The Chaotic Contrarian ^(SM)[1]
Thursday, August 31, 2017

The following materials (after introductory commentaries) involve excerpts from the American Monetary Institute Newsletter, Vol. I.  Issue 3.  August 2017.  Contact details for the American Monetary Institute are as follows: P. O. box 601, Valatie, NY 12184; Website: www.monetary.org; email: ami@taconic.net; Telephone 224 805 2200.  Its current director is Robert Poteat.  Chaotic Contrarian observations following its Introductory Remarks within the AMI text are indicated by brackets with the observations highlighted, e.g., [observation].  The AMI observations are those of Stephen Zarlenga during an interview by Alistair McConnachie of the Prosperity Money Reform Journal

The Chaotic Contrarian’s Introductory Remarks

The fundamental precept of the American Monetary Institute (the “AMI”), with which the Chaotic Contrarian agrees, is that the world’s economic problems have as their root cause the fact that the financial industry rather than governments have attained power over the creation and distribution of “new money” and in that way have monopolized the generation and distribution of wealth in a manner that favors the very, very few, to the unjustifiable detriment of all the rest of us.  The AMI’s solution is to return exclusive authority for the generation and allocation of “new money” to national governments, eliminating the cheap money funding provided to the banking industry which results in little or no risk, guaranteed profits, loans primarily to bank cronies and extremely low rates paid to bank depositors.

The Chaotic Contrarian takes that premise a bit further than the AMI by concluding that were that anomaly corrected, there would be no need for taxes or public debt to raise the funds required to fund governance, permitting governments to really attain the common welfare.  It believes that “new money” should be created primarily to fund government obviating the need for taxes and public debt.  While that might result in inflation, the economic consequences of inflation would be completely offset by the absence of taxation so that at worst purchasing power would remain the same although the probability, given that cheating on taxes would become impossible and that expenditure decisions would not need to be distorted to minimize tax consequences, would be that the burden of government expenses would be reduced for the vast majority, resulting in significantly increased purchasing power.  The only justification for taxation would then be to prevent obstacles to monetary circulation resulting from hoarding of money and monetary equivalents by the very wealthy.  That threat alone could well eliminate the problem.

Of course, the financial community and specialists in tax avoidance machinations as well as investors in the government securities shell game (borrow from the government at low rates and lend it back to the government at high rates) would suffer a significant change in their fortunes.  Given that they currently control both major United States political parties, the mainstream media and the international neoliberal commercial community, reform, obviously beneficial though it is, is not likely to take place absent serious structural constitutional reforms, in all likelihood requiring a new constitutional convention with plenary powers.  That explains why none has taken place since 1787.

The Proposed AMI Reforms (excerpts directly from the AMI Newsletter)

Our reforms are determined from historical example.  Our methodology is to look at the facts in monetary matters which are found in history.  It takes so long for a monetary system to function and make itself clear.  We have arrived at 3 major reforms.  All have to be done.  It is not a matter of doing one or two, but all three.

What they are:

The first reform is to bring the money creation process into the government.  And that is done by nationalizing the Federal Reserve Banks, all twelve of them, and then of course, the Washington Board.  Only the US government would create money under that system.

We would not want to dismantle the Federal Reserve because it has a tremendous amount of knowledge which should be saved – knowledge of how much money should be in circulation at different times, even in different cities.  We have paid for that knowledge, it belongs to our country, we don’t want to destroy that knowledge or throw it away.  That’s the first part, nationalization of the Federal Reserve.  Now for all those characters who tell us the Fed is already a part of our government, well then fine, they shouldn’t mind too much if it gets nationalized!

Secondly, the commercial banks – the private banks – will no longer be able to create money.  People think that our money is created by the government.  It is not!  It is created by the banking system when it makes loans.  We realize this money is in the form of credit that they put into our accounts.  Whenever they loan credit into an account they are essentially creating what is money in our system.  So in effect, the banking system is creating what we use as money.

Under the [Proposed] American Monetary Act] … this [would no longer be] … allowed.  Banks have to have full reserve for their loans in the sense that if someone has a checking account the money has to be available there all the time.  Now rather than phrasing this as a reserve requirement, we prefer to phrase this in the following way – banks can lend money, but they cannot re-lend credit that is deposited with them.

These first two parts are drawn from what was called the Chicago Plan, which came out of the University of Chicago during the Great Depression – these were in its better days before the University went over to the dark side of monetarism and worship of free markets.  Henry Simons was the creator of the Chicago Plan and he devised an extremely elegant solution to moving the banking system from its present condition to a condition where all the money in the system was real money and not credit – not private bank-created credit but government-created money.  And the way to do it was this.  Rather than telling the banks to get to full reserves by calling in their loans – which would be impossible because that would collapse the entire system – the government would loan newly created US money to banks, if necessary, to bring their reserves up to match 100% of their loans, so that they had loaned real money.  [The Chaotic Contrarian does not share this view unless the rates of interest charged were comparable to rates of interest charged consumers].  This is a truly elegant way to turn all the credit that the banks created and loaned out, into real government money, and it renders the banking system as a mere intermediary in that process, where they get some compensation for their work but where they are not the creators of the money.

