded total of earnings of all citizens for consumption of all marketable goods and services of the market system as well as for the tax-supported services of government.  Say's law of markets would be satisfied as well as the quantity theory of money and the real bills doctrine.  So too would be the political principle that all economic power should rest with the citizens, with the State economically dependent on the people, rather than vice versa.

Regarding the costs of defense, a sound principle is that the best defense is an overwhelmingly powerful offense.  If America leads the would in delivering to all nations in the world a new and just market-based model and strategy for addressing poverty, joblessness and economic powerlessness for all citizens from the bottom-up, potential adversaries will be forced by their citizens to copy our model.  This will gradually reduce the percentage of our taxes to address our security needs.  It will also eventually reduce the need for income redistribution and unsustainable growth of our own government's entitlement costs.

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