Tuesday, January 18, 2011

Citizen Dollars Instead of Federal Reserve Dollars

A new era of security and opportunity through the democratization of money

Perhaps you’ve noticed that the national economic picture is a bit grim these days: layoffs, long
term unemployment, foreclosures, bankruptcies, oil spills, public bailouts of private industries,
lack of access to healthcare and education. Out here in California, the crime beleaguered city of
Oakland recently laid off 80 police officers. San Jose is currently debating which fire stations to
close. Schools are cutting classes and laying off teachers. Economic insecurity for average
citizens seems to grow by the day.

How does it come to this?

With present day level of resources, knowledge, and technology, with our breadth of moral and
philosophical perspective, with millennia’s-worth of historical lessons, why can we not run our
nation and its economy in a way that offers greater stability, comfort, and security for all citizens?
Shouldn’t progress have created a heaven on earth by now? Could we not just as well create
socioeconomic conditions in which each citizen can greet the new day with hope and enthusiasm,
secure in the knowledge that he or she has the resources available not only to care for
themselves, but also to engage in meaningful activity that contributes to the betterment of self,
community, and society as a whole? What stands in the way of this?


Regarding the problems listed above, the traditional solutions - “growth”, “stimulus”, more
regulation, more taxes, less regulation, fewer taxes - are starting to ring a little hollow. Perhaps it
is time to step back and question more fundamental assumptions. Perhaps larger issues are at

Currently, many people are in need of work to do and there is much work that needs doing, yet
the above problems persist. Where is the bottleneck? In any of these scenarios, the likely initial
explanation is “lack of money”. Yet the irony is that this comes at a time when there is
theoretically more money in the system than at any point in history.

I propose that our current plight comes from an incongruity between the goals and methods of our
political system versus our economic system. Politically, we are a democracy, whereas
economically, we still function largely as a feudal system. Corporate entities are typically run
through a relatively autocratic top-down structure - it is merely that kings and high priests have
been replaced by CEOs and bankers, nobles are now middle managers and, well, the peasantry
is still pretty much the peasantry. Standing in for the king’s army, enforcement now comes
through public officials who are increasingly dependent on private money for their continued
political survival.

Then as now, the lynchpin around which this all turns is the creation, management, and control of
a nation’s wealth.

What would a more “democratic” economic system look like? What follows is a thought
experiment proposing a system based on some fundamentally different premises: public and
private institutions in service of the citizenry rather than the reverse, motivation by more “carrots”
and fewer “sticks”, a starting premise of abundance rather than scarcity - ultimately conditions
under which society could be relieved of the many costs of dealing with the social ills that spring
from desperation. While a shift so fundamental may seem tantamount to altering the planet’s
orbit, a relatively discrete change in one sector of the economy (monetary policy) could largely
produce this effect.
Political Democracy, Economic Feudalism Bill Miller

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Despite its ubiquity, most people don’t realize how money actually comes into the system. Only a
tiny fraction (about three percent) exists as actual coins and bills. The rest is created by a process
so bizarre that most can’t believe it upon first hearing. The bulk of money is actually created when
banks make loans - and goes away when the loans are repaid. (That’s why a “credit crunch” as in
the Fall of 2008 is such a threat to the economy.) We tend to think of high levels of national debt
as a horror, yet in a debt-based currency system such as ours, debt is basically an indicator of
economic activity. Clearly, there’s a lot of it going on. If the average citizen or community is not
benefiting from it, it is simply because it’s not flowing properly. That happens when the roles of
debtor and creditor are not properly assigned.

I suggest this situation arises because money enters the economy through the wrong gate - large,
private (i.e. “undemocratic”) financial institutions funding large-scale projects. As financial
institutions get larger, they are increasingly disinclined to fund smaller ventures - “Main Street”
rather than “Wall Street”. The biggest returns come from large, capital intensive projects - office
buildings, industrial parks, and the like. In the textbook theory, the money so invested is
supposed to “trickle down” to feed smaller supporting businesses, workers, and eventually the
average citizen. Yet recent decades seem to reveal a number of stoppages in the pipe. Money
apparently doesn’t trickle down; rather, it needs to “well up”.

Many would doubt that the current financial system could undergo a major reinvention. Money so
pervades our lives that we tend to think of it as an immutable law of nature, something simply to
be contended with or endured. We tend to forget that it is an entirely human-created institution -
an idea that we’ve all agreed to. And the nice thing about ideas is that they can be changed when
they cease to serve.

