Sunday, August 3, 2008

Column #7 Anniversary of a Bridge Collapse

(Week 2 - Monday Aug. 4)

I am writing this column little more than a mile away from where the Interstate 35W bridge over the Mississippi River in Minneapolis collapsed on August 1 of last year. This tragedy that took the lives of 13 people was marked over the weekend in somber memorial events. These were accompanied by lamentations throughout the media that the nation has taken few steps since this "wake-up call" to rejuvenate its crumbling infrastructure. The determination on the part of the body public to rectify this deplorable situation is, it seems, still there, but where is the money? I would assert that it is readily available. We just aren't seeing it.

The I35W bridge is part of what might be termed the "commons"; i.e. the property that is held in common by all the people for the benefit of the common good. The "commons," of course, includes almost all bridges, roads, schools, emergency services, parks, provisions for the common defense, and other public assets that are indispensable to the full pursuit of life, liberty and happiness in a healthy society. There is, however, one element of the commons that is perhaps the most essential, and yet I have never specifically heard it recognized as such. It is our "money." It is the one element of the public domain that we all hold most in common.

Think about it. Anyone in the nation was free (while it was standing) to pass over the I35W bridge in Minneapolis, but in reality only a very small portion of the population of the nation ever would. What is more, after the bridge went down, ways of circumventing it locally were quickly identified, and the life of the city went on essentially normally. The bridge served the nation, but only a small portion directly.

Now think about a dollar in your pocket. It looks exactly like the dollar in anyone else's pocket. Do you not let it rest there complacent in the assurance that it can be brought out when needed to pay for anything a dollar will buy? This could be for a cup of coffee (assuming one can find one that cheaply these days) in New York, California, Florida, Alaska or Minnesota. Is this not an assurance that we all hold blithely from corner to corner of the nation, even to the point of hardly actually thinking about it? Is not our money in fact the most commonly held and used element of the public domain?

The founders of our country knew how essential public ownership of public money was. That is why, for example, the Colonies before the Revolution insisted on the right to issue their own currency ("bills of credit"), instead of having to borrow their money supply from a private bank (Bank of England) at "interest." It is why they financed the establishment of the nation with the publicly issued "Continental Currency." It is also why, when the nation was again locked in a struggle for its very existence, Abraham Lincoln issued $450 million dollars worth of publicly issued bills, popularly known as the "Greenbacks" (after, of course, coming under intense pressure to borrow the money from banks).

This first anniversary of the Minneapolis bridge collapse is a reminder that the nation is again under threat, in part from the crumbling of its very physical base, and as before, money borrowed at "interest" from banks is not going to save it. In fact, I would argue, the reliance on debt-based private money is how we got into this predicament. It has for some generations been the norm that when any community, be it local or the nation as a whole, saw the need to make investments in the common infrastructure, it was faced with the (assumed) necessity of paying for the project two or three times over due to the compounding "interest" charge attached to money needed to implement the project. This means that over the years a vast amount if infrastructure construction and revitalization did not get funded. Part of the cost of that backlog manifested in Minneapolis, and it proved to be high. In New Orleans it was incalculable. What will be the physical and human costs in the future?

We as a nation have forgotten that money too (perhaps money above all) is a fundamental element of the commons. Why, then, cannot public money be issued out of the Constitutional authority of the Congress "To coin Money, regulate the Value thereof . . ." to provide for the common good (a critical bridge or levee when needed)? The answer, I believe, is that it can be done, and is indeed the economic, legal and moral way to finance essential public works.

Richard Kotlarz


Anonymous said...

Wasn't the original means of funding our government done through taxes and teriffs on goods being brought into our nation? This has, relatively recently, been destroyed thru free trade agreements. Looking at our global economy and the ability to sell goods to other nations, wasn't this a necessity?

Just a view that I have had for sometime, that no one ever bothered discussing with me...

Paula said...

