Monday, January 26, 2009


(Week 25 - Monday, Jan. 26 / 2009)

History, it might be said, is not merely a chain of happenstance, but can be thought of as a meaningful weaving of times, people and events that reveal the workings of providence in worldly affairs. Such is strongly suggested by the American experience. What lesson does it have for us does at this paradoxically auspicious moment of crisis?

Time and again this nation has arrived at a juncture where it was threatened outwardly by affairs seemingly beyond its control. At each such reckoning, I would suggest, it has saved itself by a return to the monetary inspiration that gave it birth.

In 1690, when the seed of what we call the United States was a thin line of struggling settlements along the eastern seaboard, one colony, Massachusetts, became the first government in the Western world to issue paper money. These "bills of credit" were a public scrip whose purpose was to facilitate, not the designs of private interests, but the commonweal of the People. The colony prospered, the practice was adopted by its neighbors, and the beginnings of a new nation germinated.

In 1775, the Crown and Parliament of England had effectively forbidden the Colonies to issue their own money, save with the approval of the Crown and Parliament. This resulted in widespread economic distress, and threatened the undoing of the nascent social order the colonists had painstaking constructed. In response they called a Continental Congress, which then issued a "Continental Currency". This exercise of the monetary power was effectively the assumption of national sovereignty, and the first defining act of a new nation. The political separation heralded by the Declaration of Independence in 1776 followed as a matter of course.

In 1836, the charter for the Second Bank of the United States (modeled after the Bank of England) came up for renewal in the Congress in a bid to become a permanent American institution. It was vetoed by President Jackson whose campaign slogan was, "Bank and no Jackson, or no bank and Jackson". He had asserted:

"The bold effort the present bank had made to control the government, the distress it had wantonly produced . . . are but premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."

Jackson's veto had the effect of putting off for almost eight decades the day when the country would have "another like it".

In 1860, the United States faced the challenge of whether the ". . . new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal . . . can long endure". Outwardly it was a military conflict between the Union and the Confederate States. On a deeper level, it was a battle over how and by whom money would be created and issued. Financial interests had worked to divide the states between North and South, thereby undermining the American example of a nation made strong and independent through the power to issue its own money. President Lincoln was pressured to borrow the funds to fight the war, but responded instead by creating $450 million in "Greenbacks", a public currency issued directly by the government, much like the Continental Currency. Had he succumbed, this sum would still theoretically be part of the "national debt", but compounded to an amount many times the original. In practical terms it would likely have caused the financial ruination of the nation that was supposedly saved on the battlefield.

In 1896, at the Democratic nominating convention in Chicago, dark-horse Presidential candidate Williams Jennings Bryan declared in his famous Cross-of-Gold speech:

"The gold standard has slain its tens of thousands. If they ask us why we do not embody in our platform all the things that we believe in, we reply that when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."

The assembled gathering thundered its approval, and on the strength of this position, Bryan went on to win the Democratic nomination three times. This was the high point of the widespread Populist movement that had formed up following the Civil War virtually around the issue of preserving the Greenback as a national institution, and resisting the imposition of a gold standard on money by the banking establishment.

In 1942, the nation was still struggling to emerge from the Great Depression, a collapse brought on, many believe, by the establishment of a monetary system based on "debt" through the Federal Reserve Act of 1913. With the images of battleships burning at Pearl Harbor still fresh in mind, Congress was persuaded to pass the Steagall Amendment to the Stabilization Act of 1942, which established a parity price (one that would cover the cost of production, living expenses and seed for another round) for 45 basic raw materials, including the 25 most basic storable agricultural commodities. The domestic gold standard having collapsed in 1933, the value of the dollar was thus effectively reestablished on the basis of the actual economic worth of real commodities fairly monetized. The result was that the economy roared to life, and continued to prosper even during demobilization, post-war reconstruction, and the Korean War emergency. President Truman even balanced half of his budgets.

Now it is 2009. The legislation that established the "parity dollar" was undone in the early fifties, and the long slide into our present crushing "debt" began in earnest. The current financial crisis is not the first time that we as a nation have faced a threat to our essential well-being, or even very existence. In response to such crises in the past - 1690, 1775, 1836, 1860, 1896, 1942 – the nation saved itself by harkening back to its original monetary inspiration, each time taking the application of the principle a bit higher.

The providential import of this time is being felt across the land, as evidenced by the impulse on the part of millions of people to come together in thousands of gatherings, large and small, in Washington DC and across the nation (not to mention around the world). They are it seems, regardless of partisan feelings, intent on sharing in the momentousness of this week's Presidential inauguration. That being so, a question yet hangs heavy over the land - "What do we do now?"

At this auspicious juncture the nation more than ever needs to return, as it has always done, to its monetary roots for the answer, but, incredibly, we seem to have largely forgotten our own authentic heritage. It needs to be rediscovered, and taken to new heights of realization very soon.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Friday, January 23, 2009


(Week 24 - Friday, Jan. 23 / 2009)

History has a rhythm. In the past one can find the prologue of what is coming to pass now.

