We Must Redirect Our National Credit
We are living under the pall of a bleak future. If we do not change our practices, the future will surely be bleak. Here are two changes to consider.
1. Cancel all debt, systematically, every seven years
Money lent out by the Fed to sustain the market is not productive, therefore the loan cannot be repaid. The web of debt currently created is like a bomb due to explode. The entire system is in danger.
In the past, the rehabilitation of the financial system was achieved with substantial injections of public money through combined efforts of the Congress and the Federal Reserve System (the Fed). This time around such a solution is unlikely to be available. First, Congress is so divided that it might not agree in time on any rescue package. Second, the volume of debt has grown beyond recognition: The combined debt of private and public entities is no longer in the millions but the trillions of dollars. The debt is uncollectable.
If the financial system collapses, credit is no longer available to the real economy. This time around, effects are going to be more deleterious than the hardships imposed by the Great Depression, mainly because most people had a recent relation with the land. Today’s generations have to be instructed on how to live off the land.
The rational solution, the Jubilee Solution, is to Defuse the Bomb. The rational solution is to legislate a systematic reduction of all debt, not only student debt, down to zero over the course of seven years. And repeat the cycle over and over again. Moses did it. Most Kings and Emperors were able to declare a debt jubilee upon coronation.
Through a systematic reduction of debt, what is being destroyed is not wealth but an accumulation of zeros. Human and economic relationships will remain undisturbed; people will be as rich in relation to each other after as they were before the cancellation of debts. What we have to prevent is the possibility that one individual or one group of people somehow evades the cancellation of zeros. An imbalance will then be created, and some people will automatically and unjustly become richer than the group of people who obeyed the law of the jubilee.
2. Re-orient national credit from Wall Street to Main Street
This is a call that has been frequently and consistently issued by so many sources, the most memorable is the voice of William Jennings Bryan. He was absolutely right. If we do not restore “the money of the Constitution,” all our efforts to establish a better society are in vain. Thanks to our beloved Benjamin Franklin, that command is inscribed in the very first Article, Section 8, of our Constitution.
The major reason, we must realize, that this restoration has not occurred yet is that mainstream economics is concerned about inflation and unemployment. There is no common knowledge on how to gain control over the process of creation and distribution of money. Or, looked at the other way around there are way too many suggestions to achieve this aim, from Ending the Fed to the creation of local currencies or to having the Treasury create currency, “spending it into circulation” or giving it out as a grant.
As against such a wealth of ideas, at the core of Concordian economics, there is the consistent recommendation to Mend the Fed—following three procedures. Issuing loans 1. Exclusively for the creation of real wealth, not to purchase financial instruments; 2. For the benefit of all participants in the borrowing enterprise, hence loans have to be issued to individual entrepreneurs, corporations with ESOPs, and public agencies with taxing power so the loan can be repaid; 3. Loans have to be issued at a cost. It would be intolerable if the Fed were to make an exorbitant profit from their operations.
In 2015, I presented a compilation of published papers to the Fed. Jean Durr from the Public Affairs Office of the Fed wrote: “Given your proposal, I suggest that you contact your state and federal representatives.”
I wholeheartedly agree with this recommendation. Alone, I have tried and made few inroads. Will people help now that the issue is urgent?
A redirection of national credit
If we follow these recommendations, if we essentially stop “investing” in Wall Street we obtain a redirection of our national credit to Main Street. The trillions of dollars the Fed is lending to Wall Street are going to be burned. By lending them to Main Street these days of Coronavirus, those trillions might also be destroyed, but we are going to save millions of lives and ultimately, we are going to save the real economy at the same time.
Let the behemoths of national and international finance collapse, as pointed out on several occasions, only a few jobs will be lost.
But millions of jobs will be preserved in the real economy. Investment in renewable resources will become possible. A rejuvenation of our social and physical infrastructure will also become a reality.
And what do we ultimately achieve?
A Capitalist Revolution! Yes. What we have today is 1% Capitalism. Through the recommended three changes, we are going to get 100% Capitalism: Capitalism for everyone.
Yet, the term “1% Capitalism” is a misnomer. I woke up this morning with this realization: What we have today is Socialism for the few; Socialism for the Rich. Whom is “The State,” through the Fed, serving? As pointed out elsewhere, the task of the Fed is not to cub our “animal spirits.” If the affluent want to play with their money, they should be free to play. This is true Capitalism. But they are not entitled to ask for the State to bail them out when they lose their shirt. This is True Socialism.
Provided the use of national credit is restricted to Main Street, let the affluent lose their shirt on Wall Street. Let the behemoths of international finance collapse. The real economy will be affected only minimally.
So, truth to tell, what we are advocating is a step toward neither Capitalism nor Socialism, but Concordianism: a world based on the same economic rights and responsibilities for everyone, a world of Economic Justice. A Concordian Revolution is waiting to be born. Let us welcome the Concordian Revolution.
Politics will adjust: Let’s welcome A Revolution From The Center; A Party—or many Political Parties—of Concord.
Disclosure: Carmine Gorga is president of The Somist Institute and a former Fulbright Scholar.