Thank you Richard for your articles. They are inspirational and informative. You wrote them in a direct and easy to digest format, for the most simple and humble of us to understand and comprehend, which includes all walks of life and ages. They read like a great novel, a child's fable and more. I will have fun with your articles (with your permission) sharing with many who I come across be it man, woman or child. I am beginning a teleclass and would love to share your writings, with your permission.

Many thank yous to Stuart Weeks for his patient tutledge and forwarding your articles on to me.

Your web site is user friendly as is your blog. I am happy to direct folks to them. Also availble are yahoo groups (you can use email list and with one post many are contacted plus it is another way to ineract with one another re: this subject) and which may be of interest to you.

Joyful Life,
P. Joyce Garcia-Nelson, CA

richkotlarz said...

Reply to iamthekings:

Below I have pasted in a excerpt from a longer paper which hopefully you will find addressed you question about tariffs. Note that “LEAM” is an acronym for “Life Economic Associative Matrix”. This is a mathematical algorithm that could be applied to a set of equations that register the net transfers of different currencies in the world across national borders, thereby normalizing their values with respect to each other such that so-called “balance of trade” surpluses and deficits disappear. This is not arbitrary, in that trade is always essentially goods for goods, but the way it is handled monetarily at present doesn’t reflect that. Employment of the LEAM assumes a world in which all currencies have been transformed to a “debt-free” basis; i.e. they are issued publicly, and not at “interest” through the private bank loan transaction as at present. I have a longer paper that explains all of this if anyone is interested.

The Question of Tariffs:
It is inevitable that in any discussion of international trade the matter of tariffs will come up. More specifically, how do does the issue of tariffs relate to the LEAM. Tariffs have been imposed generally for three reasons. These are:
(1) - To protect particular industries from foreign competition.
(2) – To maintain the general pricing level in the domestic marketplace
(3) – To raise revenues for the Federal government

In all the talk about “free trade” and “unfair trade practices”, there has been a tendency to lose appreciation for the fact that the levying of tariffs has proved to be a useful, and indeed necessary, measure in the development of the major economies of the world. It might even be said those nations that managed to retain their political prerogative to impose tariffs are the ones that have evolved into the “first world” nations (the U.S., the major European powers, Japan, recently China), while those who did not (mainly because of a loss of political prerogative due to colonization) devolved into “third-world” status.

Speaking to point (1) above, from its beginning and well into the 20th Century the United States made liberal and targeted use of the measure to protect its emergent industries. In fact, the second statute passed by the new American government was the Hamilton Tariff of 1879. The American philosophy on tariffs was summed up in an apocryphal statement attributed to Lincoln. When he was presented with the question of whether the U.S. should produce its own rails for the building of the transcontinental railroad, or import them at a lower price, he is reported to have replied -“If we buy the rails from a foreign country, they will have the money and we will have the rails. If we buy the rails from ourselves, we will have both the money and the rails.”

Related to point (2), the U.S. has also pursued a general policy of maintaining tariffs sufficient to protecting the soundness of its own domestic marketplace. There have always been cheap commodities and manufactured goods available from slave-wage lands; whether overt political colonies, or more recently so-called third-world nations. The American body politic has traditionally seen the wisdom in not letting an influx of such wares to break the monetary parity in the domestic marketplace between production and consumption. We as a culture have only forgotten that in the last half-century-plus under an onslaught of “free trade” propagandizing.

Concerning point (3), tariffs were the main source of revenue for the Federal government until early in the 20th Century. They have since been largely replaced by the income tax, which was ratified (arguably) in 1913, effectively in conjunction with the Federal Reserve Act passed the same year.

The question now is – What is the proper roll of tariffs in this time? The answer is that they are virtually not needed anymore to fulfill their traditional functions. To understand this assertion, we need to assess the profound structural change that has overtaken the global economy. To wit, the world has been transformed from one in which nation-state economies maintained themselves within economic frontiers, to an integral global trading order.

For example, in the 19th Century the U.S. was a solitary economic entity afloat in a sea of other nations and undeveloped areas beyond its borders, with respect to which it had no control, but also relatively little need. Its most vital interest was in carving out a protected domestic space within which it could nurture its own development from its own resources. The main factor that could threaten that vessel would be a rupture that would allow its own good currency to drain out, or cheap foreign money to flood in. The effect of either would be to deprive the domestic market cycle of the ability to balance its own production costs with consumer income.

