At this late date, this post is an introduction to the articles in this blog: democratizemoney.wordpress
Introduction: Hey, That Worked
By T. Edward Westen, 2017
(My apologies to all the Economists I malign and misrepresent)
We live in the age of belief. Entire structures are supported by millions of people believing in those structures. Without enumerating those structures and embarrassing a lot of well entrenched shaman, I will illustrate what I mean by choosing the most arcane and esoteric of all the structures supported only by belief and only potentially expose one group of shaman—the economy and economists.
Before I start, we need to be on the same page about what a shaman is. So let’s go to an authoritative source- https://www.merriam-webster.com/dictionary/shaman The authoritative source gives this: Definition of shaman for English Language Learners
- : someone who is believed in some cultures to be able to use magic to cure people who are sick, to control future events, etc.
Now, clearly economists would object on the basis of “we don’t pretend to cure people.” However, if we expand the notion of people to collections of people, economists do deal with curing economies (or at least attempting to cure sick economies). And their objection continues “and we don’t use magic.” It seems to me the phrase “voodoo economics” from a bygone era would suggest someone once thought they used magic. However, more to the point, real magic uses unfathomable (not to be understood) words and a lot of waving of hands to work. Have you ever listened to an economist? Question, if you tied an economist’s hands to the arms of a chair could he or she still be able to talk? Now if the magic is only illusionary, then the economist fits the bill again—distract folks with numbers and tell an incomprehensible story about them while you pull stings behind the scenes to raise of lower this or that rate and make the patient, er, economy better. But finally, we get to the real substance of the economic shamans’ tool kit. Predicting the future to control the present. “If we increase interest rates now, we will keep a lid on inflation in the future.” Notice the sleight of hand with words. They tell you what to do to make a specific outcome in the future happen. But what they are really doing is getting some to change present behavior with the promise of something better in the future. Do their predictions come to be? I leave that to you. However, we believe in economics. One last parting shot at the economist’s ability to solve problems. Ask and economist “If you were stranded on a deserted island in the middle of an ocean, how would you get back to civilization?” 9 times out of 9, the answer will be “Assume a boat.” Yet, we still believe.
To be fair, the economists are trying to make sense of human activity both individual and collective human activity. So, since they have tackled a job of understanding more difficult than rocket science (where everything works or goes boom) we really shouldn’t pick on them. However, the economist’s activities in making sense out of what we humans do in exchanges of goods and services, hoarding and other similar things, tends to perpetuate what we have done in the past. This is not always a problem until one understands that what we have done in the past in exchanging goods and services has been to, for example, invent money. Now once out of the box, money takes on the quality of “say that is a neat trick—I give you money and you give me a good or service and I don’t have to give you a good or service in return.” “HEY, THAT WORKED.” That morphs into “I want to give you fewer monies for that same good or service the next time.” But, for that to happen, there has to be less money available the nest time so it has higher relative value to the goods or services exchanged for it. “Yup,” the economist says, “now you are getting into the nitty gritty of what we do. We figured out that stuff about relative value.” No, you sold us a belief in relative value. It turns out money had more value not only when it is more scarce, it has value when one increases the supply of it. “Wrong,” the economist says, “When the supply of money increases inflation kicks off.” OK, then why did the economy not blast into hyperinflation when you guys increased the money supply, without printing more bills, I might add, with Quantitative Easing? “Oh, that is easy to explain,” the economist will reply waving his or her hands about. I am still waiting for that explanation. But essentially “HEY, THAT WORKED.”
What really happens is someone tries something, to whit the King of Lydia, had some electrum stamped with his portrait on discs of it and someone said, “HEY, THAT WORKED.” So, that King and others kept on stamping out coins until coinage was believed by everyone. Everyone believed gold and silver coins, although silver and copper were poor seconds to gold, was the only way to go. But gold coins had a problem. They are heavy. If you wanted to have a good night out on the town, you could carry enough gold coins to pull it off (unless you got mugged. Then the thief would be slowed down by the weight, but I digress and that is another, and probably more interesting story). But if you wanted to buy a boat load of olives from “Oliviania,” you had to have a wheelbarrow or perhaps a donkey or camel to carry them. One day, a fellow dropped a wheelbarrow full of gold off at his local gold smith and the smith game him a receipt. As he was walking along feeling foolish pushing an empty wheelbarrow he went past a stall with the tastiest spice he had ever encountered. The stall had a barrel of it. He enquired and found it was for the amount of gold he had just dropped off at the gold smith. Holding his receipt up, he told the spice seller “I’ll just take my wheel barrow back to the goldsmith and get the gold.” The spice seller stopped him. “Say, can anyone turn that in for gold?” The fellow with the empty wheelbarrow said, “Sure.” The exchange was made—a barrel of the tastiest spice in the world (and the rest of us have been trying to figure out which one it was ever since) for a gold receipt. Someone said “HEY, THAT WORKED.” And goldsmiths instantly (OK, maybe a bit slower) became bankers.
