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Baseline Welfare: A Primer

Baseline Welfare: A Primer

What are the mechanisms that so massively threaten our economic and social system today, such that peoples' rights and freedoms face ever-increasing—and increasingly rigid—restrictions, and such that the real economy, as a result of spiraling debt and illiquidity, can no longer cover humanity's basic needs?

A monetary system based on debt with interest

The vast majority of money is created not by Central Banks but by private banks in the course of normal lending. Money that is “lent” by a private bank is, at the start, the creation (as debt!) of that bank when it creates the loan—this money did not exist before! In that sense, it has no actual value. The “collateral” of the borrower—in the form of a mortgage on his or her property—is the only hypothetical value it has. At no point does the bank itself provide any kind of real-existing (i.e. property-based) security on the money. The bank then requires that this loan, plus interest, be “paid back.” This creation of money occurs with a couple of keystrokes at a computer. Through this mundane bookkeeping entry, however, only the loan capital is “created” in the economy, never the money to pay the interest—this money simply does not exist in the world. Thus, in order to pay this interest, people (who can't create money out of thin air as banks can) must collect the necessary sums over time from other people (who also cannot create their own money and presumably also have interest to pay). In our current political system, this is what we call “healthy competition.”

It is therefore unmistakably clear that people or groups of people (i.e. corporations, communities, nation-states) who cannot create money themselves will become hopelessly over-indebted within a relatively short time (the models say 70 or 80 years) at which point borrowers' collateralized property goes to the banks. A monetary system so constructed can therefore be taken to be quite simply the planned, gradual dispossession of all entities that are not banks—a brutal daylight raid run straight through the economy and the citizenry.

Price competition among corporations

Companies in today's economic system are locked in price competition. This is primarily due to the loan- and interest-based monetary system described above. As a result of this price competition, let us be frank, companies compulsively set out to reduce the number of their employees. A marked acceleration of this phenomenon can be seen stemming from modernization and automation. An ever smaller human workforce is needed for conventional production and delivery of services (in Japan there are even robots to care for the elderly—though this could be considered quite contemptuous of our need for human warmth...). It follows, then, that in this economy compensation from labor alone will soon no longer provide people with sufficient income or, consequently, buying power. The state, because of its own rapidly ballooning debt, will also in short order no longer be able to fill this void with unemployment payments, social programs, emergency funds, and the like. Corporate leaders obviously overlook the fact that without peoples' buying power their products and services will no longer be sellable—they blindly continue to demand increased production (except in cases where scarcity drives profits even higher—see below). This means we are experiencing increasing overproduction at a time of declining buying power—a clear sign that the distribution of outputs in the economy has ceased to function.

Until now any missing buying power could be made up for, to some extent, by increasing debt through private loans. But now that so many debts have exploded so quickly, exponentiated through the system of interest on interest, more and more banks are themselves becoming compromised and are not in any position to make new loans available.

Therefore, as long as companies find themselves in price competition with one another, jobs will constantly be cut—whereby private incomes will no longer come from company profits through customer sales but from...from where? Taxation and redistribution?

“The Law of Supply and Demand”

Today's economic system follows the Law of Supply and Demand, which means scarce products achieve consistently higher prices than products that are available in abundance—let alone overflow—“in the market.” This rule of the game follows no natural law, but rather is a willful determination that automatically results in ever- (in some cases artificially-) increasing scarcity, leading to ever-greater profits for those producing the scarce (or made-scarce) products...even to the point of pushing those who desperately need the products in question further toward the brink. These owners and producers therefore have, as speculators, a massive interest in intentional scarcity, whereby poverty and desperation broaden while profit (which is purely theoretical, let us be reminded: in the event of economic collapse, this fiat money could hardly be turned into goods and services for those successful speculators who have hoarded it) continues to grow.

At this point it is extremely important to understand that we are only talking about a rule of the so-called “Free Market” that is voluntarily accepted as a norm, by implied consensus, among market actors and that could be changed at any time. The goal of overcoming global scarcity could theoretically also be thus established by market actors—whereupon the rules of the game could be refined so that, for example, those actors which contribute the most to this cooperative goal would also receive the greatest rewards. “Profits” in such a (non-zero-sum) system would no longer come at the expense of market “losers” (as happens in the current zero-sum system), since in a non-zero-sum game “losers” do not exist.

The impossibility of a centrally-directed money supply

Money that is created by banks through lending is itself anonymous, insofar as the units of money (to begin with, the numbers on a computer in a bank) have no serial number. This means their precise path through the economy cannot even really be imagined, let alone overseen. It is precisely for this reason that theft, extortion, bribery, money laundering, and similar abuses cannot be readily prevented. Several solutions to this problem have been proposed—and even tried—but among them no one alone is a catch-all. Some creative combination will be required.

