Three Principles for a Democratic Capitalism

By Brian Andersen

In my previous posts I stated several times that a currency should be equally spendable, savable and earnable. But I never tried to justify that idea, or explain why we should pursue those features as opposed to others. So the purpose of this post and the next is to explain that position. It is impossible to say what features the currency should have without some underlying value system to motivate the existence of currency in the first place. So in this post I will lay down the values I think should guide a sound currency administration. And in the next post I will use those values to explain my view that an equally spendable, savable and earnable currency should be our primary objective.

In choosing that value system, out of all possible value systems, I have made my best effort to choose values that are both useful as policy guidelines, and already acceptable to a large segment of the population. I didn’t make these ideas up myself, I merely identified them as highly common strands of thought. I believe that many people are already willing to take these ideas as obvious, regardless of where they sit on the political spectrum. And for those that will not take them as obvious, I think that once they see how this collection of ideas can lead us beyond the political impasse that has brought human progress to a standstill, they will find this value system to be at least acceptable on purely pragmatic grounds.

So it isn’t that I think these are inalienable truths, or facts of nature, or laws of any kind. I don’t even know if they are the best set of values that could possibly be chosen. Even if I did believe that, it would be unnecessary to ask you to believe it. My only ambition here is to find some philosophical common ground from which we can develop a set of policies that are both popular enough to find broad acceptance, and which will actually work when put into practice. So here are the three principle assumptions that I would like to take as the guidelines or values for a currency system, also known as a market.

Functional Markets The market exists for a reason and the reason for the market is to create value for its participants.

It is hard to see how we can choose between any two sets of policies without recourse to any notion of why the market exists. In choosing value creation as the underlying reason for the market, I assume that we want to somehow improve our lives through our interactions with the market. But I assume nothing about what it means to improve ones life. Are our lives best improved with better access to food? energy? medicine? art? entertainment? education? something else? The Functional Markets principle doesn’t answer those questions. It delegates the selection between the various forms of value to market participants. What it does assume is that whatever form value takes, we want more of it. Value is assumed to be a good thing and by enabling its participants to find more value, the market is fulfilling its purpose. Likewise, if the market is failing to add value (or actually subtracting value) on top of what would have existed in an alternative scenario where the market did not exist, we should consider the market to be failing in its purpose. By a similar way of thinking, if we are considering two alternative market structures or policies, we should choose the path that we believe will create the most value for its participants.

Free Exchange Participation in the market should not be obligatory nor prohibited.

Free Exchange is what makes a market a free market. It is the idea that individuals are free to interact with the market however they like. This includes the freedom to buy, sell and hold assets of various types. It includes the freedom to withdraw from the market and to return at a later time. Perhaps most importantly, it includes the freedom to create NEW assets and even new types of assets, and to bring those assets for sale in the market. Advocates of Free Exchange may believe that freedom is its own form of value. Or they may believe that markets based on Free Exchange are the optimal value creation mechanism. The definition above should be acceptable to both views. Free Exchange is what makes a currency system a capitalist system.

Equal Access The market values all participants equally and exists to serve all participants equally.

If Free Exchange is the basic capitalist principle, then Equal Access is its democratic counterweight. Because all participants are thought to have equal value, the market maximizes its value by appealing to the largest possible number of participants. In choosing which services the market should provide, it should choose those services which are beneficial to the most participants. The market, in creating value for its participants, should not try to create more value for favored participants and it should definitely not attempt to redistribute value from one group of participants to another. It should not provide tiered access or tiered services. It should not provide additional services to participants who can pay for them, after all, the market has no need of the currency that only it can create. Only participants need the currency. So other participants should provide those services that go beyond the basic services of the market. It should not take sides between participants in competition and it should not stand in the way of cooperation between participants.

Taken together, I feel that these three ideas can form the intellectual foundation of a truly sound currency system (market). I would like to assign equal weight to these three ideas, but not because I believe or can prove that equal weighting is optimal. Again, it is for the simple reason that if one of these three ideas is thought to have priority over the others, we will be mired in debate forever, and we will be unable to move forward on policy. So where these basic values are in conflict, I would like to find a compromise that restores a reasonable balance between them. I also believe that these ideas contain the necessary ingredients to address all of the primary concerns with the incumbent theories of markets and money. And I believe that when taken to their logical conclusions, the conflicts between these ideas will be minimal.

20 Responses to Three Principles for a Democratic Capitalism

  1. I fail to see how “currency system” can be identical to “market”. Is that universally accepted?

    • Good Question.
      Not universally accepted.
      I think of the market “currency system” as consisting of

      1) The set of agents that participate by buying, selling or holding assets.
      2) The balance sheet of each agent that records it’s assets and liabilities.
      3) The currency issuer which has a different set of obligations than every other agent.

