Reform Capitalism - a concise introduction

What is Reformed Capitalism

Reformed Capitalism is the name for a set of economic rules that preserves the core benefits and strengths of free-market capitalism, while eliminating or lessening the weaknesses and downsides of that system.

Reformed Capitalism seeks to preserve the key elements of private property, open markets, and entrepreneurial reward which drive the success of the capitalist system.

Reformed Capitalism seeks to end the elements of exploitative rent-seeking, usury, and wealth disparity which exhibit the downsides of the capitalist system.

Reformed Capitalism is not intended as a political platform for any given contemporary nation-state, although in the course of exhibition of Reformed Capitalist principles, historical and contemporary examples are mined copiously. The problems of any specific country’s economic system are complex and variable, and will not necessarily be addressed directly.

Rather, Reformed Capitalism is intended as an expression of general principles and policies, which can be applied to any present or future circumstances. If a country is starting from scratch, theoretically the entire body of Reformed Capitalism could be implemented at once. Or, more likely, single planks of Reformed Capitalism could be implemented one at a time by an existing nation.

The point of Reformed Capitalism is to establish a body of economic knowledge and practical rules which can be applied to all, to the benefit of our collective unity, justice, peace, welfare, and liberty.

For the Benefit of Whom?

Any economic policy must first determine for whom the economic benefits are intended. The primary critiques of traditional capitalism mostly boil down to the way in which it facilitates the economic exploitation of the masses for the benefit of the few. Reformed Capitalism takes the opposite course, explicitly defining its target as the benefit of the masses over the benefits of the few.

The exploitative features of traditional capitalism are a direct result of its origins in ancient conquests and the feudal governments set up to secure the benefits to the conquerors. While much political reform of the modern era has succeeding in eliminating feudal ideas in government, the feudal legacy has not been eliminated from our economic system. That feudal legacy is summed up in one word: rent.

Rent was invented as a fruit of conquest. Basically, rent developed from the practice of tribute. The ancient tribute system was simple enough: “We, your conqueror, allow you to live, in exchange for a regular payment.” Rent developed from that basic concept, except as applied to the land, rather than to the people directly. A tribute was what we would call a capitation tax, a tax directly “on the head” of the person: “pay or die!” Rent is a tax directly on the land of the person: “pay or be kicked off!”

Absentee Ownership of Land

The theoretical basis of rent is found in the concept of absentee ownership. This is the idea that, though someone lives far distant, and has nothing to do with the activities on the land, they nonetheless have the right to claim the produce of those activities.

Obviously, the idea that someone can be totally absent, yet claim ownership of the land and its produce, is also based on the ancient practice of conquest. No one would voluntarily pay a portion of their hard-earned produce to some far-off stranger who contributed nothing. Rent was originally a forcible extraction from a subjected population by a deadly invasion force.

Unfortunately, this ill-begotten concept of absentee ownership survived into the modern era. In fact, it provides the basis of much of our economic practice today. In the medieval economic world, absentee ownership was largely confined to the question of land ownership. With the development of industrialized mass-production techniques, absentee ownership took on a new, more virulent form.

Absentee Ownership of Production

These absentee owners of factories are the proverbial “capitalist pigs” of the Industrial Era. Like their absentee landlord predecessors, these absentee owners claimed the wealth produced by others. The concept of absentee ownership is codified through the legal fiction of the business corporation, the main function of which is to protect absentee owners from liability.

Under this system, absentee owners are created solely by virtue of their possession of the money to finance some productive economic activity. This exposes the ugly underbelly of the traditional capitalist system: with money, it is absurdly easy to make lots more money. Conversely, without lots of money to start with, it is almost impossible to make lots of money. In short, the possession of money itself is self-perpetuating and self-reinforcing.

Absentee Ownership of Money

This keystone role for the power of money is further strengthened by the changing nature of banking. They concept of absentee ownership plays a key role here as well. Lending on interest, known as usury, is nothing less than the idea of absentee ownership applied to money. Interest is the rent charged by the absentee owner on the possession of the money by the borrower. Like all absentee owner rent-seeking, the act is exploitative, as the person doing the actual economically-productive work is forced to share the profit with someone who has done nothing.

