Asserting Sovereignty over our finances
To have a sustainable economic policy for the USA, we have to assert sovereignty over our finances. Warren Mosler writes:
"the government’s interest is the public interest. The government is there to provide for the general welfare, and there is no correlation between this interest and a position of surplus or deficit, nor of indebtedness, in the government’s books." [Galbraith/Mosler]
Mosler is talking about the Federal portion of our Federated Government. Of course, such a correlation is IMPOSED on subsidiary governments, as if they were subjects rather than coequal and vital parts of a sovereign entity. In the United States, local government is relegated to the role of competing for funds as if it were just another private enterprise, and has almost zero sovereignty over it's own finances and this hamstrings it's efforts to pursue the public interest. States are under less constraint, largely because of their relationship with the Federal Government, but they too deal with internal, external and artificial constraints that oppress their ability to serve the Public Interest.
"the government is sovereign. This fact gives to government authority that households and firms do not have. In particular, government has the power to tax and to issue money. The power to tax means that government does not need to sell products, and the power to issue currency means that it can make purchases by emitting IOUs. [Galbraith/Mosler]
And to be fully functional a Federated Democratic Republic should extend the benefits and privileges of that power to the whole of the country, including its parts, as well as to be able to exercise it for itself. Henry George Recommended in the 1880s that the money power be exclusively with Government [On Greenbacks]
"the power to issue money is a valuable privilege which, to secure the best circulating medium and to put all citizens on a footing of equality, ought to be retained by the general government, and to be permitted to no one else, either individual or corporation. The greenbackers, who have insisted that national bank notes should not be permitted, and that all money should be the direct issue of the government , are in the right." [Greenbacks]
At the very least our Federal Reserve should be an agency of the Government rather than protecting bankers. Unfortunately our pirates have had more influence on the Government than reformers.
Current System Privatizes Rule over Money
While this is true, Around the world centralized financial centers give responsibility to local government and then impose artificial constraints on their power to deliver service by stripping this IOU money power from them, or by privately taxing it by imposing artificial compounding interest, fees, penalties. Instead our system gives the power to emit IOUs, collect interest on them, and essentially put a lien on public and private property, to privateering banks. Essentially the International banks, through exercising this power over the money supply, act as if they were pirates. This infuriates both left and right, and it is a main driver of worldwide economic inequity. But something can be done about it if folks can avoid the over drama. This system is an outgrowth of feudalism, international chaos, warfare, trade and colonialism and of Private Government. To fix it requires an assertion of Governance in the public interest. It is not the product of diabolical conspiracies. To fix a thing one must understand it.
Collaborative and Distributed Sovereignty
A Federated Government must regulate the entire system of a country through it's parts. No central power has enough information, wisdom or flexibility to do this by itself. The reason the system strips local governments of sovereignty over money is twofold. One reason is that fully sovereign governments have a lot of power. As Mosler also notes:
"No private firm can require that markets buy its products or its debt. Indeed taxation creates a demand for public spending, in order to make available the currency required to pay the taxes. No private firm can generate demand for its output in this way. Neither of these statements is controversial; both are matters of fact. Nor should they be construed to imply that government should raise taxes or spend without limit. However, they do imply that federal budgeting is different from private budgeting, and should be considered in its proper, public context." [Galbraith/Mosler]
The fact is that bankers and advocates for good government alike, both fear that governments will try to "spend without limit" if allowed to. So they have acted collectively over the years to impose external constraints on governments and used the fears of such behavior as an excuse to invade and intervene in local government throughout the world. From France's invasion of Mexico in the 1850s to the colonization of Africa, to the neo-colonialism regime setup by the departing "colonial powers" as they left countries they'd invaded previously --> a predatory banking and weak or non-sovereign currency has been imposed on all of them. Weak currencies developed where countries didn't have the power to exchange their goods for equivalent value with other countries. And this weakness has led to inequity and threatens more prosperous countries as opportunist businesses take advantage of currency arbitrage and weak economies to get cheap labor and weak governments to extend their monopolies.
Indeed in many cases bankers have taken advantage of weak governments. They've found that when a poorly constituted government seeks financial sovereignty, it's elites generally use their powers to rob their own people. So the problem has evolved from poor government constitution, inadequate management and asymmetric development, not dark conspiracy.