  2. Bravo! (And greetings from Manchester, England – the home of Free Markets!)

    This is really exciting stuff Brian. This is the first time a serious player like you has moved beyond the monetary system to the valuation system that underpins it.

    How value is created is one thing. How it is measured is another. How it is exchanged is another still, but taken together those three elements – when (not if) assembled together will create a mutual credit currency system that is regulated centrally (by the community’s elders) but distributed locally by trusted local representatives working together and in partnership for the benefit of the common good.

    Such a currency will in my experience be weighed and measured in time (using timebanking principles) and in the end give the dollar a run for its money since investors are seeking sustainable investments that offer save-havens (and growth) during troubled times.

    The trick to it all is self-regulation by the community since it is the community that issues and accepts the currency in exchange for a contribution to its health wealth and happiness by its constituent members. Its in the community’s interest at all times to self police issuance at all times to prevent the currency from becoming inflated and losing value over time (like the dollar). If the currency is only ever earned into existence for contribution to the common good then it doesn’t matter how much is issued into existence as long as its integrity is protected by the community that benefits from its issuance.

    Good work. Looking forward to the next chapter.

    P.S. Come visit us in Manchester (we have a great track record for free market enterpise and social justice!)

    • Thanks I’m really glad you like it.

      I pretty much agree with the idea that time is the ultimate constraint on wealth creation after needs for food, shelter, coffee, internet access and so on have been met. That makes it an interesting basis for a currency system. Especially in a context where the material needs have been more or less satisfied.

  3. James Cooley

    Does this: “It should not take sides between participants in competition and it should not stand in the way of cooperation between participants.” mean that some other entity besides “the Market” should prevent collusion and cornering, or that nothing should?

  4. In general people should be allowed freedom to cooperate (Free Exchange).

    But when that freedom encroaches on the value creation function of the market (Functional Markets), or it causes participants to be unfairly shut out of the market (Equal Access), then the Free Exchange principle needs to compromise.

    That might lead to the creation of rules prohibiting various kinds of market manipulation. But I also think that in a world of better educated market participants, there would be need for fewer rules and restrictions.

  5. Jim Shannon

    Democratic Capatilism – nice idea, but has never esisted, just like democracy itself!

  6. Charles Fasola

    Capitalism and Democracy are two systems at direct odds with one another. True Democracy cannot or ever will exist within the capitalist system. If you believe it possible then you exists in a world filled with fantasy. The market as presently structured only extracts wealth produced by the real economy, period. The corporate structure that underpins the market is as far removed from Democratic ideals as a pleasant aroma is from horse shit.

    • You aren’t alone. Lot’s of people think that. Or they have the opposing view which is that we can never have a truly free market in the presence of democracy which is just a way to bulldoze over property rights.

      I happen to be in a very small minority of people who think capitalism and democracy evolved together and need eachother like the brain and the heart.

  7. Okay, this is a much needed blog discussion. Are you a reformed libertarian? In the past emotions have gotten carried away and the discussion dissolved in a disjointed unorganized way. Probably because the parties involved have an agenda and really aren’t interested in understanding the fundamentals. Graber, Wray have recently probed the history of money. Who else is probing the future of money?

    MR or MMR is the only willing foil to the MMT proposal of tying currency creation to a labor pool yet where has that discussion led?

    To appeal to as many people as possible, what do we end up with?

    “Functional Markets The market exists for a reason and the reason for the market is to create value for its participants.”

    So is it okay for most value to flow to certain participants as long as all participants gain some value?

    “Free Exchange Participation in the market should not be obligatory nor prohibited.”

    So no participant can be drafted or taxed?

    “Equal Access The market values all participants equally and exists to serve all participants equally.”

    Not exactly sure what you are getting at here. Does this mean all participants share equally in determining how new currency is created and how much and how it is distributed?

    All well and good but a lot of this verbiage could be a pleasant cover to hide the mechanics that undergird a currency system. I’d suggest explaining the mechanics as they communicate your values better than any words can. The mechanics are required by the ‘laws of cars’. A car can’t move without an energy source, a mechanical structure to transfer that energy to create motion and the ability to control its direction. Safety, speed limit laws, roads, insurance, police, traffic courts, lawyers etc. are secondary?

    The big unanswered fundamental questions for all new currencies:
    1)How is new currency created?
    2)How is new currency distributed?
    3)How is it taxed?

    How you answer these questions let me know what you are about economically.