Now, those first two parts come from the Chicago Plan and they were promoted and agreed upon by all the best economists in the land and it was expected that it would be enacted into law in the 1930s, but they did not understand the political process well enough to manage that.  The third part of the plan, we’ve added based on our experience in the past, based on our experience with the nationalization of the Bank of England and other developments which have occurred.

Since we [would remove] … the power of the banking system to create money in society as population and business grow, the government would spend new money into circulation on infrastructure [that is much less ambitious than the use proposed by the Chaotic Contrarian, see Introductory Remarks].  We would start with the 1.6 trillion dollars of infrastructure that the American Society of Engineers says is needed to bring our infrastructure up to reasonable levels.  That would take several years.  The present rate of creation of money is about $800bn a year in 2006 for example.  In addition to the hardware infrastructure, we include both health care and education as part of the infrastructure, and that means a universal availability of education dictated more by the person’s ability to learn and study than by their ability to pay.  Universal health care, as offered by any industrialized country in the world at present!

Some people have misevaluated our plan because they don’t read carefully enough to see what we are saying, and secondly they are trying to think of our plan in terms of today’s situation – which will be different from the situation once our plan is enacted.  Here’s an example.  Some people would say, “Oh, there won’t be enough money if the banks aren’t making loans.  How could money enter society?”

Well, here’s how.  Let’s remember that the government is paying for infrastructure by creating new money – not credit, but money!  They are spending it into circulation, with no interest charged.  A couple of months ago a major bridge collapsed in Minneapolis because the infrastructure of our country has deteriorated to a danger point – and it’s not just bridges, but dams.  10,000 of our 80,000 dams are in danger of collapse according to the American Society of Engineers.  So that bridge in Minneapolis needs to be reconstructed.  How would it work?  Contractors would bid for the job in exactly the same way that they do now.  The job would go to the best contractor based on his experience, his price and the terms of the bid.  As that program continues, that contractor gets paid by the government, and the contractor has to pay his workers and suppliers, he has to pay for the concrete, the steel, all the machines and so on.  What do these people do with the money?  Well the workers’ pay their mortgages, they pay the shops, they pay their school bills – what do those people do with the money?  Ultimately, the money created by the government and spent on infrastructure gets deposited into the banking system because that is what people do with their money, they put it in banks.

The banks, under our system, would be in a position then, to loan that real money.  They are not loaning credit anymore, they are loaning money.  That’s the difference, and the banks would have to attract deposits from people in order to make their loans, or they would have to attract investments from people in order to make their loans…which would become available in large amounts, since under a part of our plan, as the national debt becomes due month by month, it gets paid in new government-created money – the bonds are not rolled over – and all of that capital that’s paid out would be available to invest – but it would no longer be used as a method of creating new credit.  It would shift the economy into reality, out of usury.  [The Chaotic Contrarian would instead immediately monetize all public debt, that is, call it in and pay it with “new money”, the argument is that such a process would be prohibitively inflationary but the Chaotic Contrarian believes that the existence of debt creates its own inflation through Financialization (see “Financialization, what it is and why it matters”) and thus the actual consequences would not prove prohibitively severe, where even in the intermediate term, the absence of interest obligations associated with public debt would drastically decrease the current costs of government].

How do you define “usury”?

We define usury in the classical sense, meaning the classical scholastics from about 1100 to 1500, as the misuse of the monetary system, not simply the taking of interest, because the taking of interest, in itself, was not usury.  Jeremy Bentham has mis-defined “usury” as taking more interest than is normal.  Actually, in his work on it, he defined usury out of existence, which may have been his purpose.

But it is not just taking interest, interest was always allowed on certain conditions according to the rules of the scholastics.  It is an anti-social misuse of the monetary system.

….

Strategic Considerations

How do you respond to someone who might say your reforms “sound kinda socialist and we’re not socialists in America?”

Well, that is the word they might use.  They think they can scare me with a word.  I am not afraid of words like that.  First of all, what do they mean by that?  To these people it is just a smear word.  I don’t support “socialism”, or “capitalism”, or any “ism”.  As soon as you have an “ism”, you have good things mixed with bad things.  What I try to do is focus on the good things.  To try to support systems that embrace those good things.  Now, the fact is that human beings have a dual nature.  We are individuals and we are social beings, and as such we have to recognize that there are things that we have to do individually, and things that we have to do socially as a group.  The free marketers can sometimes seem to ignore the fact that there is a need for social activity, yet they are taking advantage of the fact that it exists!  The profits they are getting can only be there so long as there is a functioning [social] system.

If you were making your case to Republicans how would you try to get through to them, bearing in mind that they would be coming from a generally free market position?

