There is currently much agitation and controversy around wealth-related economic issues: inequality, 1% vs 99%, Wall St. vs Main St, expand/cut Social Security, expand/cut a range of other government programs, regulate/deregulate various private interests, and the like. We’ve been struggling with these for decades with seemingly little definitive progress. Perhaps (to quote an iconic 20th Century physicist) “problems cannot be solved from the same level of thinking that created them.” Each of the above turns significantly around money (or the lack thereof). I propose that fresh thinking is possible and needed regarding the nature and purpose of monetary wealth itself.
Like the proverbial elephant-in-the-room, money is such a large and all-encompassing aspect of the modern world that its nature and essence tends to be overlooked. We tend to view it simply as a force of nature that must be accepted and worked with as is. Yet money is a human-created institution. If society is evolving in ways such that traditional notions of work, wealth, and money no longer are working for broad sectors of society, it is certainly within our power to reinvent these institutions.
Following, is a proposed solution that does NOT require vast social or economic upheaval, austerity, redistribution, revolution, “class warfare” or other undesirable us-vs-them chaos. Yes, everyone can win. The basic premise is that we really have two distinct economies attempting to be serviced by one currency. Current Fed money works fantastically well for large corporate, financial, and governmental institutions. Yet the stronger these become, the better able they are to dominate the game, leaving insufficient money resources for average citizens and small business.
The solution is simple: provide a complementary monetary system that runs in parallel, and primarily serves the needs of Main St. and ordinary citizens.
Caveat: there is a lot superstition and social conditioning around money, work, wealth and what constitutes “responsible” behavior regarding these. I hope you can hold these aside for the moment and consider some new possibilities.
Considering all the advances of modern civilization - orders of magnitude just in recent centuries - why do such vast numbers of the world’s population continue to live in strife, struggle, and poverty? Are resultant problems like the hopelessness, desperation, and rage that lead to crime, terrorism, and war, inevitable?
Change for the better is often hampered by fear of disrupting the status quo. Significant technical advance might eliminate jobs, leaving masses of workers without means to provide for themselves. New notions of wealth may threaten old empires. Hence, evolutionary paralysis.
Yet what if there were a way to address the great majority of social and ecological problems with one relatively simple change of perception, then practice? This of course would be impossible if it required the reinvention of all the institutions involved. Yet what if these structures were functional enough, but simply infected with a common virus - and perhaps then susceptible to a common cure?
Crime, war, recession, environmental damage, political and corporate corruption, predatory business practices, inflation, unemployment, bankruptcy, homelessness, lack of healthcare and other public services, general fear, mistrust, and insecurity. Is there a factor sitting in the background common to all of these? Of course there is: Money.
Money is often analogized as the water that fish swim in - so all-pervasive that we tend to lose sight of its origins and accept it as a given force of Nature. Because of this, although human knowledge and technology have advanced greatly in recent centuries, our notions of prosperity, wealth, work, and the basic role of citizens in society have not advanced much since feudal times.
To illustrate, recall the mid-20th Century belief that technology, automation, and new “labor-saving” devices were going to free up vast amounts of leisure time. Yet today, people are busier than ever. Moreover, even today, displaced workers have few options other than to scramble for an ever-decreasing pool of jobs. Culturally, we have not made the shift from a “worker bee” society to a leisure society - hence the political/economic preoccupation with jobs and growth - an obsession that threatens to render the planet’s ecosystem uninhabitable.
Consider that we are unconsciously playing an old game that is now out-of-date and unnecessary. Perhaps it is time to rewrite the social contract. Compared to advances in general knowledge and technology, what accounts for this arrested development in the realm of economics and citizenship? In a word, it is “scarcity”.
The Illusion of Scarcity and Value
Step back for a moment to consider our cultural conditioning. Most of life’s evolutionary history occurred under conditions of scarcity, with ongoing threat of deprivation due to factors like famine, disease, drought, storm, fire, and animal and human predators. Accordingly, even basic food and other necessities were often rare and precious. Over the eons then, the equivalence between value and scarcity became deeply wired into the animal psyche.
The First Cause problem today: despite the abundance now made possible through social and technical advance, our species has not yet made the shift from the mental perceptions and habits of scarcity to those of abundance. Accordingly, in most cultures, most things continue to take on economic value largely in proportion to their scarcity.