The worst part about modern banking is that today’s bankers don’t even have to acquire the money before they lend it out! It is incredible, but true, and it is called fractional reserve banking. Banks can literally lend out money they don’t even possess.


Imagine you have $100, and your family needs some money. So you loan out $500 to your mom, $300 to your brother, and $200 to your sister, plus you get to keep the original $100 in your own wallet. THAT is fractional reserve lending on a 10% reserve ratio. The 10% means you have to keep cash on hand equal to 10% of your outstanding loans, which means you can lend out 10 times the amount of money you actually possess. The weird part is, you get to charge interest on the money that you loaned out, that you never even possessed in the first place.

Obviously, under the fractional reserve banking system, the power of money has been multiplied exponentially, at least, for those who have it. For those who don’t have it, things are business-as-usual: a life of wage-labor, struggling to stay ahead while suffering numerous exploitations at the hands of various rent-seeking absentee owners, such as land owners, business owners, and bank owners. Even the effort to save for the future is undermined by the moneyed powers, who crush savings through planned inflation of the money supply.

Ending Absentee Ownership

Reformed Capitalism seeks to end all this exploitation, by doing away with the various forms of absentee ownership. The base principle of Reformed Capitalism is that no person is entitled to the profit in work of which they had no part. Under the rules of Reformed Capitalism, a free market in wages for labor is still perfectly legitimate. Thus, there is no silliness about government interference with wages or income levels. Indeed, a man is perfectly entitled to the full fruits of his labors, and in a free market, some labor is worth far more than others, and rightly so.

However, profits are illegitimate that come from the exploitation of the labor of others. In Reformed Capitalism, the basic rule of thumb is that if you have no part in the productive activity, you have no right to part of the proceeds. The motto of Reformed Capitalism is a phrase that strikes terror in the heart of every member of the rentier class: you are only entitled to profit from the work you actually do. In short, sitting back and profiting off the work of others will no longer be allowed.

Protecting True Ownership

A key distinction should be made here on this concept. Unlike in Marxism, in Reformed Capitalism, not all forms ownership or contract labor is considered illegitimate exploitation. An owner who is risking his own capital and actively managing an ongoing concern is fully entitled to the full profits thereof. That is true ownership, and Reformed Capitalism affirms and supports it as a vital element of a free and prosperous economy. The concepts of private ownership and a free market for wages are fully supported.

What is Sound Money?

Money has one basic function: to enable trade in a community. Because money allows you to acquire things in a community, money then also gets a second function: it gets hoarded as a store of value. Those are the two common roles of money: to enable trade and to store value for future trade.

What is "Sound Money"

The ideal money would be perfect at both roles. Unfortunately, money that is good at one function is bad at the other. Consider the characteristics of dollars versus gold.

Dollars are excellent at enabling trade. The Fed Reserve releases a bunch of them at the drop of a hat to stimulate the economy or to bail out a member bank. Trade and consumption are constantly stimulated by flooding the economy with dollars.

However, this makes the dollar an extremely poor store of value. Inflation is a regular and desired part of the system, a feature not a bug! Under the Fed Reserve system, value has to be stored elsewhere, usually in stocks or bonds. Storing money in dollars means you are quickly losing purchasing power, because of the inherent inflation built into the system.

The function of banks in this system is to create more money, and distribute it to the consumer economy on easy terms. This is known as fractional reserve banking, as banks create new money through loans, backstopped by the Fed Reserve, which will make sure they never run out of money.

Gold is often called "the only sound money" because it is such an excellent store of value. Gold itself never rusts or corrodes, it can't go bankrupt or be overthrown like companies or governments, it strongly resists counterfeit, and it has a relatively strict limit on supply.

However, it is very poor at facilitating trade. Indeed, precisely because it is such a good store of value, people tend to hoard it. Under the gold regime, anytime people save money, monetary deflation is unleashed on the economy, stifling trade.

Under this system, the function of banks was to get money out of savings and back into circulation. Other people's savings became the basis of new loans, as banks could not, themselves, create new money.

Historically, because of its limitations, gold money was never used as a primary means of exchange, that was left to more common metals like copper or silver, or paper certificates, bills of exchange, and cheques.