The early American colonists found themselves economically in a desperate condition. They were essentially stranded on the eastern edge of a vast new land, with bounteous resources, but little money to carry on the commerce required to develop them and provide a new life. Trade with the mother country proved to be a one-sided affair. The raw materials the colonies had to offer were sold cheaply, but imported finished goods were expensive. Without a domestic source of coinage, what few coins the colonies earned in trade quickly disappeared back to England, and they were obliged to sink ever further into debt to keep their economy going.

The colonial assembly of Massachusetts was inspired to come up with a simple, but effective solution to the chronic shortage of circulating medium. In 1690, it began to issue the first government-authorized paper currency in the Western world. It was not based on precious metals, debt paper, land banks, promises to pay interest, or other "backing" schemes, but issued instead to facilitate the commerce of the People. These "bills of credit", as they were called, were simply printed and spent into circulation.

The experiment proved to be successful and was copied by all the other colonies. Eventually, their respective monies began to be recognized and accepted by each other. As trade up and down the Atlantic seaboard increased, these isolated and indentured resource enclaves began to be transformed into a fledgling new nation. When asked about how he could explain the prosperous condition of the colonies, Ben Franklin replied:

"That is simple. It is only because in the Colonies we issue our own money. It is called colonial scrip, and we issue it in proper proportion to the demand of trade and industry."

The Crown set itself in continuous opposition to these unapproved issues and Parliament passed laws in an attempt to curb them. The Currency Act of 1764 banned the extension of legal tender status beyond certain dates, and England assumed the authority to approve or disapprove any laws the Colonies might pass related to new issues. Its foot dragging on such measures effectively deprived the Colonies of their money, and led to the first two now-uncomprehended justifications for going to war as set forth in the Declaration of Independence, specifically:

(1) - He has refused his Assent to Laws, the most wholesome and necessary for the public good.
(2) - He has forbidden his Governors to pass laws of immediate and pressing importance unless suspended in their Operation till his assent should be obtained; and when so suspended he has utterly neglected to attend them.

Senator Robert Owen, prominent banker and the first chairman of the Senate Committee on Banking and Currency, explained that when the Rothschild-controlled Bank of England heard of the situation in the Colonies:

"They saw that here was a nation that was ready to be exploited; here was a nation that had been setting up an example that they could issue their own money in place of the money coming through the banks. So the Rothschild Bank caused a bill to be introduced in the English Parliament which provided that no colony of England could issue their own money. They had to use English money. Consequently the Colonies were compelled to discard their script and mortgage themselves to the Bank of England in order to get money. For the first time in the history of the United States our money began to be based on debt."

"Benjamin Franklin stated that in 1 year from that date the streets of the Colonies were filled with unemployed."

Faced with a deteriorating economic situation, and what they felt was British neglect, the colonists called a Continental Congress, and issued the Continental Currency. This differed from earlier colonial monies in that it was an emission of the Colonies as a whole. This act was, essentially, the assumption by the people of American nationhood. According to monetary historian Steve Zarlenga:

"The skirmishes at Lexington and Concord are considered the start of the Revolt, but the point of no return was probably May 10, 1775 when the Continental Congress assumed the power of sovereignty by issuing its own money."

Americans are commonly aware that the establishment of the United States brought to the world a new type of democratic order; i.e. personal freedom under the rule of democratically determined law. What is not nearly as widely realized is that it also represented the establishment of a new economic order. It sought to secure not only freedom and law, but also the means to same; i.e. the control of its own money. This is the all-but-forgotten "rest of the American Revolution".

This was elaborated eloquently in "Harmony of Interests", by Henry C. Cary, who was Abraham Lincoln's economic advisor and the son of Matthew Cary, a close collaborator of Franklin and LaFayette. He stated that there are "Two systems before the world", and proceeds into a lengthy delineation which concludes:

"One looks to pauperism, ignorance, depopulation and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world."

And what is this "American system" compared to the "English system"? I describe the former as an economic order based on the sovereign power of a nation to issue its own money, and the latter as the subjugation of society to unpayable "debt" to private interests. It is one of the great ironies of history that, through its privately-issued "debt"-based dollar, we as a nation have become effectively the champion worldwide of the "English system", the very economic order we purport to have triumphed over more that two centuries ago. It seems now that with the advent of the current financial crisis, the final reckoning of which principle we will serve has come upon us in a way that cannot be evaded.

Our forbearers were mindful of what is at stake. Thomas Jefferson had this to say:

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."

"If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied."

John Adams wrote in a letter to Jefferson:

"All the perplexities, confusion, and distress in America arise, not from defects in the Constitution or confederation, not from want of honor and virtue, so much as from downright ignorance of the nature of coin, credit and circulation."

Might this be something for our new President contemplate? How else "Hope"?

