A Reintroduction

Things are awry; and no one seem to know why. However, it is how money is created hat is awry; and it is how money is used politically that is awry.  The way money is created and used politically fundamentally undermines the very equality of Americans.  First, in looking at how money is created, understand that there is nothing essentially wrong with the dollar except how it is created, or more properly to whom it is distributed.  “…[A] long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defence [sic]of custom. (Thomas Paine, Common Sense, Introduction, 1776).  The customary way dollars are created is by Federal Reserve Bank deposits into the accounts of banks or securities dealers in exchange for assets (normally, but not always, U. S. Treasury obligations) during what are called open market operations.  Banks then can loan more money since they now have currency (money or cash) rather than the assets they formally held.  So, new money is principally issued through banks.   Fundamentally, banks, by their very operation, are choke points in the flow of money.  Banks contribute less than 10% to GDP (https://en.wikipedia.org/wiki/Financialization [July 3, 2016]) where as consumers account for 65% of GDP. (Consumer spending accounts for a majority of spending in all advanced nations . . . In dollar terms, PCE’s share of GDP in the third quarters of 1977, 1987, 1997 and 2007 were 62.5, 65.9, 66.7 and 69.5 percent, respectively. https://www.stlouisfed.org/publications/regional-economist/january-2012/dont-expect-consumer-spending-to-be-the-engine-of-economic-growth-it-once-was [July 3, 2016]).  In effect that leaves 25% of GDP for all other sources of economic activity with the federal government accounting for most of that—20% of GDP. ( https://fred.stlouisfed.org/series/FYONGDA188S  [July 3, 2016]).

Strangely banks are one of the primary means of wealth accumulation and consumers are not primary focal points for wealth accumulation.  Quite the contrary, consumers tend to be creators of debt.  So, as side issue, we create money be depositing it into the accounts of wealth accumulation machines (banks) and not in the hands of people who tend to spend more than they have.  While the obvious conclusion is that creating money in the accounts of consumers will cause them to spend more, go into more debt.  Yes, I suppose so, however, notice that spending will create more economic activity (perhaps, growth) unlike putting money into wealth accumulation machines which tend to be very caution about what that wealth is used to purchase (fewer economic transactions, and then more transactions within the financial sector than anyplace else {note the financial sector accounts for 7% of GDP including banks and even some Treasury activities.  So wealth accumulation has only 11% of the impact on GDP compared to the impact of consumer spending on GDP. https://www.selectusa.gov/financial-services-industry-united-states  [July 3, 2016]}).  Essentially money is created by deposits in to the wrong sector’s accounts—banks’ and securities dealers’ accounts and not consumers’ accounts.  I will adjust “consumers” to “citizens” for reasons that will become obvious to the reader in the flow of this book.

Elsewhere in this book, the section entitled “Banks are Failures” I will argue that indeed deposits of new money into banks’ accounts is one of the reasons for the business cycle (boom and bust or inflation and contraction, or growth and recession/depression).  The reader will see at that point that depositing new money into consumers’ (citizens’) accounts will help to smooth, if not eradicate, the business cycle and replace it with a general upward trending growth line.

While not a normal part of U. S. History or U. S. Economic History, money creation and to whom it is distributed has been a central issue since before the beginning of the Republic.  The History of Money Creation in the US is treated sketchily in a later section of this book under than title.  Suffice it to say that the terms “not worth a Continental” and “a cross of gold” played a role in the history of money creation in the United States of America.

Secondly, the role money plays in politics is every bit as non-egalitarian as the way money is created.  To put it in a nutshell, money is necessary to run a campaign for office or for/against a proposition.  Money comes from donors.  Big donations come from moneyed interests: corporations, businesses, large associations, and even rich people.  Yes, the average citizen can and does donate money to political campaigns.  However, it takes hundreds or thousands of average citizens to match the amounts given by moneyed interests.  So to keep the big money donations coming, elected officials tend to be responsive to the interests of big money.  Big money donors use paid employees, called lobbyists, to keep the elected officials informed of their interests.  Elected officials are responsive or were predisposed to support those moneyed interests at the get go.  Indeed, only those candidates who seek office with a predisposition to support moneyed interests even get nominated or have a fighting chance. Bernie Sanders is an exception to the pattern.  Yes, there are other exceptions, but they don’t get much farther than local offices.  I am not charging that there is corruption.  There is, but that is not the issue.  The issue is moneyed interests are better represented in Congress and in the state legislatures than the voters are.  Former Boss Tweed is said to have said, “I don’t care who has the vote as long as I can choose the candidates.”  At the very least, the choice of candidates is made by moneyed interests early in the nomination process.  The upshot is American public policy has a bias in favor of producers, financers and other moneyed interests.

The US Constitution apportions representatives in Congress by population for the House and two representatives from each state in the Senate.  Nowhere are corporations, producers, labor unions, financiers, and other moneyed interests mentioned.  Yet, the non-mentioned are very well represented.   The simplest way to stop this bias is to make it illegal for anyone to donate to a candidate for office or to give any gift to a candidate for office and to fully insure the prohibition make it illegal for individuals to use their own money to run for office.   It is not a question of talking America back, for the people never had it.  It is a question of implementing the words in our founding documents – equality being prime among those words to implement.

So, this work presents a two pronged strategy for giving American Government to the people: making money creation deposits in citizen accounts and eliminating donations to candidates for office (which means some form of public financing).

To catch up on most of the book go to the earlier blog entries starting back in February. When I started this as a blog, I didn’t really understand the backwards nature of postings, the first come last in the list you see.