A Comparison Of Monetary Proposals Of The American Monetary Institute And Center For Economic And Social Justice (Demo)

On September 9, 2018, Dawn Brown, Norman Kurland and Michael Greaney write on the Web site of the Center for Economic and Social Justice (www.cesj.org):

Areas of Agreement

• Both AMI and CESJ seek to “resolve our growing financial crisis and achieve a just and sustainable money system for our nation.”
• Both AMI and CESJ believe that our respective approaches are validated by “decades of research and centuries of experience [that] have shown to be necessary to end the economic crisis in a just and sustainable way, and place the U.S. money system under our constitutional checks and balances.”
• Both AMI and CESJ believe that “the supply of money in circulation should not become inflationary nor deflationary in and of itself, but will be sufficient to allow goods and services to move freely in trade in a balanced manner.”
• Both AMI and CESJ are calling for an end to fractional reserve lending.
• Both AMI and CESJ want to bring about structural solutions to the problems of poverty; unemployment and underemployment; growing wealth and income inequality; paying for universal access to high quality education; a social security system that’s going bankrupt; universal access to quality health care; ongoing home foreclosures; government deficits and debt at the local, state and federal levels; the underfunding of pensions, particularly for public sector workers; and creating an environment where every citizen can generate a decent living.
• Both AMI and CESJ agree that: “Over time, whoever controls the money system controls society.”

Areas of Disagreement

What is Money?

AMI:  Money, according to the AMI, is coin, currency, and demand deposits representing “purchasing power.” The vast bulk of money, according to the AMI, is created “out of nothing” by private banks through fractional reserve lending, with the Federal Reserve creating money to increase the value of those private banks.

Under the proposed Dennis Kucinich bill, HR 2990, “money” in the future would be limited to “United States money,” which is what the Federal government would create through the Treasury Department to pay for its expenditures as authorized by Congress. HR 2990 would “abolish the creation of money, or purchasing power, by private persons through lending against deposits, by means of fractional reserve banking, or by any other means.”

[CESJ Note: By placing the power to create money solely in the State, this would prohibit the use of discounting through commercial and cooperative banks, and rediscounting through the regional Feds’ discount windows as CESJ proposes. Under Section 13 of the Federal Reserve Act of 1913, rediscounting private sector “bills of exchange” would create new, asset-backed money to enable banks to make loans to enterprises needing to finance growth.  The process involves adding new productive assets purchased on credit and repayable with future profits of the enterprise itself, a technique that can also be used to finance transfers of existing assets to new owners.]

Under the Kucinich/AMI proposal, all assets and powers of the Federal Reserve (including all 12 Federal Reserve banks) would be transferred to the Treasury Department. All reserves of the Federal Reserve would be returned to member banks in the form of “United States money.” Oversight of the monetary system would be put under a 9-person “Monetary Authority” within the Treasury Department; this “Authority” would supposedly be insulated from political influence or control by the Secretary of the Treasury.

The Kucinich/AMI monetary reforms are not directed to the financing of private sector growth.  They would do nothing to universalize future citizen access to shared economic power through direct ownership of capital and wealth creation. AMI’s monetary reforms would empower the government to create money as it needs to pay for public sector projects. Any surplus that is generated by government creating money and spending it into the economy is to be paid out to citizens in the form of a “Citizens Dividend.”

CESJ:  While CESJ’s (and Louis Kelso’s) concept of money is discussed in great detail in “What is Money?”, “A New Look at Prices and Money,” and Chapter 7 of Capital Homesteading for Every Citizen, we can briefly define money as anything that can be used to settle a debt or facilitate the exchange of marketable goods and services.

Most economists will explain that money is: (1) a medium of exchange, (2) a store of value, (3) a standard of value, and (4) a common measure of value. “Currency” or “current money” involves a “commonly recognized determination of value, often regulated, but need not be created, by government.”

Delving deeper, lawyer-economist Louis Kelso illuminated the nature of money. He understood the impact of contracts, private property, and credit arrangements on the economic system — recognizing that money is, ultimately, a social tool for measuring values used for the exchange of property rights:

“Money is not a part of the visible sector of the economy; people do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector.” (Louis O. Kelso and Patricia Hetter, Two-Factor Theory: The Economics of Reality. New York: Random House, 1967, 54.)

