A Socially-Owned Banking System is Many Times More Powerful than Armies

Our concluding pages, The simplicity of eliminating poverty and war will stun you, is an even more powerful article demonstrating the power of a socially-owned federal reserve. Don’t miss it.

It is understood that America’s socially-owned Federal Reserve, with its money creation powers, taking over management of those bankrupt banks is the only option to stop the current financial collapse.

But before going into the simplicity of using the power of a socially-owned banking system to stop an economic crash in its tracks and reorganize an inefficient unequal economy to one that is highly efficient with full and equal rights for all, we must point out that current powerbrokers understand the process very well.

They were using these principles to prevent financial and economic collapses and protect the ethereal world of high finance well before Japan put them into practice and they are using them heavily today (2008).

The one-day stock market collapse of 22.6% in 1987 was nearly double the first day of the October 29th crash in 1929 which heralded the Great Depression. Wall Street was paralyzed. Banks were told to keep loaning money to those bankrupt brokerages and the government guaranteed everything.

The same quasi money creation features were implemented to resolve the earlier 1982 Savings and Loan scandal, the 1990 Citibank bailout, the 1994 Mexico crisis that threatened U.S. banks, the Asian currency crisis of 1997-98, Long-Term Capital Management’s bankruptcy crisis in 1998, the dotcom crash of 2000-2001[5] and during the current subprime mortgage induced crisis (2007-08) the Federal Reserve is pouring money at the nation’s largest banks that otherwise would be bankrupt.

To keep those banks and the government afloat, base money was being increased (created) by the Federal Reserve in late 2007, early 2008, at 17% a year.

With many trillions pledged to throw at the still collapsing banks and economy, and remembering each created dollar circulating is the money supply, no one really knows what the current, 2008-09, level of money creation is.

As both circulating and base money is being destroyed as fast as worldwide values collapse, computer models of both the dollar money supply and base money dollars is, at best, also just a guess.

And this is without bringing in the many times more variables of all the world’s currencies where values are also collapsing out from under them.

Under current law, when banks go broke, they are owned by the lender of last resort which, in most countries, is the socially-owned Federal Reserve.[6]

There is precedent for assigning the full powers of money creation by, and for, society to a socially-owned central bank of a “National Banking System.” President Abraham Lincoln felt money should be created by society and spent into circulation on essential social needs without debt.

The monetary needs of increasing numbers of People advancing towards higher standards of living can and should be met by the Government. Such needs can be served by the issue of National Currency and Credit through the operation of a National Banking system.… Government has the power to regulate the currency and credit of the Nation (run an Internet search).

America has that socially-owned, but private banker controlled, central bank today but does not yet have a socially-owned National Banking System.

But that can change quickly. The 20 largest banks are broke and already effectively nationalized in everything but name.

Those bankrupt banks can be taken over by the Federal Reserve any time they wish and legislation can quickly deny those with conflicts of interest from having decision making powers within either the Federal Reserve or a socially-owned bank.

As a socially-owned and operated bank’s costs are 2/3rds lower, higher interest can be paid to depositors and lower interest charged to borrowers.

Backed by the Fed’s money creation powers means they cannot go broke and depositors and borrowers will flock to those socially-owned banks. Already in trouble, the rest of the banks will turn in their keys as their customers disappear.

With this efficiency and power it is possible to stop a financial collapse in its tracks, care for the needs of all citizens, and restructure an economy to full and equal rights for all citizens. The last 25 pages of either Money: A Mirror Image of the Economy or Economic Democracy: A Grand Strategy for World Peace and Prosperity prove that (The simplicity of eliminating poverty and war will stun you).

Honest Money Equals the Value of Productive Labor

Monopolies per se produce no value. If money contracted only productive labor and full values were paid for that labor, money would represent real value and would become a symbol of actual wealth, its use value.

Money would then be only a tool, a symbol for the trade of productive labor, which is the mechanism that functions when we describe efficiency increases equal to the invention of money, the printing press, and electricity once those monopolies and their huge blocs of appropriated wealth are eliminated.