The Commodity Problem Facing Money

A fundamental problem facing any money supply is also brought about because money itself quickly takes on the traits of a commodity. Money in too great or too lean a supply can wreak havoc upon the productive economy. There is also the problem that economic activity is wasted when it is concerned with the supply of money itself, since manipulating the money supply itself is not a productive activity.

Thus, the ideal type of money would have three traits: excellent at trade facilitation, excellent at value storage, and not treated as a commodity. A created-on-demand, credit-based, electronic monetary supply appears to be able to meet these conditions, and represents the next major advance in monetary development.

In my next essay, I will detail how this money supply can come into existence and be used to build up the economic health of a community.

Monetary reform and alternatives - join the Lawful Bank movement

The Lawful Bank is an application of the concept of "worker-owned businesses" to the financial world.

Worker-owned businesses are the wave of the future, because by eliminating parasites from the business process (the "passive owners"), businesses can operate at lower costs. Operating at a lower cost is the bottom line in the survival of the fittest economic world, and thus, over time, worker-owned businesses will outperform and eliminate the parasitic passive-investor businesses. In their own words:

"By signing up to The lawful Bank you will (in due course) avail yourself of the benefits of membership of this unique monetary and banking system, the essence of which is to distribute to the people the grotesque profits being skimmed by greedy bankers from the nation’s economy. "

"There are no investors to satisfy and no high flying executives on million pound/dollar salaries or city slickers on astronomical bonuses. Our system plays no part in casino banking. TAMS is both safe and cost effective and serves the interest of the sovereign aspirations of individuals."

"TAMS is a mirror image of the existing monetary system – it is tried and tested... but with a crucial difference in that there is an entirely different approach as to where the profits are delivered. In the existing system, the profits go to investors, and the people running the bank - with our system the profits are distributed to our members."


One of the fascinating innovations of the Lawful Bank is the way it leverages the power of fractional reserve banking for the INDIVIDUAL:

"A positive credit system – for every £1 of cash deposited, each member creates £10 credit in their account. This credit (created by the system) on the back of the cash deposited is the property of the member and thus not a debt to the member. This will provided streams of credit to the system – and not debt."





Check out the Lawful Bank webpage at http://lawfulbank.com/HomePage

End the Fed - Save the Economy - Support Kucinich HR6550

Kucinich's End the Fed bill is causing the parasitic banking class and its media apologists to erupt in fits, because, plainly stated, the bill would drive a stake through their blood-sucking hearts. The bill is based on a cogent diagnosis of our current economic problems, and offers a brilliant solution that would positively revolutionize our national finances and government, reviving our national economy and improving our lives. As an opponent of elite financial power and an advocate for citizen rights and quality of life, I strongly support this bill.

The bill's two most important effects, that strike most directly at the heart of the financial elite's unjust powers:

a) The end of fractional reserve banking
b) The end of the national debt

The bill's two most important effects, that would result in a positive return for the average citizen:

c) The funding of full employment
d) The funding of infrastructure modernization


A) End of Fractional Reserve Banking - the source of financial elite power

Imagine your family is in financial trouble, and you have $100 cash in your wallet. So, you write a check for $500 to your mom, a check for $300 to your brother, and a check for $200 to your sister, and on top of that, you get to keep the $100 untouched in your wallet.

Of course, this would be an illegal fraud, UNLESS you are a bank, in which case it is called "fractional reserve lending with a 10% reserve ratio". In other words, under the 10% reserve ratio, you get to create $1000 in loans based on your $100 of cash. With a lower "reserve ratio", you could create more loans on top of your cash reserve.

That would be a pretty cool power, wouldn't it? The ability to create money at will, and charge interest on it, without actually loaning out your own cash. That's right! You even get to charge interest on the money you lend out, even though you never had the money to begin with! This is how banks create money, and thereby, create financial bubbles/bust and inflation/deflation cycles.

Kucinch's bill would end this ridiculous, illegal, and unjust abuse, which is the heart and soul of the power and influence of the financial establishment.

B) The end of the national debt - a yoke of perpetual slavery laid on the neck of the taxpaying public

Think about it: the ability to create a money supply is a sovereign power, meaning, the government does it. Since the government creates the supply of money, why would it need to borrow it? If you could literally create money, you would never need to borrow it, right? Why would you borrow money from someone else, and pay them back with interest, when you could create the money for yourself? It doesn't even make sense! The idea of a national debt is a repudiation of governmental sovereignty.