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Wednesday, January 21, 2009


(Week 24 - Wednesday, Jan. 21 / 2009)

It takes the events, sacrifices and spent lives of many years to make a day like today. How many years? It depends on how one reckons.

One could say that it took forty years since the murder of Dr. Martin Luther King to finally see a black man rise to America's highest civil office, an Exodus-length time of wandering in a political wilderness towards a civil-rights promised land.

One could say that it has been a century-and-a-half from Lincoln, the "Great Emancipator", to Obama, the "Great Emancipation".

One could say that it was well over two centuries from the penning in our founding document of the words "All men are created equal", to the day when they could resound with an undampened ring.

We could go on with this exercise (get carried away with it, some might say) of casting the net of history ever wider to gather it in as the prologue to what culminated today in the inauguration of our new President. None of this is to say that what transpired in Washington was in a mundane sense anything more than the ensconcing in office of yet another administration, that it might not succeed or fail in the manner of all such political tenures, or even that the right guy won the election (clearly not everyone agrees that that was the case).

Whatever the truth, all that, it seems, was set aside as the feeling of momentousness of this day was allowed to play out. I experienced it in a crowd of approximately three-hundred people who came together to share in the experience in a neighborhood community center, and this sort of event was reportedly repeated in many thousands of gatherings across the nation, and around the world.

I was born and raised in Illinois, the home state of both Lincoln and Obama. I can imagine that there was a sense of historic euphoria that attended Lincoln's day of ascension to the office also, but the nation then, as now, was in a state of deepening crisis, and there were daunting realities to be faced when the festivities were over.

My purpose here is not to in any way make a personal comparison between Abraham Lincoln and Barack Obama, as to do so would be to commit an injustice to both men. Each is his own person in his own unique time, and the achievements and failures of the first say nothing about what might be achieved or failed by the second. Lincoln's record as President has been written; Obama's has yet hardly a mark.

Yet, I find that the feeling of a providential connection between the two men cannot be avoided. Lincoln took office at the leading edge of a crisis that was unprecedented in intensity and scope, and indeed threatened the very existence of the nation. Obama is faced (arguably) with problems every bit as dire and intractable, and this time on a worldwide scale. The outward manifestations of the irrespective challenges are very different, but a common thread runs through them; that is, at their core is the fundamental question of how we as a nation create and issue our money. This indeed has been the quintessentially American question since early Colonial times.

The outbreak of the Civil War demanded that some way of financing it be found. Though under great pressure to borrow the funds from the private banking system, Abraham Lincoln instead had the Treasury issue $450 million dollars in "United States Notes", popularly known as "Greenbacks". The monetary policies of Lincoln are a generally overlooked, but pivotal part of our history. Indeed, they may have been, as much as his better-known proclamations, a crucial factor that allowed the Union to prevail. Reportedly, Lincoln had much to say regarding the public-vs.-private issuance of money which we would do well to contemplate today:

"Money is the creature of law and the creation of the original issue of money should be maintained as an exclusive monopoly of National Government."

"Government possessing the power to create and issue currency . . . need not and should not borrow capital at interest as the means of financing governmental work and public enterprise. The Government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity."

"The taxpayers will be saved immense sums in interest . . . Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power."

Congressman Wright Patman, former chairman of the House Committee on Banking and Currency, commented a century later:

"If instead of issuing 'greenbacks,' the Lincoln administration had issued the interest-bearing bonds, as urged, naturally, these bonds would still be a part of the Federal debt today."

At compounded "interest", the amount would be many times greater. The significance of Lincoln's monetary policy did not escape notice in certain European quarters, although from an entirely different perspective. There appeared in The London Times during the Civil War the following from Otto Von Bismarck:

"If that mischievous financial policy, which had its origin in the North American Republic (the public issue of usury-free currency) should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."

In 1876, Bismarck explained further:

"The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence which would upset their financial dominance over the world. The voice of the Rothschilds prevailed. They saw tremendous booty if they could substitute two feeble democracies, indebted to the financiers, for the vigorous Republic which was practically self-providing. Therefore, they started their emissaries in order to exploit the question of slavery . . . Lincoln's personality surprised them. His being a candidate had not troubled them; they thought to easily dupe a woodcutter. But Lincoln read their plots and understood that the South was not the worst foe, but the financiers."

Lincoln agreed:

"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy."

There is, I believe, a lesson from Lincoln's experience for our new President. It concerns the necessity of returning the function of creating and issuing of our nation's money to the public sector. This is the essential key (as I have touched upon repeatedly) to redeeming the financial crisis the nation currently faces. I am disheartened in the sense that I see few signs of the awareness of any need for this in our new President, but then Lincoln was not an early supporter of the idea either. It grew in him as he became more conscious of the real nature of the monetary problem due to input from others. Surely President Obama has the ability to grow in this way also.

I would add that, in my view, Obama needs not only to finish the monetary revolution that Lincoln started, but to take it to a higher level. That is, he must resolve the fundamental monetary question that has plagued this nation in a way that does not lead to an outward conflict that rends it. I would suggest that this is where We the People can help him, by picking up on the essential conversation that this nation needs to have about money.