That’s a good question.  We want to be able to reach all people, and it is important to keep that as a goal.  At the same time, where it is possible, we don’t want to waste our energy and time.  In this case, one of the approaches that I’d use with them is to focus on methodology.  I would point out that theories are supposed to explain and conform to the facts – and this is a problem in the type of economics which most Republicans favor, for example, the Austrian School of Economics, where one of the leading members, Ludwig Von Mises, actually tells us, more than once, that his theories cannot be disproved by mere facts!

I would point out that this is ridiculous.  I once gave a talk to a group of international philosophers from peace organizations and described some of the methodology that economists use.  I had them laughing in the aisles.  My point to them was that they have the standing – since philosophy is to determine how we know things – to decertify economics as a science pending improvements in definition and methodology.  In addition, we are not against the free market in the sense of the right meaning of the term, but what the Austrian school has done is to equate the free market with the removal of all governmental regulation and control and that is huge and terrible error.

The truly great economists which we had in the United States from the early ‘30s which included Henry Simons and others, from the University of Chicago, people who trained Milton Friedman, these people were strong supporters of a free market, but to them a free market meant that all the utilities would be government-owned.  And they strongly favored governmental regulation.  Markets do not automatically monitor and guide their own freedom.  The reforms that we are advising, were actually favored very strongly by one of the Republican icons economics – Milton Friedman [but only until he sold out to emerging neoliberalists].

When this movement grows, do you think it risks being taken over by groups with a particular ideology who want to use it for their own political purposes, whatever those may be?

Good point, and I think the answer is that there is a danger of that and so we have to be careful.  We’ve been careful on that from the beginning.  As the AMI, we have everything coming at us one way or the other and while we can’t mind read, we look at the effects of what they are doing and we can see cases where what you have just described is happening.  We are careful not to allow them into our thinking and our program.

Also, we have a kind of built in protection here, and it is the following.  What we have defined with our [proposed] 3-part American Monetary Act is the 3 minimum conditions necessary to put time on the side of justice, because once time is on the side of justice, things will happen in humanity’s favor over time, rather than against us as at present, and we can operate in much more relaxed manner.  So, since these are the minimum actions, it is not going to be easy for anyone to talk us out of them.  The way we have formulated this is such that we are not trying to make all the changes which would be desirable and that will eventually occur once these 3 minimum actions take place.  So by limiting ourselves in that way we also protect what we are trying to do.

….

Concluding Observations by the Chaotic Contrarian

The AMI is a volunteer funded organization and that has both good and bad points.  It does not appear to be “owned” by special interests but consequently, it is perpetually in quest of donations and that is a process all too often abused.  It is supported by some admirable people, such as Dennis Kucinich, one of the very few politicians who have managed to maintain their integrity and ideals unsullied by contact with quotidian political processes, which gives it credibility.

The AMI’s ideas are sound but as expressed several times above, a bit too timid in order to avoid the economic disaster we are living and the dire economic holocaust that seemingly awaits, based on the facts disclosed in Thomas Piketty’s seminal treatise, Capital in the Twenty-First Century.  But they are a starting point worth working to realize.

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The Chaotic Contrarian (SM) is Cassandra’s progeny, or so it seems, at least at the moment.  But if that is so, it’s a version of Cassandra that has not abandoned hope.  It is colored white, the color that encompasses all colors within the boundaries of the inchoate, beautiful as well as hideous, pure potential, where anything and everything is possible, the color closest to chaos.   Chaos has a bad rap.  It’s all too often deemed to be merely a synonym for disorder while in reality it’s a state where everything, whether positive, negative, neutral or irrelevant is not only possible, but where all possibilities are equal.  Chaos exists in the instant immediately preceding the primordial starting point and perhaps, when nothing seems to be working, the quest for solutions should revert to beginnings.  One might prove correct in believing that chaos is the medium in which quantum mechanics is most comfortable.   The Chaotic Contrarian (SM) is a compendium of articles from various media, academic and civic sources, most non-mainstream, with related commentary, primarily from its editor, Guillermo Calvo Mahé.   It’s “contrarian” goal is to provide an alternative to politicized mainstream media sources which in the editor’s opinion have become primarily sources for dissemination of propaganda, government and otherwise, and are all too often incomplete and inaccurate.   Unless otherwise indicated, only commentary is copyrighted by this publication but permission is granted for dissemination with attribution to this publication as well as to the authors and related publications in the articles posted that hold the copyrights to the source materials.   Comments, observations, complaints and criticism are welcome, as are submissions by readers.   © Guillermo Calvo Mahé; Manizales, 2017; all rights reserved.  Please feel free to share with appropriate attribution.   Guillermo Calvo Mahé (a sometime poet) is a writer, political commentator and academic currently residing in the Republic of Colombia although he has primarily lived in the United States of America (of which he is a citizen).  Until recently he chaired the political science, government and international relations programs at the Universidad Autónoma de Manizales.  He has academic degrees in political science (the Citadel), law (St. John’s University), international legal studies (New York University) and translation studies (the University of Florida’s Center for Latin American Studies).  He can be contacted at wacalvo3@autonoma.edu.co or guillermo.calvo.mahe@gmail.com and much of his writing is available through his blog at http://www.guillermocalvo.com.