WHY FUNCTIONAL FINANCE IS ENOUGH.!
AND
THERE IS NO NEED TO REORGANIZE
THE FEDERAL RESERVE OR SHY AWAY
FROM FRACTIONAL RESERVE BANKS
TO FINANCE BUSINESS FOR PROFIT
God knows there are enough critics who
want to replace the Federal Reserve with a more
nationalized central bank— if that is possible. They
want to end fractional reserve lending— and the bank
profit it permits— because much of what banks lend
is government issue money for which they pay no interest.
The animating desire of these critics is
not based on envy or meanness; their deeper desire is to
end poverty, gratuitous insecurity, public sector
neglect— and the crushing effect of excessive debt.
I share the same deep desire— but
think we should aim for far less change.
What we need is to empower government
in fact to finance full production— so we will
have the supply to meet the demand of nations and
people. With full production we will have full
employment and full consumption; and we will have
additional means for government by the people to
challenge the money power in the race for political
office.
Functional finance allows money to
reflect production— and production to monetize
lawful demand.
For too many years, capitalism and
entrepreneurial energy, (that should have known better,)
have allowed debt to dictate limits on production that
thwarted development of economies of scale. These
economies would have allowed science and technology to
triumph over ancient scarcity of material want.
The reason for this is not hidden: too
many people in power put their faith in the magic of
transaction prices to tell them what to do.
When lawmakers interfere, and spend
more money than taxes bring in, the full panoply of
inflation fighting systems is too often never tried:
These include automation of
production; preference for cost plus pricing;
subsidized production; inflation protected
private saving; jury determined award of
contracts; effective anti-trust and prevention of
restraint of trade, hoarding and price gauging;
rationing and allocation of items in short
supply; and similar actions to defer demand and
increase supply.
Functional finance allows lawmakers to
create money to satisfy any debt. This gives value to the
money as though it were made of gold. Since the money is
not gold, its value will be determined by those who
receive it: if they are willing to save it, it will be as
good as gold.
The propensity of people to save such
lawful managed money will be high IF:
- Entrepreneurs and engineers, free of income tax,
and protected from bureaucracy by ombudsmen,
deliver the goods—via: automation of as much
as possible; appropriate simplification; law and
language reform; freedom of thought and
expression; and decent respect for individuals,
organizations and institutions.
- Savings are indexed for inflation— but not
deflation.
- Government has contractors who will deliver goods
and services at cost plus necessary profit.
- No better money competes with domestic lawful
managed money.
- The track record of lawmakers is better than
other sources of money— and better than
barter too.
- Workers and property owners feel loyal to their
government.
- Workers and property owners know their freedom is
at stake when they decide what to do.
The changes required in law to bring
about functional finance to protect our future are
minimal. Nothing needs to be changed except taxes and
government debt.
Laws that appropriate money will need
only one sentence to compel the central bank to bear
some or all of their cost. This would have the effect
of creating debt-free money for priorities as
determined by our Congress (or other parliament.)
Since such money is not destroyed on
debt repayment, it would have to be kept from bidding
up the price of things that must remain affordable.
If private savings absorbed all
excess money, taxes could be cut to the bone. The
only necessary tax would be to compel inputs for
luxury goods to be directed first to the production
of affordable necessities. The high price of luxuries
would absorb unsaved money until luxury good sales
would eventually finance philanthropic projects.
The reason to avoid taxes is to avoid
monstrosities like the tax code and the resistance
taxes create to necessary public sector spending.
The extreme inequality between
individuals would be radically changed in kind if the
poorest of the poor enjoyed a decent standard of
living. We can achieve this. We can also improve the
collective bargaining power of workers by retooling
the law and making all union dues a government
expense. This would allow 100% membership— which
would be part of every job.
People have called for a new social
contract between capital, labor, government and
something like functional finance. This, among other
reforms, will be necessary.
NOTE
TO ADDRESSEES AND READERS:
I have to apologize to everyone for my
presuming to try to move money reform from the internet
and academia into the public square. It may be impossible
to do.
Curtiss Priest was kind enough to be
interested. He offered us the story of functional finance
by the late Abba Lerner and our living friend Mathew
Forstater. Curtiss also offered us Wrandall Wray's
thoughts on the several competing central banks whose
objectives and currencies add another layer of profound
complexity that will have to added to all the above (or
even require restarting from scratch— something I do
every week.)
What am I aiming at? Something like what
we've all been doing the past thirty years or
more—something like CFEPS, PAE, and the old
PKT— but radically reduced to political slogans
voters can remember and care about.
None of what this message contains is in
shape for what we need. But the idea that functional
finance can help us finesse inflation, deflation,
stagflation, and the lack of money to pay for the Second
Bill of Rights or the UN Millennium Project to develop
the means to end poverty, is a good idea. It ought to be
made accessible to a wide audience and enter the public
square.
John Gelles
Links to
supporting ideas:
Functional Finance Levy
Institute WP 272
The Second
Bill of Rights
Kurzweil: World Economy
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