This is the second part of a posting completing the one begun last Wednesday. 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 Monetary Institute. The monetary theorists requested a detailed analysis of exactly where what CESJ advocates from the AMI’s proposal.
|The Constitution does not give Congress power to create money.|
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 second 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
Who Creates Money and Who Should Create Money?
AMI: Based on the language in Dennis Kucinich’s proposed bill HR 2990, AMI claims that under today’s debt-based monetary system, “money comes into existence primarily through private bank lending,” using fractional reserve banking, charging compound interest, and by “lending money imprudently.” [HR 2990, Sections 2(16) and (17)]. In their view, all money creation should instead come under the power of the Federal government, to be spent into circulation in order to pay for infrastructure and other government expenditures.
|No, it doesn't quite work this way. . . .|
AMI asserts that Section 8 of the Constitution (“Powers of Congress”) gives Congress the power to create (“originate”) money. As stated in Section 314 (c)(1)(i) of HR 2990: “money creation is solely a function of the United States Government.”
Also stated in Section (2)(a)(20): “Reclaiming the power of the Federal Government to originate money, and to spend or lend money into circulation as needed, eliminates the need to treat money as a Federal liability or to pay interest charges on the Nation’s money supply to financial institutions.”
Along with that power, the AMI believes that the Federal Government, through the Treasury Department and authorized by Congress, should be able to print money and spend it into circulation in order to pay for all public expenditures such as infrastructure, free college education, health care for all, or even paying off the Federal Government’s debts. HR 2990 states: “the [Treasury] Secretary shall originate United States Money to address any negative fund balances resulting from a shortfall in available Government receipts to fund Government appropriations by Congress under the law.” [Section 106 (a).]
|Irving Fisher spoke of "legal counterfeiting." Say what?|
In other words, rather than going through the taxation and appropriations process, the Federal Government and Congress would have total power over the “printing press.” In this way money would be churned out that has no backing at all, no assets, no “present value of future production,” and no obligation for the Federal government to repay its debts. That, in CESJ’s and Kelso’s view, is counterfeiting and theft. The claim that pumping into the economy billions of new, value-less dollars WON’T be inflationary is completely illogical, as it fits the standard definition of inflation — “more dollars chasing the same or fewer goods.”
As bad as what we have today, with the US money supply backed by government debt (which at least has the government’s power to tax standing behind its repayment obligations), the AMI’s proposed monetary reforms are even more dangerous.
If AMI claims that what would stand behind the “United States money” created by government is the generalized productiveness of the entire economy, they would then be expropriating the private property rights of present owners. This is because in creating money the government is creating promises (obligations to deliver value) based on what does not belong to it — the property of its citizens.
|Hamilton: Stop the song & dance. It's not what I meant.|
CESJ: CESJ disagrees with AMI on several scores. To begin with, the passage cited by AMI in the Constitution states: “The Congress shall have Power….To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”. To “coin”, “regulate,” and “fix the standard,” is not money creation per se, but the authorization of the form and measurement of money that can be recognized as legitimate throughout the economy, not just the parties immediately involved in a transaction.
CESJ might describe the money creation process under Capital Homesteading as “money transformation.” One form of money starts with the acceptance by a bank of a contract or bill of exchange for a feasible project. With the issuance of a promissory note to the borrower, another form of money is created when the bank rediscounts the original bill of exchange at the Fed’s discount window, transforming it into currency or demand deposits that can be spent into the general economy. We need to remember, however, that the original form of money begins as a promise to deliver something of value in the future (backed by the present value of the future profits to be generated from the capital investment, along with capital credit insurance to cover the risk that the promise is not able to be kept).
CESJ would limit the creation of asset-backed money and interest-free capital credit by the commercial banks and Federal Reserve to financing feasible private sector capital formation and growth. Such money creation would be required to be done in ways that universalize citizen access to capital ownership through credit repayable with the future earnings of the capital acquisition.
|Lord Acton: Power corrupts.|
The Kucinich/AMI proposal, on the other hand, would place all money creation power in the government, a “social tool” that humans, not God, have created. The government is delegated by its citizens with a unique but dangerous set of monopoly powers, including the power to kill or jail.
AMI and most advocates of “Monopoly Capitalism” and “Socialism” ignore the warning of Lord Acton that “Power tends to corrupt; absolute power corrupts absolutely.” The power to create and control money is the power to control who will own the productive tools in the economy, including machinery, land, robots, artificial intelligence, structures and intellectual property. This determines who will own, or be owned, in the future.
Who Should Control the Creation of Money?
AMI: The Treasury Department (which also happens to be the taxing authority) with authorization by Congress.
CESJ: 1) The citizens who will be the customers of goods and services and the future owners of the new and transferred capital needed to produce the goods and services; 2) the private sector businesses seeking financing to grow in order to sell more goods and services to their customers and who will seek the Capital Homestead investments; 3) the local banks that will set up the Capital Homestead accounts, assess the feasibility of the Capital Homestead loans and investments, and take the private sector paper to the regional Feds for rediscounting; 4) the insurance companies that will sell capital credit insurance to cover the risk of default for Capital Homestead loans; 5) the regional Federal Reserves that will rediscount the loan paper and create currency and demand deposits as needed; and 6) the government to set standards and guard against fraud.
And as an extra layer of democratic control and oversight in the money creation process, under the Capital Homestead Act every citizen will be given a single, lifetime, non-transferrable, voting, ownership share in their regional Federal Reserve.
CESJ believes that Government has an essential and legitimate role, including with regard to the money, credit and banking system. Government has been given the power to establish and enforce laws that conform to sound moral principles of “Social Justice” and “Economic Justice.” CESJ also believes that a free and just market economy requires (1) “private property”, (2) free, competitive and non-monopolistic markets for measuring just costs, prices and profits, (3) limited economic power of government, and (4) universal and equal access to the means to acquire and own productive capital.
These moral principles must be taught effectively to political, business, union, grassroots and other leaders, as well as to all citizens. Without these principles informing them, our basic social and economic institutions and laws will favor an elite at the expense of most citizens, leaving the average person vulnerable to corruption, exploitation and abuse.
Properly understood and embedded in our institutions, however, these principles of economic and social justice will guarantee every citizen equal dignity and access to social tools that promote universal human rights and maximum economic power for each citizen to develop freely to his or her fullest human potential.