Under conditions of equal rights, when each person is fairly paid for his or her fully productive labor and each has rights to a productive job, money lent combines land, labor, and industrial capital to produce full value in needed goods and services.

A society can be fully productive only if each of its citizens is fully productive. Neither money nor the economy can become truly efficient until all nonproductive siphoning of wealth through unequal trades, in both internal and world trade is eliminated. Likewise, every contracting of labor for nonproductive use must, on final analysis, be paid for by appropriating value from other stakeholders’ productive labor.

Powerful bankers thousands of miles away have no concept of local needs and no loyalty to local people. Farmers, homeowners, and small businesses are strapped for finance capital as their locally-produced wealth is siphoned to stock speculators, merger and takeover artists, currency speculators, and other gamblers in the worldwide market casinos, the ethereal world of high finance.

Do away with the casino aspect of both money and stock markets and local needs can be easily financed. It would be a simple matter to calculate finance capital needs and assign a surcharge to all loans to go into a socially-owned capital accumulation fund kept in, and loaned from, local banks.

Larger banks will have a department for financing large industries. Worker-owned businesses and cooperatives financed by those larger banks would be the economic ideal of labor employing capital. Everything is then local as opposed to an ethereal world of high finance.

Capital needs of each federated region of the world, each nation, each state, each county, each region of a country, and each community can be calculated. So long as there are surplus labor and resources and real value is to be produced, finance capital can be obtained through printing money. Once established, that investment fund would replenish itself through loan repayments and interest rates high enough to cover loan losses.

A quick analysis of the simplicity of a socially-owned capital accumulation fund makes it clear that wealth accumulated in the past through exclusive titles to nature’s resources and technologies, denying others their rightful share of what nature offers to all for free, has gone for many other things besides society’s finance capital needs, primarily buying and selling the capitalized values of appropriated wealth (speculation within the ethereal world of high finance) and for extravagant living (conspicuous consumption).

Every alert entrepreneur knows the big profits end up with those who call the tune with their money. With a socially-owned capital accumulation fund replacing those huge blocs of capital destined for obsolescence under the full and equal rights of inclusive property rights, citizens with sound ideas, but no capital, would have the opportunity to realize the profits from their abilities and accumulate capital in their own names.

As talent is broadly diffused, wealth, accumulated by true producers, would quickly diffuse itself relatively equally throughout the population. Again there will be no need of an ethereal world of high finance.

Industrial Credit, Business Credit and Consumer Credit

Just as each individual has rights, federated regions, nations, regions within nations, states, communities, and entrepreneurs should have rights to their share of the world’s finance capital (primary-created money and savings).

Denying social funds for speculation in the worldwide gambling casinos called stock markets, but permitting it for new speculative enterprises, would guide lending into productive channels, the real economy as opposed to the ethereal world of high finance battling to lay claim to wealth produced by others.

Consumer credit, within limits, should be a right quickly available, just as it has been pioneered by computerized credit cards. Using eye patterns, thumbprints, and signature scanning, procedures now in use, along with a credit check, risks would be almost nonexistent.

Each person’s right to credit would be tempered by being subject to standards much as they are now, and the local credit union, an integrated member of the banking system, would be in a position to know a member’s creditworthiness.

Local bankers should best know the needs of the region and the trustworthiness of those who borrow to build and produce for that society. If not, they should not be bankers.

The economies of prosperous nations are dynamic due to the hopes and dreams of their citizens. These hopes are the motivation for the millions of small businesses springing up. The economic health of a nation requires that those with ideas, talents, and energy have access to finance capital. With rights to credit, a nation’s talented can bring together land, labor, capital, and technology at the right time and in the right place to fulfill society’s needs.

If there is a shortage of finance capital for productive use, and the resources are available and can be used without destroying the environment, a nation’s Treasury-Federal Reserve simply creates money and spends it into existence, up to the level of a balanced money supply, building infrastructure or providing essential services.

Through social collection of resource rental values and the greater profits of efficient socially-owned banks—both are social earnings, neither are properly private earnings—paid to society, all citizens pay their share of normal social costs through the products and services purchased with their relatively equal pay for equally-productive work.

