The Efficiency of a Modern Money Commons

Outlining an honest banking system will expose the simplicity of money.[i]A part of the money created by powerful nations are banked outside their borders and become currencies for international trade. Through suspension of access to central bank reserves, targeted banks lose the right to credit and debit other banks in that currency. (This power is being used to cut off dollar transactions for overseas banks not cooperating in following the terrorist money trail.)

Money is a social technology. It represents wealth but is not real wealth. Powerful nations create money (up to a point this is productive) but if a weak nation prints (creates) money, that currency is immediately discounted, effectively denying those regions that crucial sovereign right. To develop industrially and gain control of their destiny, a region of weak nations must ally together and create their own trading currency.[j]

All wealth is created by combining resources, labor, and industrial technology (capital). Most of the world's resources and labor is in the developing world. If a developing region were truly free, its central bank could create the money to build the industry and mine, harvest, or purchase the necessary resources. More money would have to be created to finance the first production of that industry (labor, energy, et al.). The industry, resources, products produced, and the wealth created by the economic multiplier as that money circulates within the economy, provide the value to back the money created.

That primary-created money productively spent circulates within the economy (the economic multiplier creating more money [circulation-created money]) and energizes more production. If that first primary-created money is insufficient for a fully functioning economy, more money should be created and added to the circulating money to build banks, businesses and stores. The new values created back both the primary-created and circulation-created money.

A modern economy requires electric power stations, roads, sewer systems, water systems, et al. In step with the ability of industrial production to produce products to soak up the region's new buying power, more money must be created to build social infrastructure. To the extent that infrastructure is built with primary-created money, there is no debt. When money is understood, an increase or decrease in its primary creation can fine-tune an economy to the maximum capacity of resources and labor.

Economists can easily calculate any surplus buying power that may occasionally develop and increased reserve requirements (of banker or borrower) and quickly soak up that surplus. As a region develops, money creation, both primary and circulation created, will have to be within the capacity of the earth to recycle wastes and to protect resources, and environment for future generations

All banks should be required, as now, to keep a percentage of their deposits with the central bank. When the economy needs more money, the central bank increases the loan capital of needy banks by recording an increase in those banks central bank deposits (an interest bearing loan). As only an increased accounting entry was made and there was no deduction entered from another account; that is primary-created money.

Assuming the reserve requirement is 10%, those banks could loan out nine times (900%) the increase in their reserves. That 9-times increase, deducted from one account and added to another account at each point in its circulation, is circulation-created money. By increasing or decreasing reserve requirements, a central bank can precisely control the creation, or destruction, of money.

Bankers will have to be knowledgeable about, and loan appropriately for, community needs. Needs of regions and communities should be calculated and each region and each community should have equal rights to both savings and created money. These would be community banks servicing a community and a region, their loyalty would not be to shareholder profits. They would not be banks siphoning savings from the farthest reaches of a nation to financial centers maximizing profits through monopolization and speculation. Through increasing or decreasing interest rates on productive capital investments or for consumer credit, as well as increasing or decreasing reserve requirements, an economy can be balanced.

Subject to change to balance the economy, all checking accounts should receive a 3% real interest rate on average balances. As this is well above the long-term average real interest rate, there need be no savings accounts. A person's checking account is simultaneously their savings account.

Instead of the historic accumulations of capital through subtle monopolization of land, technology, and money, higher risk finance capital can be made available through assigning a share of created money for risk capital and/or applying a surcharge on those loans to cover risk.[k]Through repayments of principal plus interest, plus the right to a share of created money, this capital accumulation fund will expand in step with the expansion of an economy.

Most loans will be funded from normal savings against collateralized equity. But productive individuals with special expertise and projects of productive merit will have access to this high risk capital accumulation fund to develop the millions of ideas necessary for the progress of science, industry, and society. The capital accumulation fund loan should be to both the owner and his/her workers.

With 70-to-80% of stock reserved for employees, talented workers can study the prospectus and agree to 10 to 20% wage deduction to pay for his/her share of stock. They become owner employees. With land having high value but no cost, as per the above chapter on a modern land commons, borrowing needs to start an industry or business will be much lower. Having first mortgage, and backed by equity, a part of cash flow, and increased landrent values, the loan would be secure. Instead of profits going to subtle land, technology, and money monopolists, broadly-diffused highly-productive citizens will accumulate capital. A computerized stock market would bypass expensive brokers; selling shares directly to the public:

Most workers would stay on the job, but, once the new business was secure and their new stock had capitalized value, the talented ones would search out another prospectus, help develop another business, train more workers, gain more capitalized value, and move on again. Labor would be mobile, highly productive, and highly paid accumulators of capital. This would be mobilization of labor without the dispossession that has been so typical of past capitalization processes. Labor would have the same rights to gains in efficiencies of technology as investors now have. The talented would be in high demand by the developers of industry.

Besides collateral protection, there are three flows of money that make those loans secure-landrent, profits, and a share of wages. Society's collection of landrent could, and should, permit it to accept a larger share of the risks of new entrepreneurs. Every success increases the use-value, and thus the rental value, of that land. The risk of uncollateralized investment loans could be offset by a surcharge on the interest to go into an insurance fund. With these restructured borrowing rights, many more people would qualify for investment capital than under equity loans. If entrepreneurs were successful, they and their workers, through the shares purchased, would own that capital honestly, as opposed to the current custom of capitalizing values through subtle monopolization of social wealth.

