Socialized Money-Chapter VII

NOTE: I'm changing the font family to Arial for the remainder of these post, as Times New Romans doesn't display special character properly.

When you read this chapter, you will quickly realizes that one of the "benefits" derived from an income tax on the monetary system is that it can be used to extract too much money from the economy. The author demonstrates this philosophy be saying, "[T]hey could not show more accurately that an equilibrium had been established between the rate of federal taxation, on the one hand, and the monetary issue, on the other, and, as a consequence, the nation had secured a stabilized monetary system as a by-product."

CHAPTER VII
Stabilization Effected by This Socialized Plan
Results as a Function of the
System Itself

UNDER THIS socialized monetary system—made operative upon the principle that the medium of exchange, the federal revenue and the wealth of the people naturally bear one to another a compensating and reciprocal relationship—the means of stabilizing the price level result as a function of the system itself.

In this connection we are reminded of the bounteous contribution social forces naturally make, when permitted to do so, in behalf of human welfare. Even skillful organization diverting the benefits of these forces to private gain must eventually fail; for ultimately there will be either social supremacy or social chaos.

Represented by numbers alone, society gives to land in country and city added value according to density of population. It gives to all things produced their exchangeable value, thus classifying them as wealth. These same social forces, when brought into requisition, also have power naturally to supply a monetary system endowed with every desirable function, including the quality of stabilization inherent within itself.

LET US ASSUME, by way of illustration, that stabilization is a highly valuable woven creation which Society produces with her shuttles and her loom. Further, let us assume that, in the weaving of the economic fabric of the nation, the monetary system and the revenue system are combined in their related processes not dissimilarly to the manner in which mechanical shuttles carry the colored threads of the woof through the warp in forming a particular pattern.

In the weaving of this fabric of price-level stability, the warp, which always runs at right angles to the woof, represents, for sake of illustration, commodity and property values generally, constituting in the aggregate all the wealth of the people.

Running across the strands of the warp are the colored threads of the woof, one color representing the nation's medium of exchange and the other color representing taxes to support the federal government.

Taken together, commodity and property values may be visualized as running up and down the pattern, while the medium of exchange and federal revenue may be seen running across the pattern.

In the process of stabilization, expansion of the medium of exchange serves to raise average commodity values to the desired level. Conversely, contraction of the medium of exchange serves to lower average commodity values to the desired level.

As fully explained elsewhere in this book, measurement of average commodity values in terms of the medium of exchange can be made by means of index numbers, a statistical service periodically supplied by the United States Bureau of Labor. These index numbers show from one point of time to another the percentage of change in the price of a wide range of representative commodities.

NOW, IN THE WEAVING of the fabric of stability, let us assume there are two alternating shuttles carrying the threads of the woof. One shuttle—let us call it the Taxation Shuttle—carries a red thread across the warp of average commodity values. The other shuttle—let us call it the Monetary Shuttle—carries a green thread across the same warp. Each shuttle takes its turn in building the pattern of stability.

When average commodity values are below the desired level the Monetary Shuttle, carrying its green thread into the pattern, records the measure of inflation produced.

On the other hand, when average commodity values are above the desired level, the Taxation Shuttle carries its red thread into the pattern to record deflation; and, as in the case of the green thread, the red thread is shuttled across the warp until the right degree of stabilization is recorded.

In illustrating the processes by which the medium of exchange controls the level of average commodity values, it is now in order to connect the green and red threads carried by the two shuttles with their respective sources.

The green thread in the Monetary Shuttle has its source in stabilized wealth certificates, issued by the federal government and put into circulation only in exchange for services performed for or wealth conveyed to the federal government. These certificates may be issued in amount equal to the total volume of the medium of exchange, but must never be issued so as to produce inflation beyond the desired level of average commodity values. This legal tender is, to the amount of its issue, actually a certification of an equivalent of wealth having been conveyed to the federal government. To the amount of its issue, also, it has saved the cost of government and at the same time left in the pockets of the people wealth which otherwise would have been taxed away.

The first imperative of these wealth certificates is that they must be stable. Their character also qualifies them as the only medium that can be geared into a compensatory relationship with taxation to effect stabilization. Their employment, therefore, provides a reliable, direct and positive instrumentality for controlling both inflation and deflation.