It is like a tribute payment, a tithe to the banking establishment. It's a line item in every budget that goes directly towards banking profits. It is nothing less than a government subsidy for the banking establishment.

Kucinich's bill would end this outrageous, immoral, and illogical exploitation of the tax-paying public.

C) The funding of full employment - bailing out the worker instead of the banks

The whole reason behind TARP and the other bank bailouts of the last 2 years was to avoid an economic collapse. But the collapse happened anyway, because the banks never "loaned" the money back to the public. Despite receiving interest free money from the government, credit cards continue to charge over 20%, small business loans have dried up, capital financing is limited, loans for the housing market have been heavily restricted, and thus, the economy has contracted leading to perpetually high unemployment.

Instead of bailing out banks, and hoping they loan the money back to the public to get the economy going, why not skip the middle man, and directly pay the public? This is called the funding of full employment. Lots of people need jobs, and there is lots of work to be done, so why not just pay those people directly to do the work?

Some libertarians object to the idea of expanding governmental scope like that, but let's think about the alternatives: government-administered overhead, or banking-administered overhead. It is one or the other, there is no escaping the "inefficiencies" or the "external controls" or "restrictions on freedoms". The way I see it, we either bow to the power of the financial elite-controlled banking establishment, or we use government to reign in their power and be a vehicle to advance the general good.

The idea that there is a "free market" is a total joke, a complete fiction, really. The parasite banking class has completely perverted our rules and laws to their own benefit. Kucinich's bill would seek to fight back and regain our real freedom from the financial oligarchy that currently rules.

D) The funding of infrastructure improvement - modernizing America

Why is China setting records for next-gen bullet trains and laying thousands of miles of new highways, while we are slashing budgets and can't even afford to repair our broken down streets, bridges, water lines, electrical grid, and so on? The answer is keyed to the money supply: we are suffocating from lack of money. We have millions of people able and willing to work, and millions of things which need to be done. A government jobs program is just the trick to meet those needs.

The alternative is what, borrow money to meet spending needs, under increasingly high interest rates? Think about it: either the government creates the money, or private banks create the money through fractional reserve banking!

The fear of hyperinflation is misguided. Either the money gets created to get the work done, or people continue to stay unemployed, and our infrastructure continues to crumble. The only question is: who creates the money. No one is going to print out worthless paper money under Kucinich's bill.

Money would be created only to finance work, which would "spend money into existence". This would lead to a stable money supply, with slight growth as a built-in feature. This is exactly what the Fed Reserve claims to attempt, and completely failed to deliver!

Which is better for a stable and healthy economy: debt-based money created by private banks to their personal enrichment, or a permanent no-interest no-debt money supply maintained by government according to popular will?

Creating the money through government program at least offers the possibility of pubic input, while avoiding the exploitation and injustice of usury. Allowing the parasitic banking elite to continue their control of our money supply simply guarantees more misery and exploitation, as the rich would continue to get richer.

Study the full text of Kucinch's proposal here, and please, help spread the word: http://kucinich.house.gov/UploadedFiles/NEED_ACT.pdf

China demonstrating use of key method in modern Jubilee - raising reserve requirements

The modern Jubilee method is for the government to pay off all debts using electronic checks. Inflation due to oversupply of money would be prevented by raising banking reserve requirements. Thus, all debts would be cancelled, without violating any contracts or causing inflation.

This week, China is demonstrating the technique of raising the reserve requirements to stem inflation. Most Americans are not familiar with this technique, because the Fed uses open market operations and interest rate adjustments to attempt to manipuate the money supply. These Fed methods are indirect methods, and used mainly because they involve huge financial transactions which enrich the Federal Reserve member banks who conduct those operations.

The Chinese method is direct, and doesn't enrich anyone. The Chinese government is not controlled by the bankers, but rather, the government controls the bankers, so they use the superior method for controlling inflation, not the superior method for enriching the bankers.

http://news.yahoo.com/s/ap/us_wall_street

The History of Free Banking and Alternative Currencies

The academic study of the history of free banking and the contemporary practice of alternative currencies are strongly related. It seems clear to me that the contemporary monetary reform movement should be based upon lessons of monetary history, but such a connection rarely seems to take place. Perhaps because monetary history is so obscure, and monetary theory so confusing?

