A Cure for the Ills of Capitalism

How We Can Eliminate (Involuntary) Unemployment and Poverty — as well as Taxes and Public Debt — while Increasing Sustainability in a Stable, Self-regulating, Market-based Economy with No Limit on Income

[re-edited, mostly for better clarity, as of June 2, 2019]

Those outcomes are built into the structure of a revolutionary monetary system. In the U.S., it could be implemented with single Act of Congress — just as our present monetary system was established with the Act of Congress in 1913 that created the Federal Reserve System.

Moreover, this monetary model could be implemented by any nation. It would allow less developed nations to achieve those results without the frustratingly slow, environmentally destructive process of ‘development’. Once in place this model would provide a kinder, gentler social environment for infrastructure and enterprises to be brought forth within it.

Though it would be revolutionary, however, this monetary system would not be radical. It would build on existing institutions, not tear them down, to transform the macro-functioning of the existing (capitalist) economy.

For instance, the central bank, common to all contemporary economies, would still exist. The one that was created in 1913 in the U.S. is commonly referred to as “the Fed.” The central bank would still be the banks’ bank and would continue to oversee the viability of the banking system. It would no longer lend money to government, however, nor would there be any need — or any way, for that matter — for the central bank to help ‘manage’ the economy.

Money would be supplied for the economy by a new entity, the monetary agency. It would be separate from and independent of both government and the banking system. It would have no discretionary power. It would do nothing but administer the supply of money for the economy.

Like the current system, the monetary agency would simply create money as needed. Unlike the current system, the size of the supply of money would be exogenously limited. It would be determined by demographics — and only that. No person, committee, or institution could influence, much less determine, how large the supply of money would be. The size of the supply of money would be much larger than in the present system, but there would be a correspondingly smaller ‘multiplier’, i.e. the ratio of total output (the GDP) to the supply of money.

Here is where this proposal gets revolutionary. Money would be supplied to the economy in the form of an income paid to individuals. We can call it the “allotted income.” It could be legitimately restricted to citizens (because it is the economic equivalent of the right to vote, as explained, e.g., here).

This is different from a “universal basic income” (UBI). UBI’s come in somewhat different forms, but in any formulation of it the income would be paid to everyone old enough to work, whether one had a job or not and regardless of income. No one has ever claimed that a UBI would end taxation, much less public debt, much less that a UBI would increase sustainability.

One huge problem with every variation of a UBI is how to fund it. It can only be done with taxes. The “universal” part disguises somewhat the redistributive nature of it. Being “universal” is what makes a UBI different from Welfare.

Armed with all of three undergraduate courses in economics, but also a lengthy flirtation with Marxism that ended when I rejected it, I wondered whether it might be possible to have a cost-free, non-redistributive income for an unlimited number of people — but not everyone — by having that income form the supply of money for the economy. I found that approach to be not only feasible, but the bearer of the astonishing results enumerated above in this essay — and more good things. [I then earned an M.A. in economics to be sure of all this.]

No “involuntary” unemployment means no one would be required to work. No public money of any kind whatsoever would be available for anyone of working age who would simply choose to be unemployed, and panhandling would presumably be even less remunerative than it is at present, but people would be free to make that choice.

On the other hand, to work is to make a productive contribution to the community. Everyone of working age who is able should be willing to do that. Everyone who is able and willing to work should be provided with a job. Everyone who works any job should have a sufficient income.

Even so, with this proposed system one could choose not to work — or to work but to be poor. One example of the latter would be the proverbial ‘starving artist’ who works at producing art of some kind but depends on that art for an income that is (so far) meager.

The freedom to make such choices is part of having a market-based economy. People must be free to choose how and to what extent to participate in the economy. (It is not possible for any human being living in any geopolitical community to opt out of participating in its economy altogether; even panhandling is, after all, an economic act.)

Such choices aside, this monetary system would, to reiterate, eliminate unemployment and poverty with no redistribution of anything and no limit on income/wealth. Even better, all of that would be accomplished without costing anyone anything. For that matter, the total wage bill for employers would be significantly reduced (though, as will be seen, remuneration in the form of benefits would presumably increase).

There would be no (involuntary) poverty because, as well as being available for an unlimited number of people, the allotted income would be based on the current median income. In poorer nations the standard could be the average income or even the per capita GDP — which would recapture some of what has been lost to most brutal, most egregious exploitation in those nations.