THE RED THREAD in the Taxation Shuttle has its source in two measures or degrees of federal taxation—one current, the other deferred. The principle of deferred taxation is a hitherto unused social value indispensable in a socialized monetary system. It makes possible, as a purely business transaction between the government and the people, without direct obligation, an unprecedented freedom of issue so long as it is confined within the limits of a stabilized price level.

The process of deflation, identified with this red thread in the Taxation Shuttle, implies contraction of the medium of exchange. Means employed by this monetary system to that end are available by alternative methods: By one the federal government goes into the money market and borrows its own issue on short time at current rates, paying interest therefor out of revenues derived from taxation either current or deferred. By the other method, if found necessary to stabilization, the federal government buys outright its own issue, on deferred payments at interest, for retirement. Under either method the instruments of indebtedness issued in exchange for wealth certificates borrowed or purchased are non-negotiable and must remain in the custody of the federal treasury during the term of their existence.

LET US NOW EXAMINE the completed pattern and discover the trends recorded by the green and red threads in the weaving of this fabric of stability, and also inquire into the effect of these stabilizing processes upon the weaver (the government) and the ultimate users of the fabric (the people).

In the first place, the monetary system, consisting of stabilized wealth certificates evidencing value having been received by the government, has cost society nothing as a capital investment, and to the extent of the medium in circulation the cost of government has been saved to the people. The medium of exchange, therefore, represents the saving to the government and the people—less charges to effect deflation necessary to stabilization—upon their joint venture in a socialized monetary system.

It will be seen that the green and red threads follow a reciprocal trend as the shuttles alternate between the issue of wealth certificates to effect inflation, on the one hand, and the borrowing or retirement of wealth certificates to effect deflation, on the other.

Accordingly, the account between the government and the people will show that the medium of exchange has been issued and has entered into circulation without obligation, except that of conditional liability, either to the government or to the people. Through this liability the people assume responsibility, by way of taxation, for expense incidental to stabilization of the price level. It must be remembered that stability is not merely an establishment, once in effect always operative. It must be made effective through perpetual maintenance.

The account, when balanced, will plainly show that the medium of exchange, both in its establishment and later expansion, has cost the people nothing by way of current taxation. Assumption of liability for stabilization, furthermore, is carried only as a contingent liability under the classification of deferred taxation, subject to payment if and when stabilization is to be effected through deflation.

INSPECTION of the color scheme resulting from the weaving of the pattern of stability will disclose the interacting and reciprocal relationship existing between the monetary system and revenue system of the federal government. The green strands are seen to appear in the woof the instant inflation is to be recorded, and the red strands appear as soon as deflation starts, and continue until stabilization is accomplished.

If these figurative shuttles, in their compensatory movements back and forth weaving the tell-tale colors into the fabric of national stability, were the most delicately wrought scientific instruments, they could not show more accurately that an equilibrium had been established between the rate of federal taxation, on the one hand, and the monetary issue, on the other, and, as a consequence, the nation had secured a stabilized monetary system as a by-product.

The singing shuttles, with their green and red filaments woven into a record of economic design—not chance—reveal a hitherto undiscovered resource by which the nation's monetary system may be converted from a liability into an asset; by which, also, the medium of exchange may be wrested from the money-credit monopoly, and by which, as a sort of overflowing of social benefits, the nation just naturally may inherit a stabilized price level.

A FABLE

ONCE UPON A TIME, two engineers in the public service were commissioned to study and recommend the most imperative reclamation need of the nation. Accordingly, they decided that a great waterway be dug north and south through the heart of the United States, and so reported to the Secretary of the Interior.

"Why!" exclaimed the Secretary, dumfounded. "Do you not know that the great Mississippi runs right down the middle of your blueprint?"

"I have never seen it," protested one.

"Why, I have never even heard of it," boasted the other.

The Secretary then realized, for the first time, that one was blind, the other deaf.

Who can say that future generations will not look upon those responsible for the existing monetary system in the United States as deaf, dumb and blind? For how else could they explain the perpetuation of a socially -impoverishing agency at great public expense, when a superior system is available by the mere act of appropriation from unused social values?