Only individuals operating under free enterprise and competition, partially so under monopoly capitalism but fully expressed under the inclusive philosophy of full and equal rights, can develop the millions of ideas necessary for the progress of science, industry, and society.

In order for citizens to fulfill these visions and provide their special expertise, it is necessary they have access to credit. With entrepreneurs having rights to finance capital and banking personnel trained to be generous, yet careful, innovation in production by business and industry, productive speculation, would expand.

Credit is currently rationed by the simple method of checking track records and lending up to a certain percentage of a borrower’s equity, a great rule for monopolists. “Loans are made in a very impersonal way, everything depends on ‘track record,’ and if you don’t have a ‘track record’ [or equity], as most young people do not, you can forget it.”[1]

Access to investment capital should be a right based on productive merit as well as collateralized equity. Thus credit for productive people in their first ventures and those with a vision for productive expansion would be easier to obtain.

With employees of a banking authority trained to be alert to productive investment requests, these loans would be quite simple. When a loan request was received, an evaluation would be made of its potential productive and financial success. If it looked reasonable, the loan would be approved.

This is precisely how loans in America were made for the first 15 to 20 years after WW II. After the boom years were over, banks reverted primarily to loans against equity.[2]

With the disappearance of monopoly values, smaller loans would be backed by a smaller, secure, true value and those values would be matched by the savings of fully-productive labor and entrepreneurs within a much more efficient economy. A loan would, of course, require financial accountability by the borrower just as it does now.

Through regional capital accumulation funds charging enough interest to cover risk, loan institutions can fund new projects. It is not necessary to lend strictly to owners who would then hire workers.

Those with insight need only prepare a prospectus describing the product or service, market potential, profit expected, financial requirement, and labor needs. The loan institution would study the proposal and, assuming the ideas were sound and beneficial, would approve the loan.

Workers would study the prospectus, and agree to 10-20% of their wages being deducted as payments until their 60-80% of the stock is paid for.

Those who planned the productive endeavor would own, and be responsible for paying for, 20-40% that industry’s value. Fully worker owned and operated industries and cooperatives should receive equal consideration. Their financing would be the economic ideal of labor employing capital.

With workers owning a share of industry and a share of their wages used to pay off the loan, those owners would be true producers. Society would receive useful products or services and the nation’s savers and national treasuries, providing primary-created money when necessary, would be fully paid.

With these triple benefits to society, bankers should be taught to pay close attention to requests for investment credits; they are the sinews of capitalism. Most workers would stay on the job, but, once a new business was secure and their new stock had capitalized value, the talented ones would search out another prospectus, help develop another business, train more workers, gain more capitalized value, and move on again.

Labor would be both mobile and highly productive just as capital is now and the most productive of those workers would be the accumulators of capital. This would be mobilization of labor without the dispossession that has been so typical of past capitalization processes.

Labor would have the same rights to gains in efficiencies of technology as investors now have. The talented would be in high demand by the developers of industry. Periodically, employed working hours must be lowered in step with technology efficiency gains.

Besides collateral protection, there are three flows of money that make those loans secure, resource rents, profits, and a share of wages. Every success increases the use value, and thus the rental value, of land.

As they are sharing in those profits, society’s collection of resource rents—either directly or through lower product and service costs—could, and should through higher interest covering risk insurance, permit it to accept its share of the risks of new entrepreneurs.

With these restructured borrowing rights, many more people would qualify for investment capital than under equity loans. If successful, they and their workers would own that capital honestly, as opposed to the current custom of capitalizing values through exclusive titles to nature’s resources and technologies laying claim to values produced by, and properly belonging to, others.

Those searching for a higher return, and confident they have found good investments, could directly employ their capital. Those with the opportunity to lend their savings at a higher rate would be free to do so. But they could no longer obtain high profits by bidding on exclusive titles to nature’s resources and technologies and, through that monopoly structure, laying claim to wealth properly belonging to others.