Ultimately, the enemy "in the rear" is not the banks and bankers, but a pernicious idea that has been internalized at all levels of our society and culture (the idea that "money is debt"). What is needed is to open up a good-faith, truth-seeking dialogue about money between all segments of society; people of finance included. Only then will we resolve the monetary problem that festers unresolved below consciousness at the heart of our social order. That dialogue is what this New View On Money series of columns seeks to precipitate.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Tuesday, January 20, 2009


(Week 24 - Monday, Jan. 19 / 2009)

In the last column I introduced to this discussion the concept of "value-added", which is an expression used to describe the actual value that accrues to a resource from the earth as it is transformed, at first into a commodity (some would say "raw material"), and thence in successive steps to a finished product that is finally consumed. The value-added process has two parallel streams.

The first is a material stream, which is the series of incremental increases in the material worth of a product-in-the-making that results from the physical and intellectual contribution of each worker in the production chain as it evolves. The second is a monetary stream whereby each worker is compensated according to his net cost of production (i.e. expenses incidental to performing his step in the process), plus receives a profit to cover his living expenses, plus has enough left over monetarily to seed his next round of production.

"Value-added monetization" is the process by which the material and monetary streams of value-added are coordinated. Ideally, the result should be that monetary value accrues proportionally to material value at every step in the production process, and in such a way that it is equitable with respect to the efforts and needs of those who perform the work. The key to making the value-added monetization process work, then, is to maintain this equitable proportionality from raw-material inception to final-product consumption. The key to making this happen is to understand the concept of value-added from both private (micro-economic) and national (macro-economic) perspectives.

"Value-added monetization" in the Private (micro) Economy:

"Value-added monetization" in the private (micro) economy is the process by which the prices of different products relative to each other evolve through the exchange process in the marketplace, given the amount of money in circulation. The price for any given product will tend towards an equilibrium which determines essentially the monetary value-added of each step in the production chain.

To illustrate, if there was a high level of money in circulation relative to economic activity at current prices, then prices would trend upward until a new equilibrium is reached. Economists would describe this upward readjustment of prices to fit the money supply as "inflation".

Conversely, if there a low level of money in circulation relative to economic activity at current prices, then prices would trend downward until a new equilibrium is reached. Economists would describe this downward readjustment of prices to fit the money supply as "deflation".

Ideally, this tendency in the marketplace to seek a new equilibrium has the effect of each product arriving at a price that truly expresses a balance between the material value-added involved in its production, and the monetary value-added that would reflect it. The principle is analogous to the water on two sides of a porous dam seeking its own level. According to whether the amount of currency in the monetary pool is high or low, the material worth vs. the monetary prices of all products will readjust until a new equilibrium is reached.

"Value-added monetization" in the National (macro) Economy:

"Value-added monetization" in the national (macro) economy is the process by which a determination is made of the amount of money to be issued into or withdrawn from circulation that would promote stable prices, given the total activity participants in the economy would be inclined to undertake. The object is to adjust the amount of currency in the monetary pool such that overall prices remain essentially stable. If a good balance between money supply and economic activity is struck, the price that each producer receives for his value-added contribution to the material worth of whatever product he is working with will tend to be predictable, equitable and sufficient.

This description of how the respective value-added monetization processes would correlate with each other from the private (micro) and national (macro) perspectives is, of course, ideal, but in my view the principle is understandable, sound, and practical. Correlation with this principle in the real world can be observed, but it has been very approximate at best. Indeed, it has broken down many times for individual sectors of the economy, and in the current financial crisis, the breakdown has become general. The reason for this is that the national (macro) economic function of creating, issuing and controlling money has been unwisely transferred to a private (micro) corporation. This is an unnatural economic order that breaks the correlation between the micro and macro monetization streams (due to the loss of monetary value-added through the "interest" charge on bank loans), that cannot help but result in the financial troubles the nation, and the world, are experiencing at present.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Sunday, January 18, 2009

Column #108 VALUE-ADDED

(Week 23 - Friday, Jan. 16 / 2009)

In the last two columns I have introduced to this discussion the concepts of "micro-taxation" and "macro-taxation" (taxation, respectively, by governmental bodies who do not, and who do, issue the money being collected). Questions arise as to how rates of micro and macro-taxation might be determined, how forms of taxation we are familiar with (income, property, sales, estate, etc.) fit into the picture, how might issues of equity be addressed, and many others. To create a basis for answering these it is necessary to introduce another fundamental concept into the discussion, "value-added".

"Value-added" is a term that is already common in economics, and is relatively familiar to the public in much of the world as a mode for taxation. This is especially true in Europe where the "value-added tax" (VAT) is the basis of the taxing regime. The idea is expressed by other names in various locales, as for example in Canada and New Zealand, where it is known as the "goods-&-services tax" (GST). The term is relatively less known (but not entirely unknown) in the United States due to the unique way our taxing structure has evolved, but is reflected in a very limited sense in how we think of the "sales tax", as well as the oft proposed "flat tax". All this notwithstanding, these and other expressions have been co-opted in a way that is not wholly consistent with economic reality by the "debt-money" financial culture, so our understanding of the term "value-added", and its derivative expressions could benefit by reconstructing them "from the ground up", so to speak.

