However, we think in boxes. In the boxes in which we think fractional reserves in banks create money. Sure, we have established a central bank in an attempt to “smooth out” the growth of the money supply, however, even with the Federal Reserve Bank; we still have a bust and boom (business cycles) economy. What is needed is an “out of the box” mechanism for creating fiat money that does not generate cycles of bust and boom (a so called business cycle)

Money makes our modern society work smoothly. In a very real sense, most of us use an electronic or digital form of money by-passing physical notes altogether. Essentially using electronic bank transfers, credit and debit cards an even our cell phones implies that a significant part of the public accepts that they have used bookkeeping entries as money. So, operating out of the box is nothing new for Americans when it comes to money.

Suppose the US were to base its monetary system on citizenship? Instead of creating base money by Fed purchases of financial instruments-assets based upon debt, create money as a consequence of individual political activity. Since voting is the most common form of individual political activity, distribute new base money to citizens who vote. In that way, money would be created as people participate in the fundamental political process. Since elections are held infrequently, spread out a citizen’s new money for voting across an election cycle-say in a weekly or monthly stipend. In this fashion the money supply would grow in a smooth or regular fashion. With a steady supply of dollars created at predictable intervals, business cycle expansions and contractions would decrease in magnitude (smaller fluctuations between the peaks and troughs if one graphed the cycle).

One consequence of distributing newly created money to voters will be an increase in the number of voters. Indeed, citizen participation at the polls will approach 100%. Another consequence of distributing new money to voters will be the creation of a tax free income. The 24h Amendment to the Unites States of America’s Constitution makes taxes based on voting, poll taxes, unconstitutional; hence, new money obtained as a consequence of voting will not be, and should not be, taxable.

This means that federal, state, local and special district governments will need a source of income. Since new money is created by citizens’ votes, why not give new base money to the various governments based upon the level or number of citizens voting for offices and ballot proposals in their jurisdictions? This would provide governments with steady, predictable incomes unaffected by swings in the business cycle.

So how much new money should be create in an election cycle by voters for themselves and their governments? At first blush, it makes sense to create enough money so that a voter would be able to live on it alone. In addition, the average individual should receive sufficient new money to feed, clothe, house and medically insure him or herself–say $12,000/year (as of this writing the poverty level for a family of 4 is about $23,000/year). The current federal tax rate on this $12,000 of income yields about $1375, so give the national government $1375, states $650, local governments and special districts between $50 and $500 for each participating voter in each jurisdiction. Clearly deciding which governmental units would be eligible to receive base money needs a great deal of thought to avoid a proliferation of new political districts created to receive base money and yet allow for a continuation of the creative and flexible solutions to problems and services that transcend traditional jurisdictional boundaries. Since base money is not fixed and the conflicts will not be zero sum, this will pose less of a problem than current governmental budgetary decisions do under the current system of money creation, ie. the struggle between providing services and collecting taxes.

This means that up to $3,000/year/voter will be generated for government operations at all levels by voter participation.   So, $15,000 in base money/voter will enter the economy each year. Is this too much or too little? If it is too much, inflation will result. If it is too little, deflation will occur. It is not a question of rationing dollars; it involves questions of economic growth/decline. The actual amounts settled upon will have to reflect the political decisions made about growth, stability and contraction.

Banks will still make loans, so the multiplier will make that $15,000 act like more depending upon reserve requirements and how much risk banks are willing to take.

The Federal Reserve will continue to buy and sell treasuries (debt obligations) to fine tune interest rates and financial sector health. However, the Fed will be operating on the margin rather than attempting to keep the economy’s money supply on the right path with their existing tools.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s