Toward a Democratic Monetary System

What makes for a more democratic financial system? Clearly, it lies in putting control and benefit
more directly in the hands of the people it is intended to serve. In a truly democratic system, that
would be the citizenry - you and me. If money fails to trickle down to the average citizen, how else
might it enter and flow? The remainder of this article outlines an alternative system based on
several fundamentally different premises: financial empowerment of the citizenry first before
abstract institutions, a starting point of abundance rather that scarcity, and money as primarily a
medium of exchange, not a store of value.

Caveat: In considering anything new, there is an overwhelming tendency to evaluate it by
comparison with what currently exists. Please bear in mind that what follows is a fundamentally
different system. Accordingly, concepts such as loan, interest, debt, payment, exchange, savings,
investment, and the like will not have the same meaning, nor will they always translate from one
system to the other. (If they could, it wouldn’t really be a new system.)

Our current economic model is based on a premise of scarcity - things take on value by being in
short supply. People are induced to participate substantially through fear of lack. In contrast, the
model below starts with a premise of abundance - all the resources, knowledge and technology
presently exist to enable all persons to create lives of comfort, meaning, and security - were they
made properly available.

Secondly, the existing model grants the power to initiate creation of monetary wealth to abstract
institutions like banks, investment houses, and corporate entities. The actual citizenry is then
subordinated to these institutions in order to obtain the resources needed for living. In contrast,
the following model makes each individual citizen the originating source of wealth. (This isn’t so
radical when considering that even now, the taxpayer is ultimately the source for corporate
Political Democracy, Economic Feudalism Bill Miller

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“bailouts” and the guarantor of the “full faith and credit of the United States”. At the moment, we
are simply not receiving the benefit and acknowledgement for it.)

Further, since the current system is based on scarcity, participants must compete, and cannot
fully trust or rely upon each other for collective survival. Because of this, economic security
comes primarily through storing up a hoard of material and monetary wealth that ideally will see
one through a lifetime. However, inherent factors prevent this strategy from working for all, so
competition must become ever more fierce. This dynamic is largely removed in the model
described below, enabling citizens and workers to operate more effectively as collaborators and
teammates rather than opponents.

The Essentials of the Model:

The proposed system - “Citizen Dollars” - centers around two novel features (the numbers quoted
are merely for illustration. The national economy is complex, and the actual figures will depend on
a variety of factors):

1) Federal government removes money creation powers (i.e. fiat currency created through the
principle of fractional reserve) from the private central banking system. Instead, each individual
adult citizen is granted the right to create (spend into existence) a fixed amount of new money -
“Citizen Dollars” (say $10,000 per year) that is allotted in monthly increments.1 (Note that this is a
grant, not a loan.) The goal is to put sufficient money in circulation to fund needed economic
activity, but not so much as to cause inflation. The banking system then takes on a more limited
role as the logger and manager of transactions.

2) Money so created is subject to a demurrage charge2 of one percent per month, causing held
money to slightly lose value month by month. (On this schedule, money issued on a particular
date becomes valueless in about nine years.)

An knee-jerk reaction to #1 will of course be that this is some sort of massive new welfare or
“government giveaway” program. Not so! No benefit is given away here that is not already being
granted to the central banking system. We are simply transferring the right to create fiat currency
from private institutions directly to the citizenry - cutting out the potential waste, inefficiency, and
corruption of a long string of middlemen. Again, this isn’t such a big step when one considers that
the taxpayer is the ultimate backer of the current system.

This now enables money to be allocated where needed by millions of citizen venture capitalists
who are directly in contact with the pulse of the economy, not an elite corps who may be out of
touch - or even at odds with - the needs of the country.

Why the demurrage charge? For two reasons: If money is the “life blood” of the economy, it must
flow in order for the system to remain healthy. Circulating money funds business activity and pays
workers. Conversely, hoarded money starves the economy. Accordingly, money that is worth
more today than next month is likely to be put to work now rather than later.

Secondly, money that is held does no work - and will lead to inflation if supplemented with more
money. Therefore, money needs to have a lifecycle. Currently, money is ultimately removed from
circulation by taxation, loan repayment, and inflation - all rather objectionable methods, judging
from popular sentiments about each. In contrast, demurrage gives a precise schedule for the
lifecycle of each dollar, and puts the end user in charge of the amount of value he or she controls.

Note: in keeping with the times, this system is all handled electronically by debit card, and by
computer or smartphone for those who are more technically savvy. This saves the cost and risks
of printing and managing a vast amount coins, bills, checks, renewal stamps and the like.
“Demurrage” is a fee imposed for holding an asset longer than is intended - for example, the
storage charges for parking a vehicle for an extended period.
Political Democracy, Economic Feudalism Bill Miller

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If you’re worried about the effect of demurrage on saving for the future, remember, next year (and
every year), you’ll have at least another $10,000 to work with.