Moving around all that gold gets expensive. So, someone thought to leave it wherever it was stored and just put property tags on it: “France,” “USA” and the like. And, “HEY, THAT WORKED.” However, people wanted gold in bad times. That posed the problem for the US depository. If people cashed in their gold certificates for gold, the depository would not have enough gold to cover international transactions. So, the Congress made owing gold illegal, except as jewelry and collectibles. The US government called in all the gold. So domestically, the US was off redeeming the then modern equivalents of former goldsmith receipts for gold. “HEY, THAT WORKED.” Then Nixon stopped redeeming foreign government obligations in gold. “HEY, THAT WORKED.” Currently the Federal Reserve creates money by purchasing debt, mostly US Treasuries on the secondary market. “HEY, THAT WORKED.” To be fair fractional reserves (having actually been invented by those early goldsmiths) has been around a long time. Indeed, banks use it to create temporary money. However, the Fed’s open market operations take it to a new level by purchasing securities on the open market with money the Fed orders printed or by making entries on their books against which banks can draw. “HEY, THAT WORKED.” Indeed, all monetary authorities around the world produce (create) money this selfsame way. “HEY, THAT WORKED.” That left only fiat currency as money. Fiat currency is money because the government says it is. Read a dollar bill or any bill: $5. $10, $20, $50, and $100. They all have the same statement: “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” “HEY, THAT WORKED.”
From the King of Lydia having some electrum discs stamped with his portrait to the printing “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” Each transition probably involved a line of thinking something this: if it works this way now, wouldn’t it be better if . . . None of those logical transitions had a theoretical base such as exist in physics, chemistry or the other hard sciences. All those transitions had was someone trying a change based upon “if it works this way, and it seems to, why wouldn’t if work if we changed this just a tad bit to make it easier. Sure, there were issues of control and who benefits along the way, but largely the changes were pragmatic to solve one kind of problem or another with making transactions with money. Just think how much gold Spain would not have lost, if the films are correct, to pirates or ship wrecks if they could have left it in a depository in South America and simply moved passion tags around when needed. But, sadly for Spain, that change had not been made in the 16th Century.
So, what will be the next change. I propose that the next change be to democratize money creation. Presently new money is supplied to the economy through a limited number of “dealers” and financial institutions who sell debt instruments to the Federal Reserve. Those dealers then buy other debt instruments resulting in some of that money financing of buildings, factories, inventories and thing that generate economic activity. Eventually some of the new dollars end up in paychecks and get spent by consumers who are workers. One would not be far off by asserting that new money goes to people who already have money. Indeed, one would not be far off by asserting that is the same issued that William Jennings Bryan addressed in his 1896 Cross of Gold speech is present today—conflict between the rich and the rest of us (I read somewhere that tight money is good for the rich, but I can neither confirm nor make sense of that. Regardless the rich seem to be for tight money and the rest of us for a more generous supply). Since the current money creation system is money in at the top of the economic pyramid with some making it down to some of the rest of us, it could be characterized as a trickle-down money creation system.
Arguments for the trickle-down money creation system are: investments in factories create jobs, whne workers have those jobs they spend money causing economic growth. An interesting fact is that 70% of economic activity in the United States of America is attributed to consumers. Now think, if 70% of the economy is due to consumer spending why do we spend so much effort to put money in the top that only trickles down and not all of it gets to consumers to spend? Consumer spending varies wildly due to things like consumer worries about the future, the economy, and sick family members. When consumers feel relatively confident about “stuff” they spend. When they feel uncomfortable the don’t spend. They also don’t spend when they don’t have money. So, if we give new money, regular as clock work, to consumers, they will have a basis for feeling rather comfortable about the future of the economy, their security and being able to care for their sick relatives.
So, if the economy works as well as it does putting money in where less than 30% of economic activity takes place (at the top of the economic pyramid), just think how much more stable it will be if we put it in where 70% of economic activity in the economy takes place. Not only that, think how much more secure people will be. This plan, will not increase taxes, will not increase entitlements, will not pit one segment of society against another it will be almost as if “all people are created equal.”
Now it is time to name a name and fairly assign blame for what comes next. I, T. Edward Westen, (AKA Theodore Edward Westen, but no one ever called me Theodore, so Ed stuck and I became T. Edward as a result) wrote this.