The allotted income would be available for an unlimited number of people because it would be paid to three categories of people. The first two are straightforward: retirees and adults too incapacitated to work (thus replacing, in the U.S., the Social Security system, solving that whole problem; for that matter the Social Security Administration could be extracted from government and become the monetary agency).

The third category of people to be paid the allotted income would be people working in positions that received the minimum pay. That is, the allotted income, paid by the monetary agency, not employers, would become the minimum pay for workers.

Keeping in mind the absence of all taxes, the amount of the allotted income would be, in the U.S., $15/hr. So, $600/wk. The pay would be the same for retirees, incapacitated adults, full-time employees being paid hourly and salaried employees being paid that income. It could be prorated for part-time work. (As the minimum pay for workers, to prevent inflation it would have to start at the existing minimum wage and be raised gradually to the full amount, giving supply time to adjust to the increasing demand that would result from higher incomes for many people.)

Employers would use benefits to compete for minimum-pay labor. In the U.S. the current federal minimum wage is $7.25/hr. That is not a sufficient income to live on. It is, however, more than sufficient to provide decent benefits for a minimum-pay position.

So employers could pay decent benefits to go with the allotted income and still save money — especially those who have done the right thing already by paying decent benefits. The amount of the allotted income would be the same for everyone being paid it regardless of where one lived, but benefits would be determined by local economic conditions.

Employers could designate any position to be a minimum-pay position. People would be free to decide whether or not to fill that position for that money (plus whatever benefits could be negotiated).

There would be no unemployment because it would be possible to provide cost-free minimum-pay jobs (as a last resort) through government. To be cost-free, such jobs could not require any additional investment. Also, those jobs could not include benefits.

It would also be possible to pay the allotted income (without benefits) to one parent or legal guardian in a household with one or more dependent children in residence. The amount of the income would be the same regardless of the number of children.

Whether or not to adopt that ‘paid home-employment’ option for the economy would be a choice to be decided in political process. It would presumably have a huge affect on the labor market as well as the institution of the family. It would be a particular boon for nations with really high rates of unemployment. The long-predicted revolution in robotics and cybernetics would make that option hugely important for all nations.

There would be no taxes or public debt because government would be funded as part of the functioning of the monetary system. Government would be funded forever at the current per capita rate of total government spending by the monetary agency.

All of that money would go initially to the central government. Money not spent at a higher level of government would be apportioned among governmental units at the next lower level, based on population. In the U.S., for example, the money would go first to the federal government; what wasn’t spent there would be apportioned among the states; what wasn’t spent at the state level would be apportioned among local communities. (It’s high time we went to a single level of local government everywhere in this country.)

The people deciding on spending at higher levels of government would presumably realize that the less they spent there, the more money there would be to provide public goods and services for people at the local level — the people who voted for them. Local government would therefore presumably receive proportionately more money than at present. As money is power, that would tend to decentralize governmental power.

With both the supply of money for the economy and spending by government governed by demographics, total output would respond to that (truly exogenous) variable. In addition to making the economy stable, that would of itself go far to make the economy more environmentally sustainable. There is much evidence that material security, which this monetary model would ensure, encourages people to have fewer children, not more, further enhancing sustainability.

The only possible macroeconomic problem would be price inflation. To prevent inflation money would have to be returned to the monetary agency. Unlike taxes, however, with this system no money would be collected from any person or business before it could be used for consumption or investment. The amount of money that would be returned to the monetary agency would be determined by the functioning of the economy, not decisions made by some committee somewhere.

Really, inflation would only exist as a threat during the transition to this monetary system. Gradually increasing the allotted income, as the minimum pay, from its current level to the full amount of the allotted income would allow for total supply to increase as incomes for minimum-pay positions were increasing. Once fully in place, this system would have built-in safeguards to prevent inflation. (Retirees and adults too incapacitated to work would immediately receive the full amount of the allotted income.)

Actually, in the absence of some kind of extraordinary stimulus the capitalist system has historically been deflationary, not inflationary. In the system that now exists deflation is a problem. It lowers prices, which one would think would be a good thing, but falling prices in the system we have creates a downward spiral of lower incomes, less output, and more unemployment.

In this proposed system deflation would be a good thing. It would increase the purchasing power of the allotted income over time. The allotted income, being independent of the economy, not in any way influenced by what was happening with it, and being paid by the monetary agency rather than coming out of employers’ revenues, would prevent that downward spiral from developing.

It is the case that deflation would mean that over time more and more positions that had been paid more than the minimum would probably become minimum-pay positions. Even so, that would not mean that the total remuneration for the people in those positions would have to decrease. Indeed, total remuneration could increase. That’s because the more a position had been paid, the more room there would be for the employer to provide more benefits and still save money.

