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Democratizing Money

Democratizing Money

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Published by: livemoments on Nov 01, 2010
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Political Democracy versus Economic Feudalism
Perhaps you’ve noticed that the national economic picture is a bit grim these days: layoffs, longterm unemployment, foreclosures, bankruptcies, oil spills, public bailouts of private industries,lack of access to healthcare and education. Out here in California, the crime beleaguered city of Oakland recently laid off 80 police officers. San Jose is currently debating which fire stations toclose. Schools are cutting classes and laying off teachers. Economic insecurity for averagecitizens seems to grow by the day.How does it come to this? With our present day level of resources, knowledge, and technology,with our breadth of moral and philosophical perspective, with millennia’s-worth of historicallessons, why can we not run our nation and its economy in a way that offers greater stability,comfort, and security for all citizens? Shouldn’t progress have created a heaven on earth by now?The standard solutions to these problems - “growth”, “stimulus”, more regulation, more taxes, lessregulation, fewer taxes - are starting to ring a little hollow. Perhaps it is time to step back andquestion more fundamental assumptions. Perhaps larger issues are at stake.Currently, many people are in need of work to do and there is much work that needs doing, yetthe above problems persist. Where is the bottleneck? In any of these scenarios, the likely initialexplanation is “lack of money”. Yet the irony is that this comes at a time when there istheoretically more money in the system than at any point in history.I propose that our current plight comes from an incongruity between the goals and methods of our political system versus our economic system. Politically, we are a democracy, whereaseconomically, we still function largely as a feudal system. Corporate entities are typically runthrough a relatively autocratic top-down structure - it is merely that kings and high priests havebeen replaced by CEOs and bankers, nobles are now middle managers and, well, the peasantryis still pretty much the peasantry. Standing in for the king’s army, enforcement now comesthrough public officials who are increasingly dependent on private money for their continuedsurvival.Then as now, the lynchpin around which this all turns is the creation, management, and control of a nation’s wealth.What would a more “democratic” economic system look like? What follows is a thoughtexperiment proposing a system based on some fundamentally different premises: public andprivate institutions in service of the citizenry rather than the reverse, motivation by more “carrots”and fewer “sticks”, a starting premise of abundance rather than scarcity - ultimately conditionsunder which society could be relieved of the many costs of dealing with the social ills that springfrom desperation. While a shift so fundamental may seem tantamount to altering the planet’sorbit, a relatively discrete change in one sector of the economy (monetary policy) could largelyproduce this effect.MoneyDespite its ubiquity, most people don’t realize how money actually comes into the system. Only atiny fraction (about three percent) exists as actual coins and bills. The rest is created by a processso bizarre that most can’t believe it upon first hearing. The bulk of money is actually created whenbanks make loans - and goes away when the loans are repaid. (That’s why a “credit crunch” as inthe Fall of 2008 is such a threat to the economy.) We tend to think of high levels of national debtas a horror, yet in a debt-based currency system such as ours, debt is basically an indicator of economic activity. Clearly, there’s a lot of it going on. If the average citizen or community is notbenefiting from it, it is simply because it’s not flowing properly. That happens when the roles of debtor and creditor are not properly assigned.
Political Democracy, Economic Feudalism Bill Miller 
-- Page 2 --I suggest this situation arises because money enters the economy through the wrong gate - large,private (i.e. “undemocratic”) financial institutions funding large-scale projects. As financialinstitutions get larger, they are increasingly disinclined to fund smaller ventures - “Main Street”rather than “Wall Street”. The biggest returns come from large, capital intensive projects - officebuildings, industrial parks, and the like. In the textbook theory, the money so invested issupposed to “trickle down” to feed smaller supporting businesses, workers, and eventually theaverage citizen. Yet recent decades seem to reveal a number of stoppages in the pipe. Moneyapparently doesn’t trickle down; rather, it needs to “well up”.Many would doubt that the current financial system could undergo a major reinvention. Money sopervades our lives that we tend to think of it as an immutable law of nature, something simply tobe contended with or endured. We tend to forget that it is an entirely human-created institution -an idea that we’ve all agreed to. And the nice thing about ideas is that they can be changed whenthey cease to serve.Toward a Democratic Monetary SystemWhat makes for a more democratic financial system? Clearly, it lies in putting control and benefitmore directly in the hands of the people it is intended to serve. In a truly democratic system, thatwould be the citizenry - you and me. If money fails to “trickle-down” to the average citizen, howelse might it enter and flow? The remainder of this article outlines an alternative system based onseveral fundamentally different premises: financial empowerment of the citizenry first beforeabstract institutions, a starting point of abundance rather that scarcity, and money as primarily amedium of exchange, not a store