    From these questions arise all kinds of other questions:
    1.Who physically defends the currency from counterfeiting?
    2.Who settles disputes denominated in the currency?
    3.Who determines which transactions can legally be conducted in the currency?

    How you answer these questions let me know what you are about politically.

    There is sooooo much built into a currency that people who trust Bitcoin just don’t see or appreciate. The current system is coming unhinged from it’s societal foundations and Bitcoin encouraged the unhinging. Biometics along with unbreakable coding make possible a whole new parallel system that truly responds to society, along with voting, legislation, adjudication and enforcement built in.

    The current system may front run any innovations by responding to popular demand. Too bad the infamous new currency system wasn’t the impetus to a better system it could have been. I see Apple with its biometrics as being revolutionary. Not necessarily in and of itself, but the thinking that is going into the creation of its payment system integrated with biometrics has the potential to create credible blowback against the current system.

    • So is it okay for most value to flow to certain participants as long as all participants gain some value?

      In a functional market idea is to disallow markets or activities that destroy value or otherwise inhibit value creation. A good example is you can’t buy life insurance on someone else. According to the idea of Free Exchange it should be allowed. And as long as anyone could buy life insurance on anyone else it isn’t a problem for Equal Access. So we need the Functional Markets principle to remind us that markets are about creating wealth and improving lives, not destroying them. On that basis I would say, no contracts on other people’s lives or well-being. It isn’t consistent with the intended function of the market.

      So no participant can be drafted or taxed?

      The draft is abhorrent on all three grounds.
      1) Functional Markets – War itself violates this principle by being a value destroying activity. Functional Markets cannot really exist in a war context where production feeds destruction.
      2) Free Exchange – The draft is an obligatory transaction, so not consistent with any kind of freedom.
      3) Equal Access – Draft as generally implemented is unequal and unfair. It’s always the poor that bear the cost.
      As for taxes, it’s a complex issue that touches all three of these ideas and needs carefully crafted policy to strike a reasonable balance. I won’t be able to satisfy the “All taxation is theft because Free Exchange” people. They need to bend a little towards the other two ideas.

      Not exactly sure what you are getting at here. Does this mean all participants share equally in determining how new currency is created and how much and how it is distributed?

      No. It means that the market is assumed to want more participants rather than less, and that it should provide services that make the market accessible to new participants (those who don’t have money to begin with). It should provide a level playing field for new participants so they are not at a disadvantage.

      The big unanswered fundamental questions for all new currencies:
      1)How is new currency created?
      2)How is new currency distributed?
      3)How is it taxed?

      I’ll discuss the mechanical side of things in a lot more detail. This post is more about defining the problem rather than stating the solution. The problem is to create a market that balances these three values which are sometimes in conflict.

      From these questions arise all kinds of other questions:
      1.Who physically defends the currency from counterfeiting?
      2.Who settles disputes denominated in the currency?
      3.Who determines which transactions can legally be conducted in the currency?

      These are all services provided by the market itself, or currency issuer, or government, if you prefer. I don’t see how it could be any other way. You do not want the agent that provides these services to enjoy any kind of “freedom” or discretion over how it operates; it should be predictable and strictly in accordance with predetermined policy. But it would violate Free Exchange to tell a private agent how to conduct its business. Also we need these services to be available to new participants with no money to pay for services, like resolving a dispute. Otherwise new participants will be exploited over and over, violating Equal Access (hazing is not part of capitalism). And we cannot ask a free (as in speech) agent to provide services for free (as in beer). Again Free Exchange. That is why the currency issuer needs to be the one ensuring the integrity of the property of the private free agents.

      So there are many private free agents and a single public non-free agent. The market (the public non-free agent) exists to serve and create value for the free agents (participants). But what determines its exact behavior? The democratic process where all participants enjoy equal influence. That’s why I say Democratic Capitalism.

      • Winslow R.

        “The draft is abhorrent on all three grounds.”

        I’d agree, but that is because I don’t feel comfortable with the creation of concentrated power. Power needs to exist, it just needs to be balanced with legislation, and morality. When people fail to follow laws and/or have a morality out of bounds from society, power comes in handy. Sufficient power sometimes requires a draft.

        All market systems come under attack and war may become value preserving. Destruction seems to be human nature for a large portion of humanity. To stop this destruction, a draft may be necessary. To ‘escape’ the draft requires a participant to break from the system, leaving the society which imposes it.

        In a truly representative currency, would you still find a draft abhorrent, even if the war was value preserving?

        • I can’t make the idea of a draft, or war agree with the three principles above. I just can’t. War means government commandeering the means of production for the purpose of destroying an enemy. It destroys wealth and freedom in a way that is completely arbitrary and unfair.