Some trade, of course, needed to be allowed, and this could be managed as long as the resulting inflow and outflow of monies did not cause a significant disruption of the level in the monetary pool. The erection of a monetary levy around the domestic economy in the form of a wall of tariffs was the effective way to regulate the inflow and outflow to a natural level. They insured that products imported into the country would have to be purchased in the domestic marketplace at an American price, and those exported would need to be bought for same.

While it is true that there were, in fact, frequently recurring periods of monetary trauma in the nation, these were caused mainly by internally generated stresses in the money supply, and so could be handled with internal readjustments, while the country as a whole progressed steadily ahead. Because America was largely self-sufficient in a material sense, and even then tended to be the higher-wage-and-price market, international trade resulted in a net source of revenue for the government which could be used as a sort of tax-collection system, the proceeds of which would flow into Federal coffers. This state of affairs persisted for a century-&-a-half as the result of certain differentials which between the domestic economy and the uncontrollable economic chaos beyond national frontier.

So, where are we now? The frontier is gone and the world is now one economy. This is fundamentally true even apart from monetary reasons. The two great oceans are no longer insulating barriers. There are many strategic goods that we need from the world, and that the world needs from us, not the least of which are food and oil. In the developed world, subsistence capabilities are largely gone. We have acquired foreign tastes, and foreigners crave American culture. There is emerging a densifying global communications web. People by the millions jet about the planet in mere hours, and patterns of immigration and ethnic exchange have transformed the American melting pot into a churning polyglot. Exacerbating this reordering is an extreme division of labor, resulting in a minutely fractured productive sector scattered literally over every nook and cranny of the globe, and the emergence of consumption patterns that are nearly as dispersed.

We could argue about how good or bad all this is, or to what extent it is a result of a natural evolution, as opposed to being forced by political, military or economic manipulations (and indeed it is good that we have that dialogue as there are many lessons to be gleaned). The simple stark fact remains, however, that this is now one world, and there is no going back.

The question then becomes, how do we deal with being a one-world economy, as opposed to a collection of isolated economic entities nurturing themselves within national boundaries? This requires an answer of many facets, but the topic of the moment is tariffs. In a global economy that has become unified, it makes little more sense to try to resolve trade issues by erecting tariff barriers between nations, than it would for states in America to create a tariff wall between Illinois and Indiana.

How then do we accommodate this overwhelming trend to integration, and still maintain a sense of sovereignty, freedom and independence? The only answer I can see is to establish a worldwide Life-Economic Associative Matrix as the basic architecture for global trade. If one follows the arguments given in this treatise, I think one would find that this has the potential of preserving, and indeed actualizing, the virtues of being one world, while avoiding its horrific pitfalls. Not all the potential questions have been covered, or course, but that is all the more reason to have this discussion.

All this given, I would still not rule out the use of tariffs. A hallmark of the LEAM is that each entity represented in the matrix retains (and indeed is freed up to exercise) full sovereignty and control over its internal processes. This means, by definition, that they could still impose a tariff on goods entering their economy. I would not be so dogmatic to say that this could never make sense from a domestic perspective with respect to some aspect of a given sovereignty’s legitimate aspirations. An occasion might arise, for instance, where a people might for cultural reasons want to protect, say, a domestic wine industry, or for developmental imperatives nurture the growth of some particular manufacturing base. This is perfectly permissible, and would not cause a disruption of the LEAM. It would only be incumbent upon a people exercising such an option to realize that any skewing of pricing thus incurred would as a matter of course be compensated for in the internal realities of their own domestic price structure, plus whatever modification of trading patterns that this might engender would be reflected in the LEAM. In any case, a tariff could be seen as a free creative option, and no longer as a weapon in an arsenal for economic warfare. Since the franchise to create money would be restored to the Federal government, it makes no sense to look to the tariff as a potential source of national revenue.