The economic (and perhaps political) impact of creating base money through political participation

The economic (and perhaps political) impact of creating base money through political participation

 

Initially new base money “appearing” in voter’s demand accounts in financial institutions will be an economic stimulus–a shot in the arm to the national economy. Economists, politicians, new analysts and the Feds all claim that the American consumer drives the economy. Well, consumers will uniformly have more money to spend. And, the base money voters receive will come in as regular as clockwork,   providing they vote and show up for jury duty. Will they spend it? A significant proportion will make new expenditures, some will begin to pay off debts faster, and some will save. As far as the overall impact on the economy, demand for goods and services will increase (the demand curve will move to the right and change slopes slightly). Since supply of goods and services will initially remain close to stable, prices will initially increase.

 

The supply curve is not likely to remain unchanged. Indeed, it will shift to the right in response to the increased demand and the movement of the demand curve to the right. Historically shifts in the supply curve have been governed by the availability of funds (loans, investments and profits) and external events (war and natural disaster come to mind). Not surprisingly, funds will be available. Business, if anything, is not slow in gearing up production to meet “new markets.” Businesses will demand new labor. Unlike “normal contractions,” the period at the beginning of new base money deposits in voters’ accounts, will find businesses clamoring for new hires. Rather than waiting for banks to signal that an expansion is beginning, businesses will see the increased demand for all goods and services and real property and lead the expansion.

 

Under the present system of money creation the US maintain up to 10% of the population living at or below the poverty level. Under the present system, over the past century, of money creation the “official” unemployment rate fluctuates between 5% and 25%. The real under-employment rate and unemployment rate are much higher. Poverty and both under employment and unemployment are results of insufficient individual incomes. Poverty by definition is a result of lack of monetary resources. Strangely, the unemployed are unemployable because they are unemployed. Businesses actually advertise positions with the caveat that only the presently employed will be considered. Hence, because the unemployed do not have an income, they remain employed. Also, along with the under employed who cannot take time off to look for full time positions, the unemployed face loss of actual or qualifications for income supplements such as food stamps, rent-heat-electric subsidies and eligibility for Medicaid. And that is not to mention either loss of unemployment benefits or assistance from private charities.

 

Given that both the existence and rates of poverty and both unemployment and under employment are functions of the business cycle and the way we presently create base money. The current system must be replaced.

 

With the initiation of the new system for creating money directly in citizen’s bank account and after some fluctuations in prices and the initial growth stimulated by adequate cash in consumer hands, the economy will return to normal with two modifications. First, swings from boom to bust will be flattened out as consumers, not banks, will determine the supply of money which will be steady and predictable. Second, as financial sector firms take risks and fail or overextend themselves and cause crises, those failures and crashes will impact a smaller segment of cash flow than under the current system. We will move from an economy that can be described as “fragile,” to one where sectors can be fragile in an overall robust economic system.

 

In a sense, moving to a money supply backed by citizens’ participation at the polls from the current system where the money is backed by “In God we trust” and based solely upon debt, is similar to our having moved from a money supply backed by gold and silver to one in which the money supply is backed by “In God we trust.” Indeed, one might think of is as returning to a monetary system backed by something from a system in which the money supply is backed by the legal requirement to accept notes “as payments for all debts public and private.”

 

Value in objects (goods) and actions (services) stems from two sources. The first is the labor, effort, time and skill that some one or more persons devotes to that object or activity adds value to it. Read Adam Smith’s discussion of pin making to see the extent of value added and note the multiplication of value by specialization in The Wealth of Nations. Put simply, man or woman drawing out wire, cutting it, fashioning a head an sharpening the other end makes a lump of metal have more value-a specific value because of the uses to which it can be put after the man’s or woman’s effort-than it had as a lump of metal.

 

The second source of value comes about because another person wants the fashioned pin for any reason utilitarian, decorative or even religious.

 

There is an interaction between the fashioner of an object or activity and those who desire that object or activity but have not fashioned it themselves that increases the net worth of the object or activity over the fashioning itself. This is to say without the organized structure of a market there would only be marginal value added by fashioning an object or activity for one’s self. Further, without the protection of ownership and insurance of an equitable way to transfer ownership, government, the value in the object or activity would remain marginally more than the object in its raw state or the activity simply being acted out. Hence, the political process that is government along with a market allows, nay facilitates adding value to objects and activities.

 

In a very straightforward manner value comes from individuals organized in markets and from governments. What both political and economic observers have failed to recognize is that the greater the number and level of involvement by individuals in both the market and the government the more value those people create. The present money creation system systematically excludes or restricts the participation of whole groups of individuals from both the market and politics (governing).