A wonderful interview was recently published by the Daily Bell (http://www.thedailybell.com/975/George-Selgin-Austrian-Finance-Central-Banks-Free-Banking.html), with an academic expert on the history of free banking, George Selgin.

One important takeaway: Dr. Selgin drives another nail in the coffin of the "100% non-fractional gold reserve" argument. He appears to conclusively demonstrate through the historical record that free market conditions will not result in a 100% gold standard. As I have argued before, we have moved onward, never to return to a gold standard, because our monetary theory has simply advanced to far. The idea of non-fractional gold as the only legitimate form of money is excessively retrograde, IMHO.

Another important takeaway is the limitations of viewing pre-Civil War America as a true example of free banking. In that era, bank charters often contained onerous provisions related to capital requirements. As I have detailed elsewhere, any asset can be monetized, which is to say, used as collateral to create a money supply. In the Wildcat Banking Era (as in most eras), land and government debt were the primary collateral monetized by regional banks.

In Dr. Selgin's view, as I interpret it, it was the instability of land speculation in that boom-bust pioneer era which caused the instability of those banks, not anything inherent in the institution of free banking itself. In effect, our most popular idea of why Free Banks were a failure, is simply wrong.

A third important takeaway is the history of free banking in early modern Scotland. Monetary reform advocates have over a century of history to plumb in their search for workable alternative monetary solutions. I look forward to researching more into this era myself, particularly with an eye towards how the Scottish Free Banking system was related to the real bills system and the gold standard system of the same era.

Jubilee as Protection against Fractional Reserve Banking

Imagine you had a $100 in your account, and your family needed some money. They all promise to pay you back, so you write a check for $400 to mom, $300 to dad, $200 to bro, and $100 to sis.

Inconceivable, right? Not if you call yourself a bank! Then it is perfectly legitimate. Welcome to the world of fractional reserve banking.

Fractional banking means that private parties can create money from scratch, then loan it out. Oh, yeah, AND require repayment on interest. On money they never had in the first place!

The money is made-up, but the debt is quite real! If you can't pay back their made-up money, with interest, they might just have the right to garnish your wages.

When looking at the big picture, the entire edifice of modern banking is a huge exploitation machine, run by the parasitic banking classes. Their method of operations is to create as much loan money as possible, because that means more profit for them. Thus, as you can see, it is the banks who are the primary drivers of unsustainable consumerism, perpetually encouraging and enabling debt burdens.

There is literally no end point, no natural limit to the amount of debt that banks will foist upon the commoners. The logic of competitive capitalism dictates the cut-throat competition to spread loan growth. The banking industry, just like biological parasites, will grow out of control until their host is destroyed. This is what Greenspan was referring to when he famously said his faith in capitalism was shaken: he naively assumed banks would regulate themselves to avoid self-destructive loan growth. The problem is, individual banks might want to restrict their own growth, but the banking system as a whole cannot. Banks who issue more debt simply crowd out and take over banks who issue less, thus ensuring out-of-control debt growth for the whole system.

The Jubilee cycle is like a regular innoculation and treatment, killing off the parasitic infestation of debt parasites. When bankers know that debt will automatically be forgiven, they will control their own debt-issuance. Why would they give out loans when they know the debt will be erased? At the beginning of the Jubilee cycle, long term loans, up to 50 years, are possible. As time gets closer to the Jubilee Year, loan terms are shortened. Naturally, banks would be far less likely to provide loans at all, as the risk of total loss is great if the debtor strings repayment out.

Under the fractional reserve system, banks are able to hoard wealth and power in a naked power grab. Jubilee offers protection against that power.

Now, some might suggest that we regulate banks, perhaps even eliminate fractional reserve banking altogether. Here is the problem:

As we know from history, money holders will attempt fractional reserve lending, getting away with it as much as they can. The proposal to regulate banks on that scale involves a massive state regulatory apparatus. As we know, bankers are expert at corrupting regulators, so even with the expense of a full regulatory regime, we cannot expect to ever truly eliminate fractional banking.

The Jubilee cycle would accomplish the best of all worlds: minimal government establishment, while leading banks to restrain themselves in accordinance with their own self-interests.

The Necessity of the Jubilee Cycle in the Modern Economy

As detailed in my last article, the modern economic condition of primarily credit money creates a new economic dynamic:

Under traditional paper money schemes, the excessive issuance of money results in hyperinflation.

Under modern credit money schemes, the excessive issuance of money results in Minski moments of economic collapse because of unsustainable debt levels.

The ancient Jubilee cycle, extinguishing all debt every 50 years, is perfectly suited to this new modern condition. The Jubilee cycle would be the perfect restrictor and regulator of the Minski debt-collapse cycle, and is thus a necessity for economic stability in the modern world.

Many monetary theorists and reformers are looking backwards, and recommending that we reign in the Minski cycle by eliminating the fractional reserve banking system. However correct this proposal is on the theoretical level, it is impractical because time and knowledge cannot be undone. A similar critique faces those who would return us to the gold standard: it was tried, and abandoned, time has moved on. As much as we would like to return to a Constitutional system of limited government, Pandora's box has already been opened.

A debt-cancellation Jubilee is the best solution to our current economic situation, which was caused by excessive debt. The Jubilee system of periodic debt cancellation is the only way to keep it from happening again and again. The Jubilee cycle would be the bedrock of sustainable economic development, which is yet another long-range necessity which must be faced by forward-looking economic leaders.

The Dangers and Advantages of Credit Creation

Excellent article by Peter Warburton over at Gold Eagle, http://www.gold-eagle.com/gold_digest_01/warburton041801.html, that, although written in 2001, deals with many issues we are facing today. The central problem he addresses, especially as he came from a monetarist perspective, is the lack of connection between money expansion and inflation, the very issue at the center of the inflation/deflation debate today.

Warburton accounts for this puzzling phenomenon as due to the role of credit. The rise of the credit-based economy has radically changed the economic landscale since the 1980s. As he puts it, "On the one hand, it has enabled the monetary aggregates to grow much more slowly than the credit aggregates, helping to keep inflation lower. On the other hand, the non-bank credit avalanche has enabled a furious pace of fixed investment in physical assets that has promoted structural global excess capacity in virtually all manufactured products and exerted downward pressure on product prices."

In other words, credit is inherently non-inflationary, and it allows economic activity to the point of overproduction and oversupply, which is actually disinflationary.

Even though he was writting in 2001, Wharburton exactly describes the conditions of 2009, noting that monetary expansions are mainly caused by banking stress, as the troubled banks hoard the cash: "The more obvious are the system’s weaknesses, the greater is the fear of collapse and the larger the demand for liquidity within the financial markets. In these stressful episodes, it is the financial markets themselves that are the principal driving force behind the monetary expansion. Hence, there is relatively little monetary impact on the product and labour markets, that is, on prices and wages."

Thus, we have massive expansion of the monetary base without inflation, because the banks are just sitting on the money.

Wharburton posits that inflation due to monetary expansion is not to be found on the consumer price level, because it affects other sectors, especially in the value of the currency itself. The real price paid for over-expansion of credit is overproduction and malinvestment. The final outcome is debt deflation: "In the limit, the construction of excess capacity gives rise to debt default, as the idle portion of capacity does not earn an income and cannot service the debt that financed its construction." The result: "central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur." Again, we witnessed this precisely as described.

The real cost of this credit destruction is paid by the currency: "The latent losses in the credit system, emanating from non-performing loans and defaulting bonds, represent a charge against the value of the currency, as surely as if the edges of the notes and coins had been trimmed away. " The main obstacle to realizing it, is that the debasement of any one currency is kept hidden by the fact that all national paper currencies are being debased in the same fashion.

Jubilee Analysis:

Credit creation is a form of resource allocation, functionally equivalent to money. In other words, a credit line allows you to purchase real labor and resources, in direct competition with cash purchasers. Thus, credit creation can drive up prices just like cash creation can. The advantage of credit creation over cash creation is the avoidance of hyper-inflationary effects, as credit is created and extinguished. The downside is the tendency towards malinvestment and debt-deflation when credit levels become too high.

This is THE fundamental issue flying right over the heads of the Hard Money types. The majority of money is not centrally issued. Sure, our currency is issued by the feds, but most money is functionally created by banks in the form of credit. The only way to eliminate the issuance of credit money by banks is to eliminate the system of fractional reserve banking.