Defining "Value-Added" and some Derivative Expressions:

The most fundamental rule of economics, in my view, is that one should think first in images of the actual material and human realities of economic enterprise, and only then add in the factor of money. As an exercise, let us track in our imagination the progress of a product as it emerges from the untapped resources of the earth through to final use.

Before its extraction, an untapped resource has no economic value as it merely lies there in the ground. Presently someone comes along to mine it, pick it, hunt it, fish it, pump it, cut it down, bulldoze it into a heap, or otherwise perform the task necessary to wrest it from the earth. When this raw material is gathered up into a form that can be offered on the market, it has become a "commodity". Someone with a use for it in mind then will buy it as a commodity.

Let us imagine wood that has been given value by a logger in the sense that he has put work into transforming it from standing trees, to logs ready to be picked up for other uses at the landing. This net increase of value is "value-added".

It may happen that the party who shows up to haul away the logs wants them for personal firewood, the additional processing for which he will do himself. This buyer then is the final "consumer". In this case there was only one value-added increment between unrealized potential in the earth (standing trees) and end product (firewood).

More commonly the party who shows up to purchase the logs does not want them for final consumption, but intends to process them into an intermediate product; a more refined commodity, if you will. He may, for example, be a lumberman looking to buy saw logs. He will pay a railroad to transport them to his mill, where he intends to saw them into lumber. From there a lumberyard will buy the lumber, hire a trucker to transport it to their location, and place it on racks where it is more accessible to those who need lumber for their enterprise. Let us further suppose that a contractor buys the lumber and makes it into a house, which is then sold to a consumer who wants to live in it.

If we track the wood from earth-to-log-to-train-to-sawmill-to-truck-to-yard-to-contractor-to-consumer we can easily see that an increment of value has been added to it at each stage of the process. In economic terms, each of these quantum increases are said to be "net value-added", and the sum of all these steps is the "total value-added" of the product.

Note that we have talked through this example so far without any reference to money. We have referred to value-added with respect only to the worth of the product in physical terms. Ideally, money enters the picture as a medium of convenience to facilitate the exchanges required to move the increasingly valuable product along. Each tradesman who performs his necessary task must be compensated according to his net "cost of production" (i.e. expenses incidental to performing his step in the process), plus receive a "profit" to cover his living expenses, plus have something left over for continuing his business.

For practical reasons these value-added increments must be expressed in monetary units. It follows, then, that these successive price increments (net value-added) accruing proportionally to each step in the process determine ultimately the price a consumer would need to pay (total value-added) in order to maintain overall economic equity for everyone who participated in bringing the wood from raw material to final product. I call this process "value-added monetization".

In the next column I will describe more specifically how this "value-added monetization" occurs.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Thursday, January 15, 2009


(Week 23 - Wednesday, Jan. 14 / 2009)

In the last column I introduced into the discussion the concepts of micro-taxation and macro-taxation, respectively. "Micro-taxation" is the process by which a governmental body that does not issue the currency in which payment for the taxes are accepted obtains revenue to meet its expenses, while "macro-taxation" is the process by which a governmental body that does issue the currency in which payment for the taxes are accepted removes from circulation the excess of currency that builds up in the monetary pool as it spends into circulation the money it creates.

Within the current American system, all taxes collected currently are micro in nature simply because the governmental body (Federal) that would issue the national currency has abdicated that responsibility to a private corporation. For purposes of discussion, I will assume the return of the franchise to create, issue and control the money supply to the national government, unless otherwise indicated.

This represents a radical departure from the way we commonly think about "taxes," especially at the Federal level. It is unfortunate that we use the same term (taxes) to cover both instances. I would suggest that it might be better to call the revenue collected by any level of government that does not issue the money collected as "taxes", and the money being retired from circulation by the Federal government as something else; say, "retirements" or "overflows." To be sure, such a change would take a bit of getting used to, but in my view it is imperative that we reclaim the consistency of our language if we are going establish clear thinking on monetary matters. Establishing unambiguous and descriptive terminology is one way to do it. I would invite anyone out there to see if they can come up with a better term.

In response to the last column, which introduced the concepts of micro-vs.-macro-taxation into the discussion, a reader asks, "what is it that keeps lower government micro-economic units (state county, municipal) from being just extensions of the Federal macro system? That is, why aren't the micro-level government expenses covered by the issuance of monies from the Federal Treasury? Should this be done? Why not make all government (regardless of level) expenses the macro-economic responsibility? What would be the consequences? Why would we, or wouldn't we want to do this?"