Essentially, as Kelso points out, money is a symbol representing, and means for measuring, the economic value of things being exchanged in commerce. It is not the things themselves. It is a system of promises that obligates a party or parties to deliver value in an agreed-upon form and within an agreed-upon time.

Money includes “coin,” “currency” and “legal tender,” which are forms of money given legal status by Congress and the Federal government. However, most money used by the private sector is created in the form of demand deposits and through the acceptance of private sector bills of exchange and similar instruments.

CESJ’s concept recognizes a much broader definition of money than simply coin, currency, and demand deposits. It requires that money must always be backed by something of value, and that money must have a consistent way of being measured (a standard of value). CESJ advocates the use of “future savings” as a way of financing new growth and escaping the “slavery of past savings.” Money and credit based on “future savings” can enable have-nots to acquire capital ownership paid with the future earnings of the capital. Thereafter, the earnings of capital (dividends) would flow to its new owners, which now can include every child, woman and man in society.

Money is not a god to be worshipped. It is a “social tool,” an artifact of civilization invented to facilitate economic transactions. Like any tool, money can be used justly or unjustly. It can be used by those who control it to suppress the independence and human potential of the many, or to achieve economic liberation and universal prosperity.

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.

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).]

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.

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.

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.

Norman Kurland, President of the Center for Economic and Social Justice comments:

Dawn,

Your critique of the the monetary proposals of the American Monetary Institute (AMI) is excellent.

Every nation’s monetary system should not only provide equal access for every child, woman and man to capital ownership, profits and economic power to grow a non-inflationary “Just Third Way” market economy. Those in control of money under both Monopoly Capitalism as well as Collectivist Socialism keep money power in the hands of a tiny fraction of their citizens. The AMI strategy would violate the fundamental human right for every person to become an owner of profit-generating property, as promised since 1947 under Section 17 of the Universal Declaration of Human Rights.  Unfortunately, no nation yet has lifted the monopolistic barriers to this right.

Fortunately, ESOP inventor Louis O. Kelso not only developed in the 1950s the monetary principles, advanced financing tools and bipartisan Congressional support for Federal laws that have enabled over 10 million workers to purchase shares, share profits and become empowered as owners of 100% of their enterprise’s shares, without reducing their labor incomes. How? Through commercial bank loans to tax-exempt S-Corp ESOP trusts repayable with the full future stream of pretax profits.

Kelso’s monetary strategy in today’s Age of Robotics and Artificial Intelligence can and should now be extended not only to spread ownership power, profits and retirement incomes directly to every government, health and non-profit worker, teachers and university professors, artists, the disabled, veterans, housewives, athletes, in fact, every child from the time of birth.

I think that the American Monetary Institute would agree with Kelso and CESJ that the national government has a role in determining how “money”, like government , a unique “social tool”, can and should serve as a uniform national “yardstick” for measuring economic value of assets, liabilities, expenses, incomes, and all forms of economic interactions among citizens and all their institutions. On the other hand, we think control over the creation of money and its potential for creating a nation of economically empowered owners can and should be owned and controlled by all citizens in each of the 12 Regional Federal Reserve Banks that already exist. Under Section 13 of the Federal Reserve Act, these regional Feds already have the power to create an asset-backed currency that will enable every citizen to have an equal opportunity to finance non-inflationary and environmentally life-enhancing growth of non-fossile-based energy systems, robots, artificial intelligence and other growth.

But the money creation system should never be controlled centrally by the current economic plutocracy on Wall Street or even worse by any national government. As pointed out in the attached critique, the Federal Government can pass laws, settle disputes, and set certain standards, but its power to control the economic lives of all citizens will inevitably lead to higher levels of corruption and a violation of fundamental human rights of 90% of the U.S. population who own less combined than the richest 1%. The government should, for the sake of freedom, equality of opportunity, and social and economic justice, become economically dependent on economically independent citizens. We can then reverse the dangerously growing trend for most citizens becoming economically dependent on a central government that controls the creation, issuance, and volume of the money supply.

(For details on our strategy for those reading CESJ’s critique of the monetary strategy promoted by the American Monetary Institute, see the free downloadable books, articles, videos at www.cesj.org and the platform at www.uniteamericaparty.org.)