As an example, if a position that paid $50,000/yr. (U.S.) in salary became a minimum-pay position, the employer would be saving $50,000. The employer could provide $25,000 in benefits over and above benefits already being provided for that position and still save $25,000. At the same time, the total remuneration for the person filling that position would increase by $6,200/yr. ($600/wk. + $25,000/yr. in additional benefits).

The only stipulation would be that all benefits would have to be ‘in kind’, not in the form of a monetary allowance that could in the event be used as discretionary income. Yet the only limitation on benefits would be imagination: insurance, housing, vehicle(s), place(s) to stay for a vacation, domestic help (providing their benefits), public transportation passes, luxury services (such as personal trainer, massages, and trips to spas), and entertainment (such as passes to ballgames, movie passes, passes to concerts, plays, the ballet, etc., and passes for parks of different kinds) come immediately to mind.

Also, there could be no monetary bonuses paid to any position. There would be no limit on how much money any position could be paid, and people could still be paid via commission, piece work, tips, etc., but other than those kinds of things monetary remuneration would have to be in the form of a regular income/wage.

Both of those rules would be necessary for the efficacious functioning of an economy with this monetary system. On the other hand, they are the only external rules that must be applied for this proposed monetary system to fulfill all of its fabulous promise, curing the market-based economy of all of its ills with no unpleasant side-effects.

[A version of this paradigm using the central bank to administer the allotted income is in “A Call for a (Further) Central Bank Revolution” here in Medium.]

End note

There is much more at www.ajustsolution.com (Page: “real justice /economy”). The foregoing ended up being an extensive rewrite of the “overview” from the essay on that Page explicating this monetary model.

In the Fall of 1982 I asked myself how a really just economy could exist. The “allotted income” of this essay began life as a “democratically distributed income.” The former term emphasizes economics rather than philosophy.

It was very much my intention for the allotted income to be cost-free and available to an unlimited number of people, though not everyone, because I recognized that those are the essential characteristics of political rights that allow for a ‘just distribution’ of those rights. That was my starting point.

Further study of justice ended up convincing me that a new and different ethic of justice was required. Justice has always been all about constraining power. A belief in human equality, the historical basis of democracy, implies a requirement of mutual respect. Warren J. Samuels, in a contribution to the body of knowledge that had an immense impact on the development of these ideas, all but defined “social power” as the ability to effect choices (i.e. choose among perceived alternatives and take action to bring that choice to fruition) [in “Welfare Economics, Property, and Power” in Perspectives of Property (Gene Wunderlich and W.L. Gibson, eds.)].

Combining those three elements, justice requires us as human beings to constrain ourselves by respecting one another (taking into account other people who are involved) whenever any choice is being effected. Most briefly, then, the ethic of justice is mutual respect in effecting choices. I have found that applying that ethic to life would maximize liberty, reinforce political democracy, and transform the macro-functioning of the market-based economy.

A belief in equality is a perfectly valid basis for anyone to choose to live by this ethic and to advocate for its societal implications. I have learned, however, that believing cannot be a valid basis for requiring any other person to accept any belief. It does not matter who holds what belief or how many people might hold it or how fervently it might be held.

Mutual respect in effecting choices, though it is implied by a belief in equality, can be shown to follow from universally verifiable observations within material existence. As it happens, those observations can be said in turn to argue for equality of a kind, but the requirement of mutual respect comes before that.

That means that no human being can plausibly deny the applicability of this ethic to all people, including oneself, ‘whether one likes it or not’. Mutual respect in effecting choices is therefore a valid rule of conduct to require of all individual human beings and to serve to structure justly the political process and the economy.

In a just, i.e. democratic, political process, people’s participation in the process will be informed by their beliefs. People will sometimes have to accept outcomes that are contrary to their beliefs. What they are accepting, though, is the justness of the process, not the beliefs underlying this or that outcome.

The only alternative to democracy, as civilization has witnessed time and again, is inevitably, brutally violent “contests of power” (Michal Foucault) that can never achieve more than a temporary respite from the carnage. Even that can only come in one of two ways. One way is complete exhaustion on all sides. The other is if one faction can successfully impose itself, for a time, on all others — and at that, with unending violence behind the walls of prisons as the price of political ‘peace’. It is the sociological version of Thomas Hobbes’s individualized “war of all against all.”

[ajustsolution.com (Page: “real justice”)]