 

It is strange that a socio-politico-economic system which values equality, compassion and individual responsibility to the nation would choose a non-egalitarian, cold and irresponsible manner for providing all members of society with the means to full participation.   Depositing new base money in the accounts of banks and securities dealers is elitist, harmful to the most vulnerable in our midst and as responsible as having the fox guard the hen house.

 

Notice that by having the Fed deposit new base money in voter’s accounts the system becomes egalitarian. This will encourage participation. Some will argue such encouragement is voting for the wrong reason. In fairness the mere act of voting will make some citizens more attuned to current political activities. Since increased citizen attention will occur, how is that a wrong reason to vote? This is nothing more than a which came first quibble. With political participation will come ownership or a tangible stake in America for the poor, unemployed, under employed; and they will have resources with which to have a fighting chance not to suffer because bankers or securities dealers over reach and crash.

 

Responsibility for public policy-laws and actions of governments-rests with voters. After all, voters put representatives, executives and in some jurisdictions, judges in office. However, voters do not have the resources to counter irresponsible actions by banks and other corporations in between elections. If, however, citizens had the cash they could vote with dollars in the market between elections. Who is to say that at least some richer citizens might not choose which financial institution will receive their new money deposits based upon lending policies?

 

 

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3 thoughts on “The economic (and perhaps political) impact of creating base money through political participation

  1. Whilst I agree that paying people to vote will engage them in the whole political process, I do fear some of the side issues. Once politicians become aware that the ‘ordinary voter’ is more likely to turn out to vote, perhaps they will start to appeal to the baser issues that dominate politics, but are rarely election policies. (Except for Trump, or Neo-Nazis) Racism, xenophobia, welfare payments, disability payments, and medical care.
    The strange thing is, that it is generally the disengaged and less politically astute person that cares so much about these kind of things. They are jealous of those who receive them, whilst they are working for minimum wage, in a thankless job. Resentment of foreigners doing jobs that they would never do themselves anyway, and fear of far-flung ‘enemies’ in places that they couldn’t find on a map.
    My own worry is that the far right would benefit from this system, at least at the outset, until education and experience showed otherwise. Just a thought.
    Best wishes, Pete.

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    1. Responding to your comment, Pete, could take more than one go. Ironically all the furor in the current American Republican presidential nomination contest about democracy indicates someone has missed the fact that America is a republic and not a democracy. The constitution sets forth a republican form of government not a democracy. Indeed, if one goes back to the Federalist Papers (a series of newspaper articles intended to reassure the state electorate of the nature of the document they were ratifying and show a fear and distrust of democracy (the masses) and demagoguery. It is precisely the kinds of us versus them appeals that Cruz and Trump are trumpeting (pun intended). While we may be a bit taken aback by these appeals to voter’s more base nature, Cruz and Trump are not the first to do this. American political campaigns has a rich history of pitting one us against one or more “thems”—segregation may be one of the worst examples, but it is not alone. Most of the Contract with American that Newt Gingrich championed and largely succeeded in passing through Congress was an attack on those in need of welfare and a helping hand. Indeed, even Clinton’s crime initiative resulted in a war against and mass incarceration of black males. So, what you are positing already is a fact of political campaigns. I do not know how prevalent such pitting of us against them is in the UK or elsewhere, but it is a standard right wind and nationalist tactic that has the short term effect of putting power in the hands of those would end up making both the us and them suffer.
      In another essay in this blog I will present some policy implications that should obviate some of the potential characterizations for “them”. So let me stop at this point and say, yes, you could be right. But you already are. I hope the institution of an individual based system for putting new money into circulation obviates some of these problems. Unlike most people, however, I could be wrong.
      I should also like to add that I tend to want to refer to the new money creation system as part of performing civic duty rather than paying people to vote. Yes, it ends up paying people to vote. However, if there is another way to allocate new money that doesn’t pay people to vote, I am open to it as long as it is egalitarian—everyone gets the same amount and no one is excluded except by their own decision to opt out (say, buy not voting in my presentation).
      I have envisioned a problem with candidates for office making promises to increase the amount of cash and driving the economy into a rampant inflationary cycle-the Roman Circus and Free Bread problem. I will address that issue later in the blog

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      1. I was actually going to use the phrase ‘Bread and Circuses’. I avoided it, because it is unlikely that there would be any ‘Circuses’ to placate the masses. I will continue to look forward to the next articles.
        Best wishes, Pete.

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