Recently members of the CESJ “core
group” got into a discussion with a couple of monetary theorists who confused
what CESJ says about Just Third Way monetary reforms and the proposals of, e.g., the American MonetaryInstitute. The monetary theorists
requested a detailed analysis of exactly where what CESJ advocates from the AMI’s
proposal.
 |
| Norman G. Kurland |
Not being ones to let the
opportunity pass by, we — that is, Dawn Brohawn, CESJ’s Director of
Communications, with a little assist from Norman G. Kurland, CESJ’s president,
and Michael D. Greaney, CESJ’s Director of Research — put together a response,
the first part of which is today’s posting.
A COMPARISON OF
MONETARY PROPOSALS
OF THE AMERICAN
MONETARY INSTITUTE
AND CENTER FOR
ECONOMIC AND SOCIAL JUSTICE
Part I
Dawn
Brohawn, with input from Norman Kurland and Michael D. Greaney
Areas of Agreement
• Both
AMI and CESJ seek to “resolve our growing financial crisis and achieve a just
and sustainable money system for our nation.”
• Both
AMI and CESJ believe that our respective approaches are validated by “decades
of research and centuries of experience [that] have shown to be necessary to
end the economic crisis in a just and sustainable way, and place the U.S. money
system under our constitutional checks and balances.”
• Both
AMI and CESJ believe that “the supply of money in circulation should not become
inflationary nor deflationary in and of itself, but will be sufficient to allow
goods and services to move freely in trade in a balanced manner.”
• Both
AMI and CESJ are calling for an end to fractional reserve lending.
• Both
AMI and CESJ want to bring about structural solutions to the problems of poverty;
unemployment and underemployment; growing wealth and income inequality; paying
for universal access to high quality education; a social security system that’s
going bankrupt; universal access to quality health care; ongoing home
foreclosures; government deficits and debt at the local, state and federal
levels; the underfunding of pensions, particularly for public sector workers; and
creating an environment where every citizen can generate a decent living.
• Both
AMI and CESJ agree that: “Over time, whoever controls the money system controls
society.”
Areas of
Disagreement
What is Money?
 |
| Can banks really create money "out of nothing"? |
AMI: Money,
according to the AMI, is coin, currency, and demand deposits representing
“purchasing power.” The vast bulk of money, according to the AMI, is created “out
of nothing” by private banks through fractional reserve lending, with the
Federal Reserve creating money to increase the value of those private banks.
Under the proposed Kucinich bill,
HR 2990, “money” in the future would be limited to “United States money,” which
is what the Federal government would create through the Treasury Department to
pay for its expenditures as authorized by Congress. HR 2990 would “abolish the
creation of money, or purchasing power, by private persons through lending
against deposits, by means of fractional reserve banking, or by any other means.”
CESJ Note: By placing the power to create money solely in the State, this
would prohibit the use of discounting through commercial and cooperative banks,
and rediscounting through the regional Feds’ discount windows as CESJ proposes.
Under Section 13 of the Federal Reserve Act of 1913, rediscounting private
sector “bills of exchange” would create new, asset-backed money to enable banks
to make loans to enterprises needing to
finance growth. The process
involves adding new productive assets purchased on credit and repayable with
future profits of the enterprise itself, a technique that can also be used to
finance transfers of existing assets to new owners.]
Under the Kucinich/AMI proposal, all
assets and powers of the Federal Reserve (including all 12 Federal Reserve
banks) would be transferred to the Treasury Department. All reserves of the
Federal Reserve would be returned to member banks in the form of “United States
money.” Oversight of the monetary system would be put under a 9-person
“Monetary Authority” within the Treasury Department; this “Authority” would
supposedly be insulated from political influence or control by the Secretary of
the Treasury.
 |
| Douglas's "social credit" also advocates citizen dividends. |
The Kucinich/AMI monetary reforms
are not directed to the financing of private sector growth. They would do nothing to universalize future
citizen access to shared economic power through direct ownership of capital and
wealth creation. AMI’s monetary reforms would empower the government to create
money as it needs to pay for public sector projects. Any surplus that is
generated by government creating money and spending it into the economy is to
be paid out to citizens in the form of a “Citizens Dividend.”
CESJ: While
CESJ’s (and Louis Kelso’s) concept of money is discussed in great detail in “What
is Money?”, “A New
Look at Prices and Money,” and Chapter 7 of Capital
Homesteading for Every Citizen, we can briefly define money as anything that can be used to
settle a debt or facilitate the exchange of marketable goods and services.
Most
economists will explain that money is: (1) a medium of exchange, (2) a store of
value, (3) a standard of value, and (4) a common measure of value. “Currency”
or “current money” involves a “commonly recognized determination of value,
often regulated, but need not be created, by government.”
 |
| Kelso: money is a symbol of production. |
Delving
deeper, lawyer-economist Louis Kelso illuminated the nature of money. He
understood the impact of contracts, private property, and credit arrangements
on the economic system — recognizing that money is, ultimately, a social tool
for measuring values used for the exchange of property rights:
Money is not a part
of the visible sector of the economy; people do not consume money. Money is not
a physical factor of production, but rather a yardstick for measuring economic
input, economic outtake and the relative values of the real goods and services
of the economic world. Money provides a method of measuring obligations,
rights, powers and privileges. It provides a means whereby certain individuals
can accumulate claims against others, or against the economy as a whole, or against
many economies. It is a system of symbols that many economists substitute for
the visible sector and its productive enterprises, goods and services, thereby
losing sight of the fact that a monetary system is a part only of the invisible
sector of the economy, and that its adequacy can only be measured by its effect
upon the visible sector. (Louis O. Kelso and Patricia Hetter, Two-Factor
Theory: The Economics of Reality. New York: Random House, 1967, 54.)
Essentially, as Kelso points out,
money is a symbol representing, and means for measuring, the economic value of
things being exchanged in commerce. It is not the things themselves. It is a
system of promises that obligates a party or parties to deliver value in an
agreed-upon form and within an agreed-upon time.
Money includes “coin,” “currency”
and “legal tender,” which are forms of money given legal status by Congress and
the Federal government. However, most money used by the private sector is
created in the form of demand deposits and through the acceptance of private
sector bills of exchange and similar instruments.
CESJ’s concept recognizes a much
broader definition of money than simply coin, currency, and demand deposits. It
requires that money must always be backed by something of value, and that money
must have a consistent way of being measured (a standard of value). CESJ
advocates the use of “future savings” as a way of financing new growth and escaping
the “slavery of past savings.” Money and credit based on “future savings” can
enable have-nots to acquire capital ownership paid with the future earnings of
the capital. Thereafter, the earnings of capital (dividends) would flow to its new
owners, which now can include every child, woman and man in society.
Money
is not a god to be worshiped. It is a “social tool,” an artifact of
civilization invented to facilitate economic transactions. Like any tool, money
can be used justly or unjustly. It can be used by those who control it to
suppress the independence and human potential of the many, or to achieve
economic liberation and universal prosperity.
[To be
continued]
#30#