Sunday, January 25, 2015

How to run a currency Part IV: Developing national capital

A nation's capital is comprised of its resources that are available to be used productively to generate wealth and "the pursuit of happiness". The concept of capital, versus consumed resources, is that they can be used repeatedly to produce other goods, services, or otherwise provide value to the people. I use the phrase "the pursuit of happiness" to broadly encompass concepts like liberty, justice, and security which can be seen as necessary or desirable to its achievement. 

  • A highway or an airport is national capital: used for a nation's commerce or the public's pleasure. 
  • An educated and trained adult is part of a nation's "human capital": providing a life of productivity, invention, service, or artistry that contributes to society.
  • A navy and air force is capital: used to defend the nation's shores, protect its civilian or commercial shipping, or provide assistance during natural disasters. 
  • A national park is capital: providing a wealth of enjoyment to the people and the preservation of vital ecological systems that nurture the environment and sustain life. 

In our previous posts in this series, we have set out to rediscover how sovereign-state money actually works. We exposed the poor use of misleading terms like "debt" and "deficits" that don't apply to sovereign governments, and defined new terms that are more useful to us as we seek how to apply our national currency for the greatest good.

This led us to taxation. After dispelling the notion that taxes fund currency-issuing governments, we outlined the principles that should guide a people-centric tax policy and then applied this framework to come up with new approaches to our out-dated tax policies. 

We're now ready to learn the final part of running a modern sovereign currency in a way that is of and for the people.

Bid adieu to Tax and Spend!

Tax and spend. These words have been drubbed into our minds so often, we just accept them as fact. They always go together, taxes must come first, and spending must be limited by taxing and debt. Right? 

Wrong! It makes no sense at all when you stop and think, but who's going to take the time to do that? Even the "non-partisan" Congressional Budget Office is stuck on stupid and perpetrates myths that are learned and repeated by all our elected representatives. 

We desperately need to reorient our thinking, and it's going to take a bit of collective work from all of us to educate a new generation and overthrow the mountain to politicized economic garbage that is served up every day in the media, in town halls and throughout the blogosphere. 

What makes our re-education challenge harder is that for regional and local governments, or even some nations that have given up their sovereignty by using a currency they don't issue, taxing actually does fund their spending. 

So it's true in some cases but not in others... yeah, I know, no one said this was going to be easy! But then again, who said liberty and justice ever come easy? Let's get it right so we have a fighting chance!

We've covered taxing in some detail, and we now know it now has nothing to do with funding government. Federal government "budgets" need to be a thing of the past. We must separate our fiscal decisions into their respective categories and debate their merits independently. 

  • Tax for tax reasons alone with no consideration to "paying for" anything. 
  • Separately, debate and establish national objectives and invest accordingly.
  • Pay attention to the effect each action has on the economy to avoid unwelcome inflation or market distortions.

Honestly, it's not all that hard once we get the best minds focused on the right problems. 

So now you may be wondering why this final post isn't about spending. After-all, that is the final piece we're missing to run a currency, right? Well, is it?

Why do we have a national currency?

Let's try to go back to the beginning: to the birth of a nation. What are we trying to accomplish, and how does a form of national money fit into it? 

A group of people, perhaps of common language, seek to live in freedom, improve their lives, protect their domain from those who might seek to conquer or take advantage of them, and sustain this so that future generations can build upon it for their own futures. 

They desire to live in peace, prosper and pursue happiness - whatever that means for each individual, family, or social unit. To get there, they must establish rules for their society, rules for their commerce, rules for good conduct: hence the establishment of representative government that is of and for the people. 

But there's more: they need to accomplish certain things together to improve their lives, protect their land, expand their commerce, expand their knowledge, and lift the next generation on their shoulders and encourage them to reach higher still. They aspire to achieve great things together, while still protecting the rights and liberties of each one.

And that's where the national currency comes in. It was invented to enable a people, through their representatives, to accomplish their collective goals without the dictator's whip and sword. The use of State money enables a nation to engage the wheels of commerce to build up that nation's capital stock for the betterment of all. 

How? Simply by issuing the nation's money in payment to business or individuals. Once the currency has become established in the country (remember Part II), it can be issued on demand to deploy resources for the common good. Ideally, it is largely deploying underutilized of unemployed resources, but in critical circumstances, it might need to take resources that are productively employed (such as in WWII).

Generally though, the issuance of new money to deploy resources is geared toward the improvement of the nation and a better future for its people: in other words, developing national capital. When done well, the new money creates future productivity or other forms of value desired by the people.

We've become used to language of givers and takers; of the productive and the unproductive. But we tend to create the world we speak of, and so we destroy rather than build up. Our language becomes self-fulfilling. That's why I don't consider government "spending" to be the right final piece to our currency puzzle. Spending doesn't explain what we are trying to accomplish. We are investing in our present and our future: investing in ourselves and our descendants. 

  • I don't see providing income to our elderly as welfare, but as an investment in our society. 
  • I don't see providing work and skill training to the unemployed as welfare but an investment in national human capital and future productivity and societal well-being.
  • I don't see paying workers to repair roads as government waste, but as an investment in infrastructure capital.
  • I don't see providing health services to all as a burden on the economy but rather a stimulus to it, as more people are healthier, happier, productive, and able to spend, save and invest.

Why did we stop investing?

It's quite simple, really. We just got scared by big accounting numbers and a very clever marketing strategy. 

  • Some very wealthy people with a certain agenda began to spend a lot of money to convince the world that the accumulation of new government money in an economy inevitably leads to horrible outcomes such as national insolvency or hyper-inflation. 
  • They added up the amount of government money that people have saved and that sits in interest-earning accounts at the Central Bank, and they called it "unsustainable debt", forgetting it was the people's desire to save that led to it being there in the first place. 
  • They built "national debt clocks" to scare the populace, and developed "think tanks" (propaganda special units) to push the message far and wide under the guise of sound economics and a pretense of academia. 
  • They wave their arms about screaming "Weimar" and "Zimbabwe" whenever the government injects more money into the economy, forgetting that our nation has enormous underemployment and underutilized productive capacity that needs to be deployed - in stark apposition to the plight of those nations.
  • Myths became facts; lies became truth. 

What happens when we take off the blinders and realize that we have no fiscal challenges? That our nation can never go bankrupt? That "the economy" and "free markets" don't rule us? That we don't have to choose between a sustainable, life-giving planet and a robust economy? That we're not second-fiddle to China when it comes to building our nation's future infrastructure? That we don't have to beg Wall Street for the money to repair a bridge, build new sewer and water treatment plants for our cities, or invest in state-of-the-art mass transit systems. 

What do we demand of our elected representatives when we end the deceit and simply tell the people, "we can afford whatever we can do with the resources we have"?

It starts with removing the self-imposed constraints in our minds and our politics, and defining our shared objectives: then let's put our sovereign currency to use to solve our real-world problems and invest in the rapid development of national capital.

What do you think that could look like? Give it some thought as we save that for our final post in this series!