These are excellent questions. The key to understanding the answers is to keep in mind the nature of the micro-vs.-macro-economic functions themselves. The task of the macro-economy is to set up, by law, a matrix of rules, definitions and relationships whose purpose is to create conditions that allow the participants in the micro-economy to exercise "life, liberty and the pursuit of happiness" within the fullest possible expression of personal freedom, social equity, and the commonweal.

That said, let us return to the question, "What is it that keeps lower government micro-economic units (state, county, municipal) from being just extensions of the Federal macro system?" I would say that micro-units of government have largely become extensions of the Federal government now, simply because the Federal part of the system is no longer a macro-economic entity, but has become another "business" among businesses.

If there is a distinction to be made, it is that this "Federal business" retains the greatest ability to borrow money, and has therefore come to resemble a huge predatory corporation that swallows up the smaller corporations in an ongoing process of economically forced takeovers (notwithstanding that our government leaders, I have to believe, do not intend such an end). This tendency has accelerated with the current "bailout" process, whereby the Federal government borrows hundreds of billions of dollars to "rescue" (i.e., take control over) smaller corporations. The take-over aspects of the process tend to be obscured by euphemistic language about requiring more "control" and "accountability" in return for the money.

If the monetary franchise were returned to the Federal government, that in itself would distinguish it as a true macro-economic functionary, that by its very nature and operations would preclude its micro-economic participants from being perceived as being "just extensions" of the same thing.

As to the question, "Why aren't the micro-level government expenses covered by the issuance of monies from the Federal Treasury?", if micro-level government expenses were covered by the issuance of monies out of the Federal Treasury, it would cease effectively to be micro-level government. Without the power over their own purse strings, state and local governments would lose their independence and be relegated, in effect, to being budgetary departments of the macro-government. Political appearances notwithstanding, the operating distinction between levels has indeed become blurred due to the Federal government being obliged to provide the money to keep lesser government in operation out of the Federal's greater power to borrow money, which is then disbursed with "mandates" attached.

"Should this be done?" That is a political decision. I suggest that preserving the distinctions between micro and macro levels of government is an indispensable expression of the types of sovereignty (state, municipal, township, library district, etc.) that will organically arise in any society. It is, to put it another way, the critical means for the unfoldment of a free and diverse social order.

"Why not make all government (regardless of level) expenses the macro-economic responsibility?" We could have a national government, and nothing else. That would be the effect of having the Federal government pay for everything, but is that what we as a society want?

"What would be the consequences?" It would mean the hegemony over the entire social order through a single nexus of power.

"Why would we, or wouldn't we want to do this?" Ultimately, it is up to We the People as to whether we would want this or not. The key to answering the question is to become mindful of who we want, or allow, to exercise the money creation, issuance and control power.

We, as a society, have been making the choice for increasing social hegemony exercised out of an ever-constricting circle of control simply because we are letting the monetary question be answered by default out of our own (dare I say negligent) unconsciousness about money.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Tuesday, January 13, 2009


(Week 23 - Monday, Jan. 12 / 2009)

There are, in my view, two types of taxation:

One is "micro-taxation," which is taxation by a governmental body that is not issuing the currency in which payments for the taxes are made. Ideally, this would include taxation by states, cities, counties, townships, transportation districts; essentially any level of government below the Federal.

The other is "macro-taxation," which is taxation by a governmental body that is issuing the currency in which payments for the taxes are made. In the American system as currently configured, all taxes being paid are actually micro in nature because the body that creates our money is no longer the US Treasury under the auspices of the Federal government, but rather the private banking system under the auspices of the Federal Reserve. If the franchise for the creation and issuance of our nation's money were restored to the public sector, then the Federal government would by definition be practicing macro-taxation.

Despite their being virtually identical in outward appearance, micro and macro-taxation are very different processes with very different purposes:

The purpose of micro-taxation is to raise revenue for a governmental body that needs a source of money to meet its expenses. In this respect, such bodies are much like other entities that operate in the micro-economic realm (i.e. individuals, businesses and corporations).

The purpose of macro-taxation is to return money that is in excess of the requirements of commerce to the governmental body that created and issued it into circulation via direct spending. Such a body does not need a source of revenue to meet its expenses because it has the power to create money. Currently within the American economic system the only body with the power to create money is the Federal Reserve, but this is a private corporation, not an agency of the government (in spite of what its name might lead one to think). This is why, specifically, the Federal government operates at a "deficit," and can even be said to "run up a debt." Monetarily speaking, it is operating, effectively, as a "business" in the micro-economic realm (see Col. #38 – "The United States as a Business").

I cannot recall ever hearing the terms "micro-taxation" and "macro-taxation" used and/or contrasted explicitly, especially not in a way that that makes clear the respective distinctions between them. I can hardly imagine that they do not exist in the dictionary of economic expressions in some form. After all the major division in the study of economics in academia from the outset is between micro and macro-economics, but even in the many macro-economic analyses and pronouncements I have encountered, taxation has been referred to only in a micro-economic sense (i.e. as a way to raise revenue to pay government expenses).

