Moving Beyond Capitalism

Cliff DuRand, Cliff DuRand

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317093848
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The book speaks to the widespread quest for concrete alternative ways forward 'beyond capitalism' in the face of the prevailing corporatocracy and a capitalist system in crisis. It examines a number of institutions and practices now being built in the nooks and crannies of present societies and that point beyond capitalism toward a more equal, participatory, and democratic society– institutions such as cooperatives, public banks, the commons, economic democracy. This seminal collection of critical studies draws on academic and activist voices from the U.S. and Canada, Mexico, Cuba, and Argentina, and from a variety of theoretical-political perspectives– Marxism, anarchism, feminism, and Zapatismo.

Part I

Economic democracy / The social economy

1Beyond capitalism to sustainability

The public bank solution

Ellen Brown

Thomas Picketty’s paradigm-shattering 2013 book Capital in the Twenty-First Century pierced the capitalist mantra that greed is good. Left to its own devices, the ‘free market’ will not smooth out inequalities and preserve freedom, democracy and economic opportunity for all. Rather, wealth accumulates at the top, with the top one per cent of the population now having nearly 40 per cent of all US wealth, while the bottom 70 per cent is chained to a precarious existence living paycheque-to-paycheque, if they have paycheques at all. In The Economics of Revolution, David DeGraw (2014) writes:

Having that much wealth consolidated within a mere 1% of the population, while a record number of people toil in poverty and debt, is a crime against humanity. For example, it would only cost 0.5% of the 1%’s wealth to eliminate poverty nationwide. Also consider that at least 40% of the 1%’s accounted for wealth is sitting idle. That’s an astonishing $13 trillion in wealth hoarded away, unused.

Today, the economy has been destabilized to the point of imploding. Warnings are heard daily that the market, the dollar and the economy itself are about to crash. The Titanic is on the rocks, and where are the lifeboats? The burning questions today are what a more sustainable system might look like, and how we can transition to it without massive collateral damage.

Wall Street’s ability to control both the creation and distribution of money and credit are key reasons why the finance industry has become so powerful – and why the rich are getting richer while so many are treading water or getting poorer. To create a sustainable economy where wealth is enjoyed broadly, not only by the 1 per cent, we must address and transform our system of money creation and distribution.

The benefits of bank credit can be maintained while eliminating these flaws, through a system of banks operated as public utilities, serving the public interest and returning their profits to the public. Examples from around the world and through history show that it works admirably well, providing the key to sustained high performance for the economy and well-being for the people.

What Wall Street doesn’t want you to know is:

•it alone controls the creation and distribution of money and credit;

•this is the basis of Wall Street’s stranglehold on our economy (and our government); and

•there is an alternative to this system, one that actually creates enduring prosperity for the many, rather than bubble cycles of wealth for the few.

The secret Wall Street would rather you not know is that publicly owned banks are a powerful and historically proven way to create long-term, broadly shared wealth and prosperity, in contrast to our current private banking system which is largely focused on speculation, short-term profit, and preys on – rather than serves – the real economy.

In his June 2015 encyclical ‘Praised Be’, Pope Francis added his moral voice to the widening call to rethink our banking system.

Today, in view of the common good, there is urgent need for politics and economics to enter into a frank dialogue in the service of life, especially human life. Saving banks at any cost, making the public pay the price, forgoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007–2008 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.

[…]

A strategy for real change calls for rethinking processes in their entirety, for it is not enough to include a few superficial ecological considerations while failing to question the logic which underlies present-day culture.

(Pope Francis 2015)

‘Rethinking the outdated criteria which continue to rule the world’ is a call to revolution, one that is necessary if the planet and its people are to survive and thrive. Beyond a change in our thinking, we need a strategy for eliminating the financial parasite that is keeping us trapped in a prison of scarcity and debt.

Interestingly, the model for that strategy may have been created by the Order of the Saint from whom the Pope took his name. Medieval Franciscan monks, defying their conservative rival orders, evolved an alternative public banking model to serve the poor at a time when they were being exploited with exorbitant interest rates.

The Franciscan alternative: banking for the people

To remedy the situation, Franciscan monks, defying the prohibitions of the Dominicans and Augustinians, formed charitable pawnshops called montes pietatus (pious or non-speculative collections of funds). These shops lent at low or no interest on the security of valuables left with the institution.

They did not seek to make a profit on their loans. But they faced bitter opposition, not only from their banking competitors but from other theologians. It was not until 1515 that the montes were officially declared to be meritorious.

After that, they spread rapidly in Italy and other European countries. They soon evolved into banks, which were public in nature and served public and charitable purposes. This public bank tradition became the modern European tradition of public, cooperative and savings banks. It is particularly strong today in the municipal banks of Germany called Sparkassen.

The public banking concept at the heart of the Sparkassen was explored in the eighteenth century by the Irish philosopher Bishop George Berkeley, in a treatise called The Plan of a National Bank. Berkeley visited America and his work was studied by Benjamin Franklin, who popularized the public banking model in colonial Pennsylvania. In the US today, the model is exemplified in the state-owned Bank of North Dakota.