of value.Caveat: In considering anything new, there is an overwhelming tendency to evaluate it bycomparison with what currently exists. Please bear in mind that what follows is a fundamentallydifferent system. Accordingly, concepts such as loan, interest, debt, payment, exchange, savings,investment, and the like will not have the same meaning, nor will they always translate from onesystem to the other. (If they could, it wouldn’t really be a new system.)Our current economic model is based on a premise of scarcity - things take on value by being inshort supply. People are induced to participate substantially through fear of lack. In contrast, themodel below starts with a premise of abundance - all the resources, knowledge and technologypresently exist to enable all persons to create lives of comfort, meaning, and security - were theymade properly available.Secondly, the existing model grants the power to initiate creation of monetary wealth to abstractinstitutions like banks, investment houses, and corporate entities. The actual citizenry is thensubordinated to these institutions in order to obtain the resources needed for living. In contrast,the following model makes each individual citizen the originating source of wealth. (This isn’t soradical when considering that even now, the taxpayer is ultimately the source for corporate“bailouts” and the guarantor of the “full faith and credit of the United States”. At the moment, weare simply not receiving the benefit and acknowledgement for it.)Further, since the current system is based on scarcity, participants must compete, and cannotfully trust or rely upon each other for collective survival. Because of this, economic securitycomes primarily through storing up a hoard of material and monetary wealth that ideally will seeone through a lifetime. However, inherent factors prevent this strategy from working for all, socompetition must become ever more fierce. This dynamic is largely removed in the modeldescribed below, enabling citizens and workers to operate more effectively as collaborators andteammates rather than opponents.
Political Democracy, Economic Feudalism Bill Miller 
-- Page 3 --The Essentials of the Model:The proposed system centers around two novel features (the numbers quoted are merely for illustration. The national economy is complex, and the actual figures will depend on a variety of factors):1) Federal government removes money creation powers (i.e. fiat currency created through theprinciple of fractional reserve) from the private central banking system. Instead, each individualadult citizen is granted the right to create (spend into existence) a fixed amount of new money(say $10,000 per year) that is allotted in monthly installments.
(Note that this is a grant, not aloan.) The goal is to put sufficient money in circulation to fund needed economic activity, but notso much as to cause inflation. The banking system then takes on a more limited role as thelogger and manager of transactions.2) Money so created is subject to a demurrage charge
averaging one percent per month,causing held money to slightly lose value month by month. (On this schedule, money issued on aparticular date becomes valueless in about nine years.)An knee-jerk reaction to #1 will of course be that this is some sort of massive new “welfare” or “government giveaway” program. Not so! No benefit is given away here that is not already beinggranted to the central banking system. We are simply transferring the right to create fiat currencyfrom private institutions directly to the citizenry - cutting out the potential waste, inefficiency, andcorruption of a long string of middlemen. Again, this isn’t such a big step when one considers thatthe taxpayer is the ultimate backer of the current system.This now enables money to be allocated where needed by millions of citizen venture capitalistswho are directly in contact with the pulse of the economy, not an elite corps who may be out of touch - or even at odds with - the needs of the country.Why the demurrage charge? For two reasons: If money is the “life blood” of the economy, it mustflow in order for the system to remain healthy. Circulating money funds business activity and paysworkers. Conversely, hoarded money starves the economy. Accordingly, money that is worthmore today than next month is likely to be put to work now rather than later.Secondly, money that is held does no work - and will lead to inflation if supplemented with moremoney. Therefore, money needs to have a lifecycle. Currently, money is ultimately removed fromcirculation by taxation, loan repayment, and inflation - all rather objectionable methods, judgingfrom popular sentiments about each. In contrast, demurrage gives a precise schedule for thelifecycle of each dollar, and puts the end user in charge of the amount of value he or she controls.If you’re worried about the effect of demurrage on saving for the future, remember, next year (andevery year), you’ll have at least another $10,000 to work with.For rough illustration then, with a population of 300 million adults, three trillion in new moneywould be pumped into the economy each year. The demurrage charge renders each issuancevalueless in about 9 years, so by these numbers, the economy would eventually stabilize withabout 13.5 trillion dollars in circulation. If this proves to be recessionary or inflationary, the annualallotment would be adjusted accordingly.
Note: in keeping with the times, this system is all handled electronically by debit card, and bycomputer or smartphone for those who are more technically savvy. This saves the cost and risksof printing and managing a vast amount coins, bills, checks, renewal stamps and the like.
“Demurrage” is a fee imposed for holding an asset longer than is intended - for example, thestorage charges for parking a vehicle for an extended period.

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