How, then, can we describe how macro-taxation works? If we had a monetary system whereby currency was issued directly out of the US Treasury, much, most or all of it (depending on legislated public policy) would enter circulation via "government spending" ("public monetization" would be a more accurate expression). This would create a continuous flow of funds into the money supply, or as it is sometimes called, the "monetary pool." If such a buildup were allowed to continue unchecked the amount of money in the monetary pool would, after a time, exceed what was required to facilitate commerce at current price levels, and this would, in turn, cause an unchecked escalation of prices; what is commonly called "inflation." The way to regulate this process is through macro-taxation.

Assuming that the public creation and issuance of money were re-implemented, macro-taxation would serve two main functions:

One is to act as an overflow device for the monetary pool. When money is injected into circulation via Federal spending, the amount of currency in the monetary pool would be allowed to build up to an optimum level. Any excess that enters after that is essentially monetary overflow, and would be drained out of the pool via macro-taxation. The amount of money in circulation, then, can be controlled easily and transparently by adjusting the rate of macro-taxation (essentially the height of the overflow spillway).

The other main function is to provide a way to "renew" the money in circulation. As overflow currency is removed from circulation, it can then be extinguished and reissued afresh as the Federal government needs money. The very idea of extinguishing currency can be experienced as somewhat disheartening, especially given that one has sent in one's "hard-earned money" to pay the tax, but there is actually nothing lost in the process, since it amounts essentially to the entry and deletion of numbers in an electronic ledger.

At length, a balance will emerge within the macro-economy (i.e. the national economy as a whole) between the amount of actual economic activity performed or paid for by the Federal government (the macro-economic entity), as opposed to that performed or paid for by the aggregate of individuals, businesses, corporations and governmental-bodies-below-Federal (the aggregate of micro-economic participants). The percentage of the total attributable to the Federal government essentially determines the macro-taxing rate (percentage of economic activity to be paid as taxes).

This discussion of micro and macro-taxation will be continued in the next column.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Saturday, January 10, 2009


(Week 22 - Friday, Jan. 9 / 2009)

The root cause of inflation within the present system is the "interest" charge attached to the private bank loans by which our money supply is created and loaned into circulation. It is really, I suggest, about as simple as that. To be sure, there are secondary factors that exacerbate inflationary tendencies, but these are mainly psychological, and derive from the inexorable effects of charging "interest" on money at the point of issuance. This may seem strange to the modern ear, given the profusion of arcane economic analysis in the media and academia that portrays "inflation" as if it were some insoluble economic phenomenon that we can only hope to keep under control through sound "business" management.

The truth is, in my view, that "inflation" is not some phantasmal monetary lion roaming about seeking what economic chaos it can cause and whosever's wealth it may devour, but rather the straightforward result of something that We the People permit to be done with our money; that is, we permit it to be created and loaned into circulation from a private corporate entity (the Federal Reserve and private banking system) at "interest." When we stop that practice, the fuel will be withdrawn from the "inflationary" fire.

It is true that "inflation" would still be possible under the auspices of a public monetary system if too much money were issued, but that would be an unlikely outcome within a system that was transparently amenable to control. As it is now, "inflation" has plagued this society, and indeed most of the world, as a mysterious specter for the almost-century since "debt-money" was firmly established as the basis of the monetary system, and hardly anyone with significant influence or control within the system seems to know what to do about it.

To understand the root cause of "inflation" we need only look at how a typical bank loan plays out over time. Suppose that an entrepreneur were to borrow money from a bank to build a small factory. The banker would create the money when he writes the check, and the entrepreneur would spend it into circulation when he paid whatever contractors were hired to build his factory.

Let us suppose further that the term of that loan was ten years. That means that over ten years time, the manufacturing firm that was set up in that factory would have to charge enough for its products to earn back the money to satisfy the contract which spelled out the terms by which the loan would be repaid.

If, hypothetically, there were no "interest" charges on the loan, then the amount to be repaid would be only the original principle balance. Under current practices, however, there would be an "interest" charge which would, typically, more-or-less double the amount of money required to be "paid back" over ten years. It is obvious that this doubled "cost" would have to be covered in higher prices charged by the factory for whatever goods it produced. What is more, this increased "cost" is in no way associated with an enhanced material input into the product. Clearly, then, the price of the product will be "inflated" by the "interest" charge.

But the matter does not end there. The money paid to cover the "interest" goes to financial speculators who have purchased "debt"-based financial instruments (loan contracts, bundled mortgages, bonds, etc.) for the very purpose of receiving those remittances. Assuming that they are not going to spend that money themselves, or gift it back to society through philanthropic efforts, they will effectively withhold those funds from circulation until someone borrows them back into circulation. When that happens we say in the current financial culture that these funds were "reinvested," but the overall burden of "debt" borne by the money supply will have been increased without, even, the injection of newly-created money to help bear it. New money will eventually have to borrowed into existence from private banks to help roll over the growing "interest" charge, and this in turn will have to be factored into the "cost" of producing more goods, thus driving up prices.

