By J.D. ALT
Recently, I’ve been trying to zero in on a peculiar set of ingredients that seem to be baked into our economic pie―and which are depriving that pie of a sustenance we, as a collective society, need it to provide. The peculiar ingredients have to do with our monetary system. Specifically, the fact that we―whether intentionally or by happenstance―have put in place and operate a money system that seamlessly creates dollars, as necessary, for profit-making enterprise, but specifically does NOT create dollars for not-for-profit ventures.
To illustrate, let’s imagine that I use a dollar that I already have to pay for a bag of flour. Using my labor and artisan skill, I turn the bag of flour into a loaf of bread. I then sell the loaf of bread for three dollars. It’s possible the person who buys the loaf of bread will pay for it with three dollars he already has. It’s also possible, however, that he already possesses only one dollar, and has to borrow the other two from a bank. The bank, as we now know, doesn’t make this loan by removing two dollars from its deposits, but rather by depositing two new “bank” dollars (think of them as placeholders for real dollars) in the borrowers account.
The borrower of the two dollars writes me a check for the loaf of bread. I deposit the check in my bank account, adding three dollars to it. Two of them, however, are the “bank” dollars created by my buyer’s bank. For my bank to be made good, these two “bank” dollars from the other bank have to be replaced with two real dollars. This is done by a grand “clearing” process which takes place at the end of every business day at the U.S. central bank, the Federal Reserve. For the “clearing” to occur, there have to be enough real dollars to make good every check written on another bank throughout the entire monetary system. It is not an option for some of the checks not to be made good because “there aren’t enough dollars” in the system.
But we can see by what has transpired that the two additional dollars I received by making and selling my loaf of bread―my profit―are dollars which did not exist in the system at the beginning of the day, before I made and sold my loaf. When the final tally of the “clearing” is made at the Federal Reserve, for all the checks to be made good, there are going to have to be at least two real dollars MORE in the system than there were the day before. But this problem is transparently and instantaneously solved by the Federal Reserve: it simply creates, electronically out of thin air, the two additional dollars needed to complete the day’s “clearing.”
Thus, the monetary system automatically creates the dollars necessary to cover my two dollars profit. And my two dollars profit gives me a dollar of income AND enables me to buy another bag of flour and bake another loaf of bread. So this is truly a great system!
But now let’s imagine that I spend my dollar (that I already have) to buy a bag of flour, and that I use my labor and artisan skills to transform that flour into a loaf of bread―but this time I give it away to a homeless person. The “functional” result of the venture is the same: somebody who needs it gets a loaf of bread to eat. But the monetary system doesn’t create any money, I get no income for my effort and, most important, I get no replacement dollar to buy another bag of flour with. I’m out of business. If I want to make another loaf to give to another homeless person, the dollar for that bag of flour will have to come from somewhere in the existing money supply. (The money system, as we insist on operating it, cannot “create” the dollar because a bank will not lend me a dollar for a non-profit venture because the bank needs to make a profit on its loan.)
In aggregate, then, the money system we’ve established and operate so efficiently only creates money, as it’s needed, to cover the profits of profit-seeking ventures. No money is created for ventures which do not make profits. This dynamic is doubled down on by the fact that we also operate with the institutional insistence that the sovereign government, if it decides to undertake something for the collective good, must pay for for that collective good with “tax dollars”―which are dollars previously created in the profit-earning system.
There are two things peculiar about this. First is the implied premise that profit-seeking ventures are inherently good, while not-for-profit ventures are merely optional “niceties” that we can pay for on the side, so to speak. The second is our insistent belief that the money system we have cannot rationally be managed in any other way.
With regard to the first peculiarity, it is easy to see that profit-seeking ventures often do great harm, even though they may generate great profit (and cause a lot of dollars to be created). The coal-mining industry is a perfect example, having generated profits for generations but, as we now discover, has left huge swaths of our landscapes and watersheds destroyed and unusable by either man or nature and, in the process, has raised the CO2 levels of the atmosphere to the point of destabilizing our climate.
With regard to the second peculiarity, it would SEEM to be the most rational thing imaginable to pay now-out-of-work coal miners (and a lot of others as well) to recover and restore the destroyed landscapes and watersheds―to make them productive again for the needs of man and nature. This could easily be accomplished, for example, by setting up a “National Not-For-Profit Workforce” and giving it an account at the Federal Reserve. The FED would then credit the account with “keystroke” dollars, as needed, to pay for the work.
But we cannot imagine that we could do such a thing. We imagine that money cannot be created this way (in spite of the fact that we have everyday proof that it can)―that money, for some unexplained reason, has to be created ONLY for profit generation rather than the simple doing of useful work. The extreme absurdity of this can be found where the profit-generating venture produces, in fact, nothing whatsoever of real use or value―the derivatives gambling of the financial industry comes to mind―while the not-for-profit venture produces something of extraordinary utility: a shelter for homeless mothers and children, for example.
The result is that our economic pie only provides a limited sustenance (except for those who have a disproportionate slice of it). Many of the things we truly need―clean air and water, free health-care and education, affordable housing, reliably secure retirement years―the pie does not provide. For those kinds of things, we must instead rely solely on what the profit-seeking ventures decide it is worth their while to sell us. Alternatively, we must rely on the charity of the super-rich. But the only dollars our charitable foundations have are the dollars which have already been created for profit-seeking enterprises. In other words, we NEED two kinds of loaves. The question we must answer is why we only allow ourselves to create dollars to bake one of them?