          But that doesn’t mean there is never a reason to go to war. The market needs to be able to defend itself against enemies who would destroy it. It’s part of protecting property and market integrity. It just requires an understanding that going to war means suspending freedom, fairness and prosperity to some degree. That may be preferable to the alternative.

          But it isn’t part of the normal functioning of capitalism or democracy as I see it. It represents a failure to achieve those ideals and a reversion to a more primitive form of organization.

          • Winslow R.

            Okay, perhaps you need to reconsider power, it isn’t always used nor is it necessarily arbitrary.

            When my kids were growing up, I tried to incorporate ‘civics’ into their upbringing. When they had a disagreement that they were
            unable to resolve, they’d call Dad.

            I’d ask if they wanted a mystic/preacher, judge/legislator, or police/army. At first I needed to explain how each functioned.

            Eventually, they would usually say forget it, they’d work any issue out on their own. Every once in awhile, sometimes just out of curiosity, they’d ask me to play a role. It was a good time.

            Has any country voted for provisioning the police/military only in times of conflict? I’d say you’re proposed system is lacking some needed balance.

            • Hang on.

              I never said anything about waiting to provision the military or police until a time of conflict. The market requires defense at all times and provision for that defense at all times. Your question was specifically about provisioning the military with a draft, which I consider to be a desperate and dramatic move away from the value system I’m promoting here.

              The military and the police are free services provided by the government to ensure the value of the currency and the real wealth basket. Just like teachers and firefighters and social workers. The way all public services should work is that people should volunteer for the jobs and they should be paid for their services in the currency. This is a free and fair exchange where the public receives real benefits, the public service worker receives the money, and the currency issuer fulfills its role of issuing new currency to maintain its price stability and liquidity.

              It is worth noting that even in peace time, we rely heavily on the military to defend trade routes from piracy and foreign enemies. Without the security that it provides, globalized trade would not be possible, and the demand for the currency would be reduced dramatically. So I believe the armed forces are a big part of what a currency system a reliable one. It’s been a staple of liberal argument here in the US to say, “We spend hundreds of times more on the military than all the other countries, therefore we should reduce military spending.” But those other countries are not protecting a currency area that spans the entire globe. I see it as naive to think we can save money or make ourselves richer in any way by withdrawing that power. That doesn’t mean we should go around invading countries we don’t like. But my view is that US power is a source of strength for the USD, and reducing US power means making the currency weaker and less desirable.

  8. Thomas Bergbusch

    Time to take social democracy (and I mean real social democracy, not champagne socialism à la Hollande) seriously. Dalhousie economist Lars Osberg wrote an interesting piece on this some years ago. Here is an excerpt and a link:
    “At a time when cheerleaders for the corporate agenda clutter the political landscape, social democrats are the only ones who say that:

    (1) Market forces should serve social ends;

    (2) Individual freedom, effective democracy and a meaningful sense of community all require
    the actual implementation of the basic human rights of all [citizens] – and these rights are social and
    economic, as well as political and legal, in nature;
    (3) Delivery of basic individual human rights, and the maintenance of local community,
    requires local democratic control of the institutional and legal framework of market processes.

    Social democrats are not hostile to “the market”, but they are not subservient either. My own
    attitude can be summarized in a saying which I first heard in Norway:

    “The market can be a good servant, but it’s a bad master”.

    http://myweb.dal.ca/osberg/classification/conference%20papers/The%20Master-Servant%20Relationship.pdf

    • Lot’s of valuable points in there wrt education, the environment and privacy. One of the big lies of the econ profession and economic conservatives has been that whatever market structure exists is just a fact of nature. Actually the market was configured that way by elites, on purpose.

      Just as there are many variations of the game of poker, there can be many variations on the game of markets. But they are not all are equal in terms their ability to create value, freedom or fairness.

    • Mikeriddell62

      Excellent observation.

  9. https://www.fidelity.com/insights/markets-economy/why-momentum-matters

    Apparently there is a theory and a successful trading strategy, used by some hedge funds, in finance describing the actual behavior of markets. It ties in well to reinforce the notion that such markets are designed for bubbles and busts.

    • I don’t understand markets being designed to boom/bust but basic bank operations insure they will happen. The math says it will happen. Jamie Dimon told Elizabeth Warren, as she reported in her book, that it always happens. The actual cycle depends, I believe, on the average term of loans made by banks and the average interest rate, short terms/low interest making long cycles and high interest/short terms making fast cycles. I’m not sure it was designed that way but it does work that way. Jamie Dimon and the math cannot both be wrong.