It should be noted here that under a public monetary system, a given private enterprise may or may not be eligible to borrow money directly, not-at-interest, from the public sector. That would be a matter of public policy. However that is worked out, it is still a fact that the aggregate "interest" burden borne by the participants in the micro-economy would be reduced by whatever payments would have been required to maintain a money supply borrowed from a private banking system in circulation.

In any case, the vicious spiral I have described here has been the very engine of "inflation" in our economy for almost a century. The expectation that prices will continue to rise is, in itself, a factor that insures that "inflation" will continue to roll. This becomes manifest in price structures, wage labor contracts, budgetary expectations and other hedges in the behaviors of participants in the micro-economy as they try to hold their own against what they anticipate as an inflationary tide.

This can go on only so long before confidence in the monetary scheme collapses, and indeed in the current financial crisis the tide is beginning to turn as we enter a deflationary period. This "deflation," is not an orderly reversing of the inflationary process, but rather a traumatic popping of the inflationary bubble. If the present "debt"-based system can be stabilized for another round of "economic growth" (by no means a sure prospect at this juncture), then the "inflation" dragon will rise again.

Originally the Federal Reserve System was proposed to the public as a means of creating a stable circulating currency of constant buying power. What has the ninety-six years of its existence shown? In 1913, the value of the dollar was approximately the same as it had been a century earlier. Immediately after the establishment of the Fed, prices began to inflate on a more-or-less continuous basis until the dollar today is worth only about 1/20 of its original value. This is because the monetary scheme implemented by the Fed is based on issuing money through loans to which a compounding "interest" charge is attached, and these compounding charges for the use of money must be covered as a cost of doing business; ergo "inflation."

In my view, though we as a nation did not adequately realize it at the time, the mode by which money would be created and issued under the Fed made this outcome a virtually forgone conclusion.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Thursday, January 8, 2009


(Week 22 - Wednesday, Jan. 7 / 2009)

Perhaps the most common question I hear when the idea of direct public funding (as opposed to the issuance of money via private bank loans) comes up is, "What is to prevent all this currency being issued out of the US Treasury from flooding the economy with too much money and causing inflation?"

Public funding, assuming it is done with a minimal level of integrity, is by nature not inflationary. Indeed, it is the practical answer to inflation. It is amenable to being issued in a manner that is direct and proportionate to the actual economic activity monetized.

As with almost any other mode of disbursement, public money is, presumably, not passed out willy-nilly. It is, rather, issued as part of a transparent and orderly monetization process that is coupled with the production of real wealth (e.g. public infrastructure), or the provision of tangible human benefits (e.g. health care). Another way of saying this is that money is emitted as a complement to genuine human enterprise, which is indeed its "backing."

This process could still be abused, of course, but it is hard to imagine it ever becoming as disconnected from economic accountability as with the hundreds of billions of dollars that are being passed out currently to purchase "troubled assets" (e.g. the "securities" attached to already failed ventures) in the present financial crisis. This out-of-control issuance is caused by the supposed need to "keep the banking system from collapsing," which is another way of saying the need to make the "interest" payments on old loans required to maintain money in circulation. The resultant "need" to constantly expand the pool of circulating medium with ever more sums of borrowed money would not exist within a public system, and that, in turn, would remove the essential fuel from the "inflationary" fire.

Much has been made of the supposed tendency for uncontrolled spending by politicians when they get their hands on the public purse strings. Well, for better or worse, they have "their hands on the public purse strings" now.

Furthermore, even if we were to assume the worst concerning the character of our elected representatives, would it be better if they were spending money that had a compounding "interest" charge payable to private interests attached, or funds emitted essentially at no cost directly out of the Treasury?

I seem to recall scandalous reports in the news some years ago about how the space agency NASA had paid $900 dollars for a hammer, and other such outrages. I would ask, would it be better if that hammer were purchased with money issued directly out of the US Treasury, or with funds borrowed at "interest" from the Fed? If it were paid for with money borrowed at "interest" out of the Fed, the $900 dollar price tag would be only the beginning of the cost. The "interest" charge would be added to the Federal "debt," and more money would have to be borrowed by the government to make up for that charge, which would, in turn, cause over time a further compounding of the "debt." In practice, the "cost" of the hammer would always be with us and never cease to mount.

If, on the other hand, the hammer were paid for with money issued out of the Treasury, the "cost" would be $900, and no more. The unjustifiably high price (if indeed it is that) is not a function of the monetary system. It is the result of poor bureaucratic management and lax political control. However inflated the price of an item might be, nothing is gained, and indeed much is lost by purchasing it with money borrowed at "interest."

The problem with the current private system is that it has virtually no transparency. Indeed, the bank-money financial system is a knot of complexity that even the experts cannot seem to effectively penetrate. Instead the public is subjected to endless political promises, partisan ideologies and economic bromides within an intellectