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
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 , “ ,” and Chapter 7 of , 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#