Our evolving monetary scheme

Fortunately, changing the rules of the game need not mean the end of life as we know it. Governments routinely change the rules when all else fails. In fact, the rules have changed every 20 or 30 years for the last three centuries. Here is an outline of the trial-and-error evolution of the US monetary scheme, dating back to the seventeenth century:

•In the late 1600s, money consisted of precious metal coins, along with paper promissory notes redeemable in coins. The London goldsmith-bankers expanded the money supply when they started issuing more of these banknotes than they had gold, called ‘fractional reserve’ lending.

•In 1691, the American colonies broke away from the precious metal system and began issuing their own paper scrip as an advance against future tax revenues. The colonies flourished as a result; but it was easier to issue the scrip than to collect it back in taxes, and some colonies wound up overprinting and devaluing their currencies.

•In the early 1700s, the colony of Pennsylvania refined this new system by forming its own bank, which made loans of publicly issued money collateralized by land. This paper money returned to the government on repayment, eliminating the inflationary component and making the system sustainable. Interest on the loans funded the government without taxes, price inflation or government debt.

•In 1751, King George II banned the issue of paper scrip in the New England colonies; and in 1764, King George III banned it in all the colonies. When Benjamin Franklin went to England to try to dissuade Parliament, he made the tactical mistake of expounding on how the scrip allowed the colonies to flourish without debt – including debt to the Bank of England – which came out strongly against lifting the ban.

•Cutting the colonies off from their source of financial liquidity precipitated a depression and a revolution; and in 1791, the First US Bank was established. Although it wound up being privately owned, it was chartered by Congress to perform several central bank functions, including the issuance of paper banknotes supposedly backed by gold. Many more notes were issued than there was gold to back them, expanding the money supply on the ‘fractional reserve’ system.

•The First US Bank was followed by the Second US Bank, which was shut down by Andrew Jackson in 1836. From then until the Civil War, the country went through a period of ‘free banking’. There was no national currency, and private banks had the power to issue money in the form of their own banknotes. Again, these notes were supposedly backed by gold; but far more notes were issued than there was gold, expanding the money supply. The system was unstable and was plagued by bank runs.

•In 1863, President Lincoln revived the colonial system by issuing unbacked US Notes or Greenbacks to help fund the Civil War.

•In 1863 and 1864, the National Banking Act establishing the national banking system and created a single national currency. Federally chartered national banks could issue this currency as banknotes bearing their own names. State and local banknotes were eliminated by taxation.

•Lincoln was subsequently assassinated; the Greenbacks were recalled; and in 1876, silver was demonetized (no longer accepted as legal tender), shrinking the money supply and plummeting the country into depression.

•In the latter half of the nineteenth century, the money supply was reflated through a new form of money called ‘checkbook money’. Banks created money in the form of deposits entered on their books when they made loans.

•Following a particularly bad bank panic, the Federal Reserve was established in 1913 ostensibly to backstop bank runs. No longer were banks allowed to create money simply by issuing their own banknotes. They had to balance credits with debits and run their accounts through the Federal Reserve, which alone could issue the national currency.

•Despite this backstop, in 1929 the country suffered the worst bank run in history. Franklin Roosevelt responded by taking the dollar off the gold standard domestically in 1933. Among other banking reforms, the Glass-Steagall Act was passed, preventing bankers from speculating with their depositors’ money.

•In 1944 the Bretton Woods system was agreed to internationally. Gold and US dollars redeemable in gold were made the international reserve currency.

•In 1971 Richard Nixon took the dollar off the gold standard internationally, after runs on US gold reserves caused the Treasury to run dangerously low.

• In 1974 Henry Kissinger made a secret deal with the OPEC countries to sell oil only in US dollars, effectively ‘backing’ the dollar with oil.

•In 1999 the Glass-Steagall Act was repealed; and in 2005, the Bankruptcy Reform Act gave derivatives ‘super-priority’ in bankruptcy. The result was the massive expansion of the ‘near-monies’ of the shadow banking system, including derivatives and repos.

•In 2008 the rules were changed again when the shadow banking system collapsed. The US government bailed out the banks, blatantly defying the capitalist model by socializing the banks’ losses while privatizing their profits.

•In 2010, the Dodd-Frank Act effectively said ‘no more government bailouts’. Banks were to recapitalize themselves instead with ‘bail ins’ – confiscating the money of their creditors, including their depositors.

When in the course of human events …

Confiscating customer deposits may keep the zombie banks alive, but one good Cyprus-style bail-in is liable to be enough to trigger a second US revolution. In The Economics of Revolution, David DeGraw (2014) quotes from the Declaration of Independence and names these grounds for breaking with the existing regime:

An extensive analysis of economic conditions and government policy reveals that the need for significant systemic change is now a mathematical fact. Corruption, greed and economic inequality have reached a peak tipping point. Due to the consolidation of wealth, the majority of the population cannot generate enough income to keep up the cost of living. In the present economy, under current government policy, 70 percent of the population is now sentenced to an impoverished existence.

The question, then, is what should replace the current system? In America, the monetary system of Benjamin Franklin’s Pennsylvania has been describ...