Democratizing Money

8/8/2019 Democratizing Money

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Political Democracy versus Economic Feudalism

Perhaps youve 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 millennias-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? Shouldnt 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 ourpolitical 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 kings 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 ofa nations 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 carrotsand 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 planetsorbit, a relatively discrete change in one sector of the economy (monetary policy) could largelyproduce this effect.

Money

Despite its ubiquity, most people dont 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 cant believe it upon first hearing. The bulk of money is actually created whenbanks make loans - and goes away when the loans are repaid. (Thats 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 ofeconomic activity. Clearly, theres a lot of it going on. If the average citizen or community is notbenefiting from it, it is simply because its not flowing properly. That happens when the roles ofdebtor and creditor are not properly assigned.


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Political Democracy, Economic Feudalism Bill Miller

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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 Streetrather 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 doesnt 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 weve all agreed to. And the nice thing about ideas is that they can be changed whenthey cease to serve.

Toward a Democratic Monetary System

What makes for a more democratic financial system? Clearly, it lies in putting control and benefit

more 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 wouldnt 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 isnt soradical when considering that even now, the taxpayer is ultimately the source for corporatebailouts 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.


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The Essentials of the Model:

The proposed system centers around two novel features (the numbers quoted are merely forillustration. The national economy is complex, and the actual figures will depend on a variety offactors):

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.

1(Note that this is a grant, not a

loan.) 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 charge2

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 orgovernment giveaway program. Not so! No benefit is given away here that is not already being

granted 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 isnt 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 oftouch - 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 youre worried about the effect of demurrage on saving for the future, remember, next year (andevery year), youll 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 with

about 13.5 trillion dollars in circulation. If this proves to be recessionary or inflationary, the annualallotment would be adjusted accordingly.

1 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.2

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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Further Aspects and Implications:

Beyond the above, the day to day economy world work largely as it does today - workers stillwork for pay, products and services are still bought and sold. There would however be severalmajor differences - some that even a Tea Bagger would love: No taxes (at least federal incometax), no need for welfare, retirement, or other entitlement programs, vastly diminished financialservice activity (stocks, loans, third-party ownership), fewer large-scale (national, global) publiclytraded ventures and more small and employee-owned businesses (fewer General Motors andmore Teslas), price stability due to little or no inflation, and more robust local economies.

Employment: Because individual citizens are now the originators of monetary wealth, they are nolonger mortally dependent on having a steady job. This changes the nature of the employer/employee relationship, making possible a more egalitarian contractor/ contractee relationshipwhere workers are engaged for specific tasks and are compensated for their particular talents.This offers efficiencies for the employer, and relieves workers of the low morale which resultsfrom feeling chained to a job. Further, the employee benefits that formerly were used asinducements to stay chained, are now more readily obtainable independently, for reasonsindicated below.

Public Infrastructure: Large infrastructure projects - roads, bridges, airports - would be done by

public agency. However, financing these with tax money would not make sense under thesecircumstances, being literally a case of giving with the right hand and taking back with the left.Rather, public projects would be financed by allowing workers to create an amount of moneyadditional to the annual base. As in the previous paragraph, such workers would be engaged ona delimited basis, as contractors, for defined tasks - no need for governmental agencies to carrylarge payrolls of workers, who may not always be effectively utilized.

Private Ventures: Large-scale private projects would be more difficult to finance by conventionalmeans, since loaned money loses value through the demurrage mechanism. (Egregious rates ofreturn would need to be charged.) This encourages businesses to be smaller and more tied to thelocal community and economy. That said however, money that would otherwise be held in adepreciating savings account can be invested in a productive business as a hedge againstdemurrage - provided that the venture is successful. This enables larger projects, but primarily

those where the principal investors have a direct involvement in a business that is carefullychosen to create real value.

Local Economies: As indicated above, the proposed system favors smaller, locally owned,employee owned and operated businesses. Such businesses can be more responsive tocommunity needs, and they empower workers who now have a personal stake in their success.Again, empowerment of the many (Main Street) rather than control by a few (Wall Street) isthe essence of a truly democratic system

Worker Incentive: Although some might be content to live minimally on the annual grant, most willwant a higher standard of living, and further, will want creative, productive, meaningful outlets fortheir energies. (One can only stomach so much daytime television.) Yet even in the former case,people arent necessarily slacking - their job is to creatively invest $10K in support of the

economy. For the rest, with the newly supportive climate for small business, workers will be betterable to realize personal vision and ambitions as opposed to feeling like a cog in the machine ora rat in the race.

Pricing and Price Stability: In the current economy, prices have been wildly skewed by decades ofinflation, marketing, competition, fads, corporate dealings, real and engineered shortages, debtand interest fluctuation, and other manipulations. (Remember how much your parents first houseor automobile cost versus the same today?) Because the new system provides basic economicsecurity now and in the future, and discourages the long term storing of wealth, prices canbecome more reflective of reality and be stable in the long term.


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Loans, Interest, and Inflation: Presently, it is the interest charge on debt that primarily leads toinflation and price instability. In a debt-based system, the money to pay interest on debt is notcreated, and so must be appropriated from elsewhere. This eventually requires either thatsomeone go bankrupt or that the economy be expanded, through more debt, in order to cover theinterest cost. This steady debt increase, plus the relentless need to appropriate the money to payinterest, drives up prices and further erodes the value of each dollar - the result being inflation.

Loans will play a much smaller role in the proposed system for several reasons: it is based oncredit rather than debt, economic activity is intended to occur on a smaller local scale, prices areexpected to moderate and stabilize as described above, and the long term holding of cash isdiscouraged through the demurrage mechanism.

Economic Growth: Despite the current political fractiousness and polarization, everyone seems tospeak with one voice when affirming the desirability of economic growth. Growth is a benign-sounding term - flowers grow, children grow. We hope that knowledge, understanding, andopportunity will grow. Yet unqualified growth is not always good. Children who reach maturity butcontinue to grow become medical anomalies. Bodily cells that grow continuously, while pursuingself-interest, are better known as cancer. In any finite system, a population that continues togrow will eventually exceed the limits of sustainability.

In the current context, growth is a euphemism for debt expansion (a term that sounds a littleless benign). For the reasons indicated in the previous section, our present monetary systemdemands constant growth in order to pay mounting interest charges, and to avoid bankruptcy ona massive scale. In contrast, the new model has minimal need for interest, so can allow venturesto stabilize at a steady state upon maturity. The growth energy can then be redirected towardgoals like refinement.

Foreign Trade: Greater localization of economic activity, coupled with a reduced incentive tocontinually amass wealth, will reduce the pressure for businesses to relentlessly seek the mostdollars at the least cost through means like off-shoring and globalizing. At the same time, we dolive in an increasingly interconnected, interdependent world, and there will always be need forforeign trade. Initially, this might seem a problem for an economy in which currency is designed to

lose value. However, the same dynamic that boosts economic activity locally also holdsinternationally - dollars that are subject to demurrage, received in payment, are more likely to bere-spent quickly, and in the issuing country. This boosts the economy, whereas debt-and-interestbearing dollars are a drain upon it.

Environmental Sustainability: Once again, the diminished pressure to increase the corporatebottom line as much as possible and by whatever means necessary, can allow for businesspractices that manage resources responsibly for the long term, and increase public safety.

One Major Rethink

One major philosophical reframing that might take some getting used to is that the proposed

system calls into question two values currently promoted as sacrosanct: personal savings andthe profit motive.

Savings: Americans are regularly chastised these days for being financially imprudent - spendingtoo much and not saving enough. Part of this may be a greed problem. Another part is a debtproblem. We live in a debt-based economy in which average people are having trouble servicingpersonal debt, due to real income that has been flat or declining for several decades - while thecost of living continues to rise.


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From a systemic view, the current financial system needs savings as reserves against which toissue more debt. And personally, people need savings to see them through times of need -because we live in competitive, individualistic communities that are not designed to offer sufficientsupport in such instances. We must rely on money rather than people.

The intent of our proposed new system is to have money actively working in the community, notstored or narrowly focused on investments designed primarily to generate interest payments. Thefinancial systems need for reserves largely goes away in the new system, since it is based oncredit, not debt - and there is an effective penalty for holding cash reserves for an extendedperiod. For the individual, the need for cash reserves is vastly diminished by the annual allotmentand by stabilized pricing.

Profit: If something is worth doing, Ive often wondered why people need additionally to be bribedto do it. That seems like a bad system design. Profit is essentially the extraction of more valuethan one puts in to an endeavor or trade - an inequity that is designed in from the start. It is theonly (legal) way however, to accommodate the need for the savings and interest payments asdescribed above.

Sometimes profit comes by legitimately expanding the economy with new value. All too oftenhowever, the relentless need to show profitability is met by externalizing costs - which eventually

come back to bite us as oil spills or acid rain or layoffs or too expensive health insurance orbankruptcy or well, the list goes on.

In contrast, in a system where ones needs are met, where there is economic stability andsecurity for the future, the need to constantly acquire, accumulate, and hoard is vastly diminished.Ill be happy when can turn into Im happy now.

Long Term Outcome

Apart from immediate economic comfort and security for the general citizenry, an abundance-based monetary model has a range of secondary benefits. Presently, the chronic threat ofscarcity, deprivation, and impoverishment, the chronic conditions of insecurity, stress, and fear,the ongoing pressure to compete with and mistrust others results in a long list of social and

psychological ills - and the economic costs of avoiding or dealing with the same.

While some people can adapt, function, and even flourish under such conditions, others cannotand become disempowered, hopeless, ashamed, desperate, cynical, or angry. They may strikeback at the system out of pure malice. Those who fall out of the system may end up homeless,destitute, and desperate - a prime motivator for criminal activity. In addition to harmful effects onhealth, chronic stress often leads to maladaptive coping mechanisms like addictive behavior.Powerlessness, shame, bitterness, jealousy, and anger can result in domestic abuse and otherviolence. All of these factors impose psychological, medical, legal, and financial costs to society.

On the other hand, when people feel secure, now and for the future, the energy formerlyexpended on dealing with basic survival can now be directed toward productive activity -discovery and creation that adds value to their personal lives and to society at large. No one has

to fall below the line. Accordingly, fewer resources will need to be spent on fixing social problemsand defending against threats.

Some will maintain that competition is essential for progress. While it is true that competition candrive innovation, collaboration offers the benefits of far more collective knowledge, perspective,and energy toward the same end.


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A More Diverse, Vibrant Culture and Economy

As noted above, most money presently enters the economy through large, capital-intensiveventures that are designed and funded by entities with narrow, specific interests. Because of this,people, products, services, and other activities that do not directly serve these interests tend to bedevalued monetarily and therefore ultimately neglected. Yet many of these are vital to the healthof society - fulltime parents, teachers, libraries, after school programs, various forms of publicmaintenance and civil service, a healthy environment. Others professions such as writers,musicians, actors, and philosophers add richness to the culture and further human development.Yet weve all heard stories of single parents who must work two jobs to make ends meet. And thestarving artist is a clich that virtually everyone understands.

Currently, workers in such professions have to put their main focus on finding some job outsidetheir calling in order to survive. This diminishes or thwarts the unique contribution they mightotherwise make. In an abundance economy, basic survival is not an issue, therefore people arefreed to develop and offer their unique talents, to their own benefit and to the enrichment ofsociety as a whole.

Getting There From Here

Although the money system pervades nearly all aspects of modern life, it is not set in stone. As itworks less and less well for more and more people, the pressure for alternatives will increase. Anumber of alternative or complementary currency systems already exist and have functioned foryears alongside the mainstream economy - LETS (local exchange trading system), Time Dollars,Ithaca Hours - even coupons and frequent flyer miles are considered such. These generally donot attempt to replace a national currency but rather supplement it by focusing on limited contextslike elder care, farmers markets, travelers, or local business communities.

It is far easier to introduce something new if it can be implemented gradually, building acceptanceas it functions alongside the existing system. That approach may be difficult in this case becausethe existing system and the one here described work on several opposing principles - top down(bankers) versus bottom up (citizens), scarcity versus abundance, currency units with perpetual

value versus expiring value. Accordingly, a change-over might have to happen relatively abruptly.

In such a transition, several looming issues would have to be confronted - primarily what to dowith existing debt and existing wealth. A detailed analysis of these is beyond the scope of thisarticle, but in general, we may simply have to revisit the ancient Hebraic tradition of jubilee andforgive most debts. This of course would initially leave great inequities, but if that cost enables amore functional society for all members, perhaps the majority would decide it is worth it. As toexisting wealth, if the current Federal Reserve dollars were put on a depreciation schedule alongwith the new currency units, perhaps this transition could happen more gently. Ultimately, thedemurrage principle and the more egalitarian nature of the new system would tend to even thingsout over time.

However, even if such a new economy were to benefit the vast majority, there are powerfulentrenched interests who benefit by the current system, and their efforts to resist any change tothe status quo probably cannot be overestimated. Further, they seem to have increasing controlover our major institutions. The contention and paralysis weve already seen over seemingly clearpublic issues like healthcare, unemployment, and financial reform suggest that a much morefundamental restructuring might lead to all-out political nuclear war.

Yet in the realm of governance, there was a time when kings with vast armies ruled over apopulace with far fewer resources than we have today. In the realm spirit, there was a time when


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high priests and popes controlled access to the divine, and enforced their decrees withsometimes shocking brutality. Somehow, democracy still managed to struggle and prevail inthese domains. People can now vote, run for office, and pursue whatever religious beliefs makesense of their lives.

In the economic realm, there too may come a tipping-point, when a critical mass of people turnaway from the glitter and distraction of American Idol long enough to realize that the kings andhigh priests of finance are driving the economy toward failure for the masses - and it doesnt haveto be this way. Perhaps we will then insist upon growing from our status as mere consumers ofvalue, using dollars begged and borrowed from the temple priests, toward becoming directparticipants in the creation of an economy that works for all citizens.

Some religious traditions teach that humans were created in the image of God. Perhaps thisrefers to our ability to shape the world in which we live. To date, by design or default, wevecreated conditions where life for vast numbers of people is, as Hobbes noted, nasty, brutish, andshort. We can now do better. Given our present level of knowledge and resources, we could justas well create conditions of comfort, security, and opportunity for ourselves and for futuregenerations.

In the final analysis, it comes down to a simple question: In view of all that has happened to date,

in whom would you place greater trust to do what is best for the country, a cabal of Washingtonand Wall Street elites, or millions of American citizens?

For a truly bright future for all, let democracy prevail!

--------------------Bill MillerSeptember 2010Half Moon Bay, CA

Democratizing Money

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