For rough illustration then, with a population of 300 million adults, three trillion in new money
would be pumped into the economy each year. The demurrage charge renders each issuance
valueless in about 9 years, so by these numbers, the economy would eventually stabilize with
about 13.5 trillion dollars in circulation. If this proves to be recessionary or inflationary, the annual
allotment would be adjusted accordingly.

Further Aspects and Implications:

Beyond the above, the day to day economy world work largely as it does today - workers still
work for pay, products and services are still bought and sold. There would however be several
major differences - some that even a “Tea Bagger” would love: No taxes (at least federal income
tax), no need for welfare, retirement, or other entitlement programs, vastly diminished “financial
services” activity (stocks, loans, third-party ownership), fewer large-scale (national, global)
publicly traded ventures and more small and employee-owned businesses (fewer General Motors
and more Teslas), price stability due to little or no inflation, and more robust local economies.

Employment: Because individual citizens are now the originators of monetary wealth, they are no
longer mortally dependent on having a “steady job”. This changes the nature of the employer/
employee relationship, making possible a more egalitarian contractor/ contractee relationship
where workers are engaged for specific tasks and are compensated for their particular talents.
This offers efficiencies for the employer, and relieves workers of the low morale which results
from feeling chained to a job. Further, the employee benefits that formerly were used as
inducements to stay chained, are now more readily obtainable independently, for reasons
indicated below.

Public Infrastructure: Large infrastructure projects - roads, bridges, airports - would be done by
public agency. However, financing these with tax money would not make sense under these
circumstances, being literally a case of giving with the right hand and taking back with the left.
Rather, public projects would be financed by allowing workers to create an amount of money
additional to the annual base. As in the previous paragraph, such workers would be engaged on
a delimited basis, as contractors, for defined tasks - no need for governmental agencies to carry
large payrolls of workers, who may not always be effectively utilized.

Private Ventures: Large-scale private projects would be more difficult to finance by conventional
means, since loaned money loses value through the demurrage mechanism. (Egregious rates of
return would need to be charged.) This encourages businesses to be smaller and more tied to the
local community and economy. That said however, money that would otherwise be held in a
depreciating savings account can be invested in a productive business as a hedge against
demurrage - provided that the venture is successful. This enables larger projects, but primarily
those where the principal investors have a direct involvement in a business that is carefully
chosen to create real value.

Local Economies: As indicated above, the proposed system favors smaller, locally owned,
employee owned and operated businesses. Such businesses can be more responsive to
community needs, and they empower workers who now have a personal stake in their success.
Again, empowerment of the many (Main Street) rather than control by a few (Wall Street) is the
essence of a truly democratic system

Worker Incentive: Although some might be content to live minimally on the annual grant, most will
want a higher standard of living, and further, will want creative, productive, meaningful outlets for
their energies. (One can only stomach so much daytime television.) Yet even in the former case,
people aren’t necessarily slacking - their “job” is to creatively invest $10K in support of the
Political Democracy, Economic Feudalism Bill Miller

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economy. For the rest, with the newly supportive climate for small business, workers will be better
able to realize personal vision and ambitions as opposed to feeling like a cog-in-the-machine or a

Pricing and Price Stability: In the current economy, prices have been wildly skewed by decades of
inflation, marketing, competition, fads, corporate wheeling and dealing, real and engineered
shortages, debt and interest fluctuation, and other manipulations. (Remember how much your
parent’s first house or automobile cost versus the same today?) Because the new system
provides basic economic security now and in the future, and discourages the long term storing of
wealth, prices can become more reflective of reality and be stable in the long term.

Loans, Interest, and Inflation: Presently, it is the interest charge on debt that primarily leads to
inflation and price instability. In a debt-based system, the money to pay interest on debt is not
created, and so must be appropriated from elsewhere. This eventually requires either that
someone go bankrupt or that the economy be expanded, through more debt, in order to cover the
interest cost. This steady debt increase, plus the relentless need to appropriate the money to pay
interest, drives up prices and further erodes the value of each dollar - the result being inflation.

Loans will play a much smaller role in the proposed system for several reasons: it is based on
credit rather than debt, economic activity is intended to occur on a smaller local scale, prices are
expected to moderate and stabilize as described above, and the long term holding of cash is
discouraged through the demurrage mechanism.

Economic Growth: Despite the current political fractiousness and polarization, everyone seems to
speak with one voice when affirming the desirability of economic growth. “Growth” is a benign-
sounding term - flowers grow, children grow. We hope that knowledge, understanding, and
opportunity will grow. Yet unqualified growth is not always good. Children who reach maturity but
continue to grow become medical anomalies. Bodily cells that grow continuously, while pursuing
“self-interest”, are better known as “cancer”. In any finite system, a population that continues to
grow will eventually exceed the limits of sustainability.

In the current context, “growth” is a euphemism for “debt expansion” (a term that sounds a little
less benign). For the reasons indicated in the previous section, our present monetary system
demands constant growth in order to pay mounting interest charges, and to avoid bankruptcy on
a massive scale. In contrast, the new model has minimal need for interest, so can allow ventures
to stabilize at a steady state upon maturity. The “growth” energy can then be redirected toward
goals like “refinement”.

Foreign Trade: Greater localization of economic activity, coupled with a reduced incentive to
continually amass wealth, will reduce the pressure for businesses to relentlessly seek the most
dollars at the least cost through means like off-shoring and globalizing. At the same time, we do
live in an increasingly interconnected, interdependent world, and there will always be need for
foreign trade. Initially, this might seem a problem for an economy in which currency is designed to
lose value. However, the same dynamic that boosts economic activity locally also holds
internationally - dollars that are subject to demurrage, received in payment, are more likely to be
re-spent quickly, and in the issuing country. This boosts the economy, whereas debt-and-interest
bearing dollars are a drain upon it.

Environmental Sustainability: Once again, the diminished pressure to increase the corporate
bottom line as much as possible and by whatever means necessary, can allow for business
practices that manage resources responsibly for the long term, and increase public safety.

Political Democracy, Economic Feudalism Bill Miller

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One Major Rethink

One major philosophical reframing that might take some getting used to is that the proposed
system calls into question two values currently promoted as sacrosanct: personal savings and
the profit motive.

Savings: Americans are regularly chastised these days for being financially imprudent - spending
too much and not saving enough. Part of this may be a greed problem. Another part is a debt
problem. We live in a debt-based economy in which average people are having trouble servicing
personal debt, due to real income that has been flat or declining for several decades - while the
cost of living continues to rise.

From a systemic view, the current financial system needs savings as reserves against which to
issue more debt. And personally, people need savings to see them through times of need -
because we live in competitive, individualistic communities that are not designed to offer sufficient
support in such instances. We must rely on money rather than people.

The intent of our proposed new system is to have money actively working in the community, not
stored or narrowly focused on investments designed primarily to generate interest payments. The
financial system’s need for reserves largely goes away in the new system, since it is based on
credit, not debt - and there is an effective penalty for holding cash reserves for an extended
period. For the individual, the need for cash reserves is vastly diminished by the annual allotment
and by stabilized pricing.

Profit: If something is worth doing, I’ve often wondered why people need additionally to be bribed
to do it. That seems like a bad system design. Profit is essentially the extraction of more value
than one puts in to an endeavor or trade - an inequity that is designed in from the start. It is the
only (legal) way however, to accommodate the need for the savings and interest payments as
described above.

Sometimes profit comes by legitimately expanding the economy with new value. All too often
however, the relentless need to show profitability is met by externalizing costs - which eventually
come back to bite us as oil spills or acid rain or layoffs or too expensive health insurance or
bankruptcy or ... well, the list goes on.

In contrast, in a system where one’s needs are met, where there is economic stability and
security for the future, the need to constantly acquire, accumulate, and hoard is vastly diminished.
“I’ll be happy when...” can turn into “I’m happy now.”

Long Term Outcome

Apart from immediate economic comfort and security for the general citizenry, an abundance-
based monetary model has a range of secondary benefits. Presently, the chronic threat of
scarcity, deprivation, and impoverishment, the chronic conditions of insecurity, stress, and fear,
the ongoing pressure to compete with and mistrust others results in a long list of social and
psychological ills - and the economic costs of avoiding or dealing with the same.

While some people can adapt, function, and even flourish under such conditions, others cannot
and become disempowered, hopeless, ashamed, desperate, cynical, or angry. They may strike
back at the system out of pure malice. Those who fall out of the system may end up homeless,
destitute, and desperate - a prime motivator for criminal activity. In addition to harmful effects on
health, chronic stress often leads to maladaptive coping mechanisms like addictive behavior.
Powerlessness, shame, bitterness, jealousy, and anger can result in domestic abuse and other
violence. All of these factors impose psychological, medical, legal, and financial costs to society.

Political Democracy, Economic Feudalism Bill Miller

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On the other hand, when people feel secure, now and for the future, the energy formerly
expended on dealing with basic survival can now be directed toward productive activity -
discovery and creation that adds value to their personal lives and to society at large. No one has
to fall below the line. Accordingly, fewer resources will need to be spent on fixing social problems
and defending against threats.

Some will maintain that competition is essential for progress. While it is true that competition can
drive innovation, collaboration offers the benefits of far more collective knowledge, perspective,
and energy toward the same end.

A More Diverse, Vibrant Culture and Economy

As noted above, most money presently enters the economy through large, capital-intensive
ventures that are designed and funded by entities with narrow, specific interests. Because of this,
people, products, services, and other activities that do not directly serve these interests tend to be
devalued monetarily and therefore ultimately neglected. Yet many of these are vital to the health
of society - fulltime parents, teachers, libraries, after school programs, various forms of public
maintenance and civil service, a healthy environment. Others professions such as writers,
musicians, actors, and philosophers add richness to the culture and further human development.
Yet we’ve all heard stories of single parents who must work two jobs to make ends meet. And the
“starving artist” is a cliché that virtually everyone understands.

Currently, workers in such professions have to put their main focus on finding some “job” outside
their calling in order to survive. This diminishes or thwarts the unique contribution they might
otherwise make. In an abundance economy, basic survival is not an issue, therefore people are
freed to develop and offer their unique talents, to their own benefit and to the enrichment of
society as a whole.

Getting There From Here

Although the money system pervades nearly all aspects of modern life, it is not set in stone. As it
works less and less well for more and more people, the pressure for alternatives will increase. A
number of alternative or “complementary” currency systems already exist and have functioned for
years alongside the mainstream economy - LETS (local exchange trading system), Time Dollars,
Ithaca Hours - even coupons and frequent flyer miles are considered such. These generally do
not attempt to replace a national currency but rather supplement it by focusing on limited contexts
like elder care, farmer’s markets, travelers, or local business communities.

It is far easier to introduce something new if it can be implemented gradually, building acceptance
as it functions alongside the existing system. That approach may be difficult in this case because
the existing system and the one here described work on several opposing principles - “top down”
(bankers) versus “bottom up” (citizens), scarcity versus abundance, currency units with perpetual
value versus expiring value. Accordingly, a change-over might have to happen relatively abruptly.

In such a transition, several looming issues would have to be confronted - primarily what to do
with existing debt and existing wealth. A detailed analysis of these is beyond the scope of this
article, but in general, we may simply have to revisit the ancient Hebraic tradition of jubilee and
forgive most debts. This of course would initially leave great inequities, but if that cost enables a
more functional society for all members, perhaps the majority would decide it is worth it. As to
existing wealth, if the current Federal Reserve dollars were put on a depreciation schedule along
with the new currency units, perhaps this transition could happen more gently. Ultimately, the
demurrage principle and the more egalitarian nature of the new system would tend to even things
out over time.

Political Democracy, Economic Feudalism Bill Miller

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However, even if such a new economy were to benefit the vast majority, there are powerful
entrenched interests who benefit by the current system, and their efforts to resist any change to
the status quo probably cannot be overestimated. Further, they seem to have increasing control
over our major institutions. The contention and paralysis we’ve already seen over seemingly clear
public issues like healthcare, unemployment, and financial reform suggest that a much more
fundamental restructuring might lead to all-out political nuclear war.

Yet in the realm of governance, there was a time when kings with vast armies ruled over a
populace with far fewer resources than we have today. In the realm spirit, there was a time when
high priests and popes controlled access to the divine, and enforced their decrees with
sometimes shocking brutality. Somehow, democracy still managed to struggle and prevail in
these domains. People can now vote, run for office, and pursue whatever religious beliefs make
sense of their lives.

In the economic realm, there too may come a tipping-point, when a critical mass of people turn
away from the glitter and distraction of “American Idol” long enough to realize that the kings and
high priests of finance are driving the economy toward failure for the masses - and it doesn’t have
to be this way. Perhaps we will then insist upon growing from our status as mere consumers of
value, using dollars begged and borrowed from the temple priests, toward becoming direct
participants in the creation of an economy that works for all citizens.

Some religious traditions teach that humans were created in the image of God. Perhaps this
refers to our ability to shape the world in which we live. To date, by design or default, we’ve
created conditions where life for vast numbers of people is, as Hobbes noted, “nasty, brutish, and
short”. We can now do better. Given our present level of knowledge and resources, we could just
as well create conditions of comfort, security, and opportunity for ourselves and for future

In the final analysis, it comes down to a simple question: In view of all that has happened to date,
in whom would you place greater trust to do what is best for the country, a cabal of Washington
and Wall Street elites, or millions of American citizens?

For a truly bright future for all, let democracy prevail!

Bill Miller
September 2010
Half Moon Bay, CA

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