In the case of a purely electronic currency (as proposed, for example, in the “Vollgeld”—in English “Total Money”—and “Monetative” initiatives), it would be possible at any time not only to track the path of units of money through the economy but also, on the basis of comprehensive contracts, to limit these units to exchange only among certain people or only for certain uses (“Functional Money”). But if, as today, the money supply is constantly expanding through the lending of private banks, there is always the danger that the amount of goods and services will not expand along with it at the necessary pace, which can lead to the degradation of money’s value (inflation).

In today’s free markets, as discussed above, when demand outstrips supply companies react automatically by raising prices. This presents similar problems for another among the proposed solutions, the Unconditional Basic Income. Such a program, through which a fixed minimum amount of money is put at the disposal of the population purely for the act of consumption, could likewise create inflation by driving up demand (and therefore prices) in the economy, thereby devaluing itself.

Finally, speeding up money’s circulation and discouraging hoarding by imposing negative interest in the manner described by Silvio Gesell in Wörgler Freigeld still creates a zero-sum monetary system in which the problem of creation and destruction of money is not solved. Since Wörgler Freigeld (this could be imagined in English as the “Liberation-Money” of Wörgl, the site of an interwar Austrian local-currency experiment) was originally covered by the Shilling, it functioned only as a complementary currency (an extraneous regional currency existing in parallel with a main currency; its functioning is bound to the functioning of the main currency).

A Democratic Solution

As the increasing automation of production makes human labor more and more superfluous, some variation on the Unconditional Basic Income will indeed be the only option available to prevent a spiraling impoverishment of the populace. The money required for such a measure, however, can obviously not come either through taxation or by un-funded government payouts (i.e. further increases to national debt). Any standing debts in the current system should be neutralized by releasing debtors entirely from their obligations and compensating lenders with democratically created “Vollgeld” (money fully backed by real-existing assets) which would circulate as Functional Money—that is, limited to certain practical uses within certain practical circles.

This could be a promising start to a comprehensive solution in that it must necessarily transfer the power of money-creation—only for a concrete purpose, mind you—away from private banks to the “state,” a community of citizens. Each citizen would receive (for example in his or her Social Security account) an amount that would allow him or her to meet his or her daily needs (food, clothing, rent, energy, transportation costs, health care, etc.). The creation of money required for this could occur through a simple bookkeeping entry in a transparent, well-overseen Democratic National Bank (DNB) similar to that imagined by proponents of a “Monetative” branch of government.

The prices of goods and services made available in this accounting system must of course initially be strictly regulated—in other words, it must be made sure that sellers in the market react to demand exceeding supply only with the expansion of production and distribution capacity and not by raising prices. In so doing, these sellers would still be supported by people, customers, who have earned—in Functional Money, of course—beyond the Unconditional Basic Income. That these sellers’ profits be limited is justified as long as they, on the one hand, also receive the Unconditional Basic Income and, on the other hand (thanks to Functional Money) will only offer their wares within a certain limited circle of commercial activity—what amounts to a guaranteed customer base.

Upon payment, to push the scenario further, this Functional Money would immediately disappear—that is, not the seller/producer of goods and services but rather the DNB would be paid, at which point the money is effectively destroyed. The sellers/producers would then be compensated directly by the NDB through special awards, again of Functional Money; these sums themselves would also be destroyed immediately upon their payment “back” to the DNB for further goods from other sellers, and so on. Ultimately this monetary system would consist of vouchers which, upon being redeemed, would be thus eliminated—to be neither traded nor passed along in any other form.

In a second step, the vouchers in such a system could also be issued not according to “prices” of goods and services but according to these products’ amount and quality within certain categories. This would make market bubbles, speculation, corruption, and theft (at least of money) essentially impossible.

In the long term, the goals of this new economic system for production on the one hand and distribution on the other should be separate. Production should be carried out in a sustainable system of circulation in which as near as possible to 100% of refuse is reused or returned to nature in a harmless form (Cradle2Cradle). And every new innovation should immediately be made accessible to all cooperative partners (not “competitors”) in a given industry; only in this way can it be made sure that progress continues and production methods keep being improved. Innovators who make their ideas available for the common good will be compensated with special awards of further goods and services through vouchers; such awards could also (it would be up to the recipient) be substituted with appearances at public events, public recognition, or other honors—out of respect for the fact that motivation is not necessarily only materialistic in nature.

Such an economic system also presupposes a fundamentally different educational system in which on-the-job efficiency is no longer the central goal; rather emotional and social competencies come first (the so-called “Herzensbildung,” or Education of the Heart) since these form the basis of all interaction. In this system, young people would acquire knowledge and skills through their practical application towards the enhancement of the common good and in as cooperative (yet self-determined) and meaningful a way as possible.

Translation: Ed Sutton

 

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