So when we talk about financial sovereignty, we must talk about fashioning competent government with proper checks and balances, and principles for mutual aid and regulation between local and central organizations.
Sovereignty and Networked Systems
In the past "sovereignty" has meant some form of centralization. In a large, complex and networked world, that is a recipe for disaster. Sovereignty over a nations finances from the center leads to loss of sovereignty for the periphery. Sovereignty for the parts leads to resource conflict and arbitrage on the value of competing forms of sovereign currency.
Chartalists have worked with inadequate models that treat countries like closed systems, for their ideas to scale they must consider interstate and international relations.
Summary of Republican Principles
A sovereign system needs to apply both Federal and Republican principles in financial governance.
Any functional assertion of sovereignty over finances requires that there be bottom up legislative powers, distributed conflict resolution oversight and networked oversight with top down guidance and collaborative decision making.
Systems need to enforce equitable decision making. To accomplish that all stakeholders need to be at the decision making tables where they are most effective. These are Republican principles.
Summary of Federal Principles
Federal principles instruct on how to get people to collaborate and take action across distances in a just and measured way. Republican principles ensure that all actors are represented, have input on decision making and yet can act together in a coordinated fashion. Federations scale republican principles across distances so that each subdivision is self governing and represented from the neighborhood up to the most general of general capitals. A Federation extends Republican principles to include principles such as subsidiarity, distribution of resources, both top down and bottom up divisions of powers and authorities, and by using both general rules (charters, Constitutions), laws, and administration/process to both regularity in rules and centralization benefits and appropriate subsidiarity, where locals make local decisions, with just enough guidance from central powers that they can make good ones.
The best federations
The Invisible Hand is Good Government.
Both sets of principles are needed to have a functional financial system. And the nice thing is that these principles scale and most of them can be deduced from observation.
Sovereignty and Economic Subsidiarity
Mosler Galbraith note that:
"firms, households, and even state and local governments require income or borrowings in order to spend. The federal government’s spending is not constrained by revenues or borrowing. This is, again, a fact, completely non-controversial, but very poorly understood." [Galbraith/Mosler]
A case can be made that the Federal Deficit is both an accounting artifact and a result of letting private banking "Own" US debt as bonds when we could monetize the debt as "letters of credit" or paper money. Creating an infrastructure bank as talked about in the previous post would allow the government to replace artificial debt issued with interest attached to it, with monetized debt, where the notes issued circulate until paid in taxes or otherwise retired.
Moreover, State and Local Governments are part of a United States. Just as the members of the European Union are supposed to be part of that Union. While there are legitimate constraints that should apply to state and local government, there is no reason the Federal umbrella should apply to state and local finances in an appropriate manner. This is part of the principle of Federalism. The members should benefit from the rights and privileges of the whole in a way commensurate with population and production. Alexander Hamilton understood this when he monetized US Revolutionary War Debt and stabilized the US currency of the early Federal Government. Henry Clay wanted to continue that policy for infrastructure spending, in his American System, but was defeated by the political war between centralized banking and private decentralized banking; and by politics that had little to do with his ideas and a lot to do with his being a Mason and in the middle of the growing North South Divide over slavery.
We will not have fully sovereignty over our money supply and economy until we use our sovereign powers to invest in keystone and essential infrastructure. We can address our so-called "deficit" this way, while investing in jobs and utilities. To do this successfully will take the application of basic principles of representation and federalism. Doing this will fulfill the vision of the founders and of subsequent generations and move us towards a more perfect Union. More importantly similar principles can be applied to the World Bank and International Monetary funds.
Banks can function under this umbrella with the role of lending to needs outside those necessary for the unified function of the economy, while the infrastructure bank protects our agricultural, energy, communications and transport capabilities. Much of the work needed will require cooperation from local governments and all of it requires collaboration with the several states.
Next Post: Sustainable Economic Policy III
- Henry George On Greenbacks and Silver:
- It also follows on some related posts:
- Principles of Federalism
- Definitions related to Democratic Republicanism
- Sustainable Economic Policy To Date:
- Sustainable Economic Policy I
- Sustainable Economic Policy II
- Sustainable Economic Policy III
- Sustainable Economic Policy IV
- Sustainable Economic Policy V
- Sustainable Economic Policy VI
Originally posted August 27 2016