by Dr. J.W. Smith
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Outlining an honest banking system exposes the simplicity of money. A part of the money created by powerful nations are banked outside their borders and become currencies for international trade. Through suspension of access to central bank reserves, targeted banks lose the right to credit and debit other banks in that currency. To develop industrially and gain control of their destiny, a region of weak nations must ally together and create their own trading currency.
All wealth is created by combining resources (land), labor, and industrial technology (capital). If a developing region were truly free, their central bank could create the money to build the industry and mine, harvest, or purchase the necessary resources. The industry, resources, products produced, and the wealth created by the economic multiplier as that money circulates within the economy, provide the value to back the money created.
That primary created money productively spent circulates within the economy (the economic multiplier creating more money) to energize more production. Again the new values created back both the primary created money and circulation created money.
A modern economy requires electric power stations, roads, sewer systems, water systems, etc. In step with the ability of industrial production to produce products to soak up the region's new buying power, more money must be created to build social infrastructure. To the extent that infrastructure is built with primary created money, there is no debt. When money is understood, an increase or decrease in its primary creation can fine-tune an economy to the maximum capacity of resources and labor.
Money creation must be within the capacity of the earth to recycle wastes and to protect resources, and environment for future generations
All banks should be required, as now, to keep a percentage of their deposits with a central bank. When the economy needs more money, the central bank increases the loan making ability of needy banks via recording an increase in those banks central bank deposits. That increased accounting entry, with no deduction from another account, is primary created money. By increasing or decreasing reserve requirements, a central bank can precisely control the creation, or destruction, of money.
Bankers will have to be knowledgeable about, and loan appropriately for, community needs. Needs of regions and communities should be calculated and each region and each community should have equal rights to both savings and created money. Through increasing or decreasing interest rates on productive capital investments or for consumer credit, an economy can be balanced.
Subject to change to balance the economy, all checking accounts should receive a three- percent real interest rate on average balances. As this is well above the long-term average real interest rate, there need be no savings accounts. A person's checking account is simultaneously their savings account.
Higher risk finance capital can be made available through assigning a share of created money for risk capital and/or applying a surcharge on those loans to cover risk. This capital accumulation fund will expand in step with the expansion of an economy. Productive individuals with special expertise and projects of productive merit will have access to this high risk capital accumulation fund to develop the millions of ideas necessary for the progress of science, industry, and society. The capital accumulation fund loan should be to both the owner and his/her workers.
With 70 to 80 percent of stock reserved for employees, talented workers can study the prospectus, agree to 10 to 20 percent of their wages deducted to pay for his/her share of stock, and they become owner employees. Once the new business is secure and their new stock has capitalized value, talented workers will search out another prospectus, help develop another business, train more workers, gain more capitalized value, and move on again. Labor will be both mobile and highly productive just as capital is now and the most productive of those workers would be 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.
For maximum care for all its citizens, regional directors would be umpires overseeing their region's financial rights, while local directors would oversee state, county, and community funding rights. A minimum housing standard could be set and that goal reached as could goals for roads, parks, schools, and public buildings.
With infrared thermogram images of palm, artery, vein, eye pattern, and signature scanning confirming identity, local credit unions, an integral part of the banking system, would issue consumer credit much as credit cards do now but at a fraction the interest rates.
A constant value currency can be attained by tying its value to a basket of thirty or more of the most commonly used commodities-gold, wheat, soybeans, rice, steel, copper, etc. Instead of 10 percent of their funds sitting idle in those reserves, a bank should purchase a broad range of commodity contracts. The values of the world's commodities now back the value of that trading currency. With risk eliminated, international traders will write contracts in, and accept and make payments in, that constant value currency. Once established, incoming and outgoing money will balance as commodity contracts are bought and sold.
With world travelers and world traders flocking to commodity-backed constant-value currency, other nations would quickly back their currencies with commodity contracts. To not do so would risk traders abandoning their currency. Thus any nation or region establishing commodity-backed money will force all the world's central banks to tie their currencies to the value of commodities. The "national character of currencies would be of no consequence, since they would be but different tokens representing the same commodities. . . . We will have Gresham's law operating in reverse; good money will be driving bad money out of circulation."
Commodity and currency speculation will disappear. On balance, each currency would be valued and backed by its nation's production. Equality in commodity trades requires weak countries being equally paid for their labor and resources. When weak nations are equally and fully paid for their labor and resources and-assuming quality management, access to markets, access to technology, etc-they can immediately start accumulating wealth.
Once the labor of all nations are roughly equally paid and subtle monopolization of land, technology, and finance capital are eliminated, money will be a measure of productive labor value, exactly as it was when complex accounting of time units of productive labor evolved into money in Sumeria over 5,000 years ago. Under the principles of democratic-cooperative capitalism utilizing a modern commons, an economy will function with less than half the current workforce.
The only way all can attain full and equal rights to money is if all understand the simplicity of money. Inform your friends, form your discussion groups. People are good. Prove to philosophers and negotiators in the wealthy world the efficiencies of full and equal rights to the money system and many will recognize they have been misinformed and support you.
Our next column will discuss how the world's impoverished must ally together to attain full and equal rights.