Moreover, having been designed under older conditions of prevailing scarcity, our major economic and monetary institutions now actually perpetuate it; depending upon artificially created and maintained scarcity to keep the engines of accumulation and consumption running.
Up until recent decades, the world was big enough to allow the treatment of its abundance as a scarcity, and tolerate the ensuing over-consumption of its capacity and resources. However, factors like climate change, growing wealth inequity, and resource wars suggest we are now reaching the limits.
Moreover, the pumped-up longing, fears of deprivation, and the shame and anger associated with the inability of many to fulfill these wants have negative social impacts ranging from stress-related illness, domestic and community problems, addictions - on up to crime, corruption, and war.
Why not design a more efficient, harmonious, compassionate, and eco-friendly way to manage resources and meet our needs? And what prevents this from happening?
Money and Scarcity
Virtually all civilized societies have adopted some form of monetary system. Money is a common symbol, measure, and store for the value of the wealth embodied in labor and physical goods. Through association over time, money itself has taken on the value and preciousness associated with the objects it represents. Because of its universality, money is often valued more highly than the things it represents.
This set the stage for a progress-arresting mass delusion: By conflating the value of money with the things it represents, the perception that money-value itself is correlated with scarcity has also become conflated. In other words, money is perceived as valuable only when it is scarce.
This creates a problem because money currently serves two opposing functions: medium-of-exchange and store-of-value. The more it does of one, the less it can do of the other. This has two unfortunate consequences: 1) money is over-hoarded as a store of value by those who are able to do so, 2) leaving insufficient money circulating as a medium of exchange to facilitate economic transactions. Note that both of these consequences have a common emotional component: fear - essentially the fear of not having enough. (Once again, the bogeyman of scarcity.)
In our enlightened, modern-day society, with all the knowledge and resources we have available, can we not design an economic system that does not revolve around chronic fear? To this end, rather than an economy based upon scarcity, consider one based upon abundance.
An Abundance Economy
Money is often described as “energy” (the ability to do work). In order for energy to be useful, like electricity or gasoline, it must flow and not simply be stored in tanks. The task then, is to distribute money-energy in a way that maximizes the amount of work done. To do so, the pressure to over-save money can and should be relieved.
Today, money enters the economy through the top of a pyramid. The Federal Reserve and the Treasury make loans to a few large banks, financial institutions, and corporations, where the funds are then supposed to “trickle down” to a broadening base of subsidiaries, companies, employees, and eventually average citizens. The fact that there is currently more money in existence than ever before, yet we seem to be in a chronic struggle with recession, suggests that the money is not trickling, much less flowing. We propose it is time to turn the pipe around and institute a complementary “percolate up” monetary policy.
Employ the Citizenry
Conservatives often argue that the country should be run more like a business. Consider then what happens when a company hires a new employee. Is he or she expected to go out and fundraise to buy his own desk and computer? Is she required to pay an annual tax for the privilege of working there? No, employees are provided with the resources necessary to make their optimum contribution to the success of the company. Similarly, from the CEO to the panhandler, every citizen’s activity contributes to the economy in some way. Why not facilitate this?
Moreover, when that company/country flourishes, should not everyone share in the benefit?
For robust economic activity at all business levels and a future of security and opportunity for all, would it not be more effective to bring new money into the economy directly through the pyramid’s base - millions of citizens, who can then apply it where needed to the tens of thousands of businesses, both small and large? One relatively simple way to do this using existing infrastructure is to enhance the Social Security system to become a full “Social Dividend”.
The Social Dividend
Each citizen’s participation in the country - be it financial, creative, civic, social benefit, or simply “blood, sweat, and tears” - entitles them to share in a social dividend. We propose that by instituting a true Social Dividend paid to all adult citizens on a basis somewhat like the present Social Security program, a vast range of contentious welfare-like federal and state aid programs would be rendered unnecessary. Moreover, the positive impact on chronic social problems like homelessness, petty crime, and healthcare are obvious. In addition, a 200 million-person army of “investors” would directly pump new life into Main Street businesses through normal commerce. This restores the proper flow of money, putting Wall Street in service of people and the business community, rather than the reverse.
Moreover, whereas today the average citizen may feel inconsequential, tossed about on economic cycles of boom and bust upon which he or she has little effect, with a national dividend, every productive effort that aids the health of the overall economy directly benefits each citizen - who is now an active stakeholder rather than a passive victim.
Financing the Social Dividend
Clearly, financing this new system would be wildly inflationary if handled within the current debt-based Federal Reserve currency system. We propose a new, complementary Treasury-issued currency (perhaps call it “Citizen Dollars”) issued as credit rather than debt. In other words, such currency would not be a loan that has to be repaid with interest.
A Brief Primer: Ubiquitous as money is, few people have a clear understanding about how it is created and distributed. In just a few sentences: while all coinage continues to be issued by the U.S. Treasury, all other currency - from paper bills to the electronic money represented by bank accounts, checks, credit and debit cards, etc. - is issued by the private central banking system. All of the latter money comes into existence as debt, borrowed from the Fed by means of T-Bills, which come with an interest charge.
Citizen Dollars would be declared legal tender and useable on the same dollar-for-dollar basis as Federal Reserve currency. Half might be issued on a monthly basis, like current Social Security payments. The other half might be used to fund federal programs - thus minimizing the need for taxation. The intention is not to replace Federal Reserve dollars but to create a complementary system that serves sectors of the population - Lower and Middle Classes and small business - that are increasingly under-served by the Fed money. ONE MAJOR DIFFERENCE HOWEVER: Since Citizen Dollars are issued as credit and do not need to be repaid, they would become inflationary if there were not a means for them to flow in and out of the system. Following the money-as-energy metaphor, energy becomes depleted (“used up”) after doing work. If it did not, the planet would rapidly burn up. Similarly, money that is not actively doing work needs to be drawn out of the system in order for its utility not to be diluted by inflation.
A natural way to do this, without resorting to taxation, is to place a small periodic negative interest charge (“demurrage”) on money that is currently dormant in accounts. This discourages hoarding and encourages money to continue to circulate and do work. For example, a one-percent per month charge on held cash would render it valueless in about 10 years. (If this sounds objectionable, compare this annualized 12% charge to current income tax rates.)
Note that credit-based currency is a fundamentally different entity than debt-based money. Accordingly, the principles that guide the use of one cannot directly be applied to the use of the other - any more than the rules of baseball can be used to direct a football game. Several mind-shifts about the nature and use of money are required. Citizen Dollars:
Furthermore, many of the dynamics of debt-based money do not apply:
The Treasury then takes on the function of a not-for-profit venture capital firm that “hires” the citizenry as part-time investor agents.
The “part-time” aspect of the above statement is significant. While one might eek out a bare existence on Citizen Dollars, most people will want to be engaged in productive activities that offer challenge and interest and enable a higher standard of living.
Features and Benefits
Several social and economic features are immediately obvious: no taxation to repay debt and interest, more robust economic activity at all business levels, no absolute destitution with attendant problems like homelessness and crime - therefore no need for many government aid programs.
Whereas the current single-currency system inevitably pits public and private institutions in a perennial zero-sum tug-of-war over the money supply, the proposed system acknowledges something we already understand when we speak of "Main Street" and "Wall Street": that two separate economies effectively exist - each serving different needs for different constituencies who are pursuing different goals. The proposed two-currency system, rather than placing a burden on private wealth, frees existing Fed currency to be utilized almost entirely for capital formation, investment, and other business activity -- a win-win for both sectors.
Rather than killing incentive and innovation, the economic security and freedom offered by Citizen Dollars would unleash a flood of new creative, productive endeavor. The current all-or-nothing risk nature of new ventures would be mitigated, encouraging new creative efforts. Moreover, the current economy primarily values the production of “stuff”. Other important aspects of society - teachers, childcare, social work, emergency response, artists, writers, musicians, nature conservancy - are always struggling for support. Such people, like the stay-at-home mom, bear economic costs but are often not compensated for the value they add to society. These could now be accommodated, while reducing the chronic begging for support from public and private sources.
Moreover, many people are presently tied to jobs they hate, but are afraid to leave for fear of destitution. Released from the fear of falling into an abyss, workers could be free to find work that is more reflective of their true talents and interests.
Beyond this, how many social ills, personal to international, are driven by chronic deprivation or fear of the same? (The maxim: “There’s nothing more dangerous than a man with nothing to lose.”) The economic foundation of security and dignity provided by Citizen Dollars would have primary benefits and secondary ripple effects that may be difficult to overstate.
The growth of knowledge and technology is commonly plotted on an exponentially accelerating curve. We propose it is time for economic and monetary models to evolve accordingly.
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