Those searching for a higher return-and confident they have found good investments-could directly employ their capital. Those who wished to, and who could find the opportunity to lend their savings at a higher rate, would be free to do so. But they could no longer obtain high profits by simple tribute for the use of subtly monopolized capital. Those who once bid for money market funds would now have to compete for loans on their projects' productive merits. This would eliminate pure speculation with social funds while retaining that right with personal funds.[12]

For maximum care for all its citizens, regional directors would be umpires overseeing their region's financial rights, while local directors would oversee state, county, and community funding rights. A minimum housing standard could be set and that goal reached as could goals for roads, parks, schools, and public buildings.

With infrared thermogram images of palm, artery, vein, eye pattern, and signature scanning confirming identity, local credit unions, an integral part of the banking system, would issue consumer credit much as credit cards do now but at a fraction the interest rates.

Creating a Constant-Value Currency

A developing region needs to protect its trading currency against both inflation and deflation. The average price of a broad range of commodities stays relatively constant over time. A constant-value currency can be attained by tying its value to

a basket of 30 or more of the most commonly used commodities-gold, wheat, soybeans, rice, steel, copper, etc.... The essential difference [between speculation and arbitrage in commodity and currency markets] is that the arbitrageur buys and sells [contracts of different maturity dates] simultaneously [on different markets] while the speculator buys and sells at different times. The effect of arbitrage on price movements is to stabilize them; the effect of speculation is to intensify them. If arbitrage were to be conducted on a large enough and wide enough scale, speculation would become less and less enticing. But perhaps even more than this, if it were to be promoted and practiced by an independent international agency such as the bank-of-issue I am calling for on the magnitude this would make possible, it would stabilize prices to such a degree that stabilization as a serious problem would disappear. Stabilization would make speculation peripheral instead of central in the determination of the prices of basic commodities of the world.[13]

Instead of 10% of its funds sitting idle, a bank (or the Central Bank where those reserves are deposited) should purchase a broad range of commodity contracts and hold them as reserves. The values of the world's commodities now back the value of that trading currency. With risk eliminated, international traders will write contracts in, and accept and make payments in, that constant-value currency. Those bankers, now also commodity traders, would do no speculating. They would only sell contracts approaching delivery dates and purchase new contracts. Once established, incoming and outgoing money will balance as commodity contracts are bought and sold.

With world travelers and world traders flocking to commodity-backed constant-value currency, other nations would quickly back their currencies with commodity contracts. To not do so would risk traders abandoning their currency. Thus any nation or region establishing commodity-backed money will force the world's central banks to tie their currencies to the value of commodities. The "national character of currencies would be of no consequence, since they would be but different tokens representing the same commodities.... We will have Gresham 's law operating in reverse; good money will be driving bad money out of circulation."[14]

Commodity speculation will disappear and the percentage of a nation's currency invested in commodities will lower as other nations' reserves are invested. All trades will match equal-value currency transfers, speculation in currency will disappear, and all contracts will equal the value of all commodities in the field, in transit, and in storage. On balance, each currency would be valued and backed by its nation's production.[l]

With commodity-backed, equal-value currency widely used, countries would have to use their currency creating powers productively. Debasing their currency by printing money for nonproductive purposes would be producing no value and their currency would immediately be discounted in the markets. With a currency securely tied to the value of a broad basket of commodities, external powers could not siphon away the wealth of weak nations through discounting their currency and thus deflating its value:

With stable constant values, individuals not using those commodities or currencies in their businesses would no longer borrow society's finance capital to speculate in commodity markets, nor would they do so with their own cash. Protected by constant-value money backed by the world's commodities, true producers would not need to speculate. Speculation in commodity and currency markets would cease and the funds of both speculators and true producers would be available for true investment. Commodity prices, thus consumer prices, would decrease by whatever amount was once siphoned away by these gamblers and confidence in constant-value money would increase efficiencies in international trade, creating even more values. Individual commodities could suffer temporary losses in value but average values would remain stable and those stabilized values would virtually eliminate world economic collapses.[15]

By tying money to commodities one has only gained a part of full trade rights. Equality in commodity trades requires weak countries being equally paid for their labor and resources. When equally and fully paid-and assuming quality management, access to markets, access to technology, et al.-poor nations can immediately start accumulating wealth. True equality requires equality in trades.

Once the labor of all nations are roughly equally paid and subtle monopolization of land, technology, and finance capital are eliminated, money will be a measure of productive labor value, exactly as it was when complex accounting of time units of productive labor evolved into the world's first formal money in Sumeria over 5,000 years ago.[m]

Once the waste of wars, waste of capital destroying perfectly good capital, and waste of labor and capital of subtle monopolies are eliminated, a modern economy will function with less than half the current workforce.

To avoid unemployment, the proper method of distribution is through productive labor sharing productive jobs. This would reduce the workweek to some 2-to-3 days.

Once tied to the value of a broad basket of commodities, money will have been returned to a modern commons for common use by everybody. Once subtle monopolization has been eliminated, the value of commodities will be equal to the value of the labor that produced them.[n]Money would then represent the value of productive labor just as it did when invented over 5,000 years ago.[o]