The huge blocs of accumulated capital confiscated from productive labor, roughly 60% of all investment capital, would be transformed into equally-shared use values under these proposed conditional titles to nature’s resources and technologies.

Once restructured, a society must reduce labor time and share productive jobs. If this is not done, new mini-monopolizers, in the form of excessive job rights, will emerge. A socially-owned capital accumulation fund within a modern financial commons would eliminate the ethereal world of high finance composed of capitalized unearned rental values and the many games played with this surplus investment capital laying claim to ever-more wealth produced by others.

Japan operated just such a capital accumulation fund and utilized it with a vengeance to reach its current position in world trade. We do not suggest a nation’s international trade capital accumulation fund (known today as sovereign wealth funds) be that aggressive but it would be great protection against others’ predatory trade practices.

Massive accumulations of unearned capital are a loss, not a gain, while the roughly 40% honestly earned, saved, and operating the economy, is efficient. That which was not honestly earned is inefficient to the extreme.

Not only is creation of money, socially-collected resource rents and profits of socially-owned banks funding infrastructure and other essential needs more efficient than when funded with finance capital appropriated from its proper owners, those massive funds floating around searching for something to own is the ethereal world of high finance laying claim to ever more of the wealth properly belonging to others.

China Understands Efficient Banking

So long as there is surplus labor, unused resources, and a social need not cared for through the current circulation of money, a nation’s, or a federated region’s treasury can create more debt-free primary money (base money). Through creation of money and raising or lowering required reserves, a society can maintain the proper monetary balance as base money circulates.

That process, in use by China (they increased reserves 13 times, interest rates 6 times, and the money supply 18%, in 2007 and is using those financial tools more intensely as the crisis worsens in 2008-09) is rather simple. If reserve requirements are doubled, loanable funds (loaned circulating monies) are reduced 50%. And if primary-created money simultaneously doubles reserves, circulating money (the money supply) remains the same (which is why China increased its mandated reserves to 17.5% as inflation threatened in 2008).

When the economic problem is over, money creation and required reserves are returned to normal. Creation of money for infrastructure is a correct monetary policy but only in a developing or expanding economy.

A fully developed economy no longer expanding can create money only up to the level money is destroyed which is only in bankruptcies or natural disasters such as hurricanes, tornadoes, and earthquakes. In a stable—no longer expanding—economy, infrastructure and all other essential needs can be fully funded from resource rents and socially-owned bank profits with their levels calculated to cover those costs. Only money destroyed by disaster is recreated.

A Green Money Policy for Sustainable Development

For developing or expanding economies, creation of money must be planned within the earth’s resource capacity and its ability to absorb society’s wastes without ecological destruction. (a Green Monetary Policy for sustainable development) In a nation’s early development, so long as there are surplus labor, resources, and industry, debt-free primary money can be created for education, roads, electric power, water systems, sewer systems, post offices, communication systems, etc.

In the very early stages, remembering that balance in the money supply can be retained by increasing reserve requirements, even industry can be built with socially-created money.

Those options are only viable if that federated region’s currency has no value outside its borders and world trade handled through a world currency (a dual currency system).[3] Once developed, societies can calculate resource rents and banking charges to cover infrastructure, universal health care, and retirements (economic accounting may require Social Security payroll deductions).

Basic infrastructure makes society far more efficient and greater wealth is produced as this primary-created money circulates funding other segments of the economy as circulating money is loaned and reloaned to produce more wealth.

When primary-created money is spent for development, society owns what is built or has a mortgage against that created wealth. To the extent there are unemployed workers, unused resources, unused industrial capital, and unmet human needs, and taking into consideration the capacity of the earth to recycle wastes to protect resources, ecology, and environment for future generations, it is only necessary for a nation’s Treasury-Federal Reserve to create the money to employ that labor, utilize those resources, and meet those needs.

A Modern Money Commons

Though many money theorists are unaware of it, fractional reserve banking as it was structured in America during the Great Depression was very close to being a modern money commons. All that was missing was a law preventing anyone with a conflict of interest being an officer of the Federal Reserve or a bank. The added necessity of socially-owned banks could be a reality overnight by the Federal Reserve taking over bankrupt banks.

Through “revolving reserve accounts,” (money circulating) total deposits and loans of each individual bank should be accounted for just as they are now through banks debiting and crediting customer reserve accounts and the Fed debiting and crediting bank reserves.

The money supply should be maintained through a central bank creating money and increasing or decreasing mandated reserves. Banks should be collectors and loaners of the nation’s savings, just as now. All loan institutions should be under mandated reserves as most once were. All money needed beyond the revolving reserves (base money circulating) would be created by the Treasury-Federal Reserve, just as now, only done so openly and spent directly on essential social needs.

There are two major differences. 1) We are describing a socially-owned banking system with no intermediaries (private banks) claiming unearned profits. Instead, far cheaper banking costs than the monopolized banking system will provide funding for universal health care and other social needs beyond the funding capacities of socially-collected resource rents. That is the transformation of monopoly values into use values we address deeply.

2) As the appropriation of the wealth of others will have been eliminated, so long as there are no conflicts of interest, it matters little whether this socially-owned banking system is run by bankers or public servants.

The Fed can lower reserve requirements where loan needs are high, poorer regions which need development, regions of natural disaster, etc, and holding steady, or even increasing, reserve requirements in booming sectors of the economy. The affluent sectors awash in funds thus rebalance the undeveloped sectors previously deprived of finance capital.

With banking rights held in common, there would be local rights to finance capital. Each federated region, each nation, each region within a nation, each state, each community, and each entrepreneur would have a constitutional right to their share of finance capital (primary-created money and savings) but only a national or regional central Bank[4] could create their respective currencies.

That creation of money would be, by a formula adjustable to the deficits or surpluses of a region, automatically distributed. There would be neither control by an elite nor control by politics. Keeping money local would be a formula of world regional, national, state, local, and individual rights to primary-created money and savings, a society’s finance capital.

Banking is a social technology understood for centuries. As there are no tangible (labor created) values within the banking system beyond a little brick and mortar, there is nothing there to be privately owned except a license which cost a nickel to print. Banking is nothing more than a tool to maximize social efficiency and that purpose is thwarted so long as banks are privately owned.

The next link, Hedging Risk Becomes Infinite Risk, analyzes the reason the power structure is, in 2008, pouring federal money at bankrupt banks and other crumbling financial institutions.

Those crucial 170 words describing an honest, efficient, capitalist economy. Does anyone have the ear of President Barack Obama’s Economic Recovery Team?

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[1] Robert Swann, Need for Local Currencies (Great Barrington, MA, E.F. Schumacher Society, 1990), p. 6.

[2] With the elimination of appropriated values in the various monopolies, there will not be those monopoly values against which to lend. But neither will money capital be needed to purchase those fictitious values.

[3] Water, electricity, and natural gas should have very low charges up to a proper amount for an efficient home, higher charges above that, and very high charges for higher usages.

When first industrializing in the late 19th and early 20th centuries, and again when rebuilding after WW II, the Japanese government covered possibly two-thirds the cost. Newly developing regions will develop much quicker following the trail that they, and others, blazed for rapid industrialization.

[4] This would establish dual currencies, one for world trade and one having value only within economically viable nations or regions.

[5] Run a search for “Plunge Protection Team.” After the financial collapse of 1997, South Korea invested heavily in education and leading technologies and they recovered. Those are replays of Germany’s and Japan’s historic and intense investments to break past Britain’s and America’s patent monopolies. Our suggested approaches to modernization of the undeveloped world are only such policies applied cooperatively regionally, even world-wide.

[6] James Livingston, Origins of the Federal Reserve (Cornell University Press, 1968), chapters 7 & 8, John Kenneth Galbraith in Money: Whence it Came, Where it Went (NY: Houghton Mifflin, 1995), pp 126-83, 188, especially pp 134, 144, 177-90, 195-96, 199-200, and William Greider’s Secrets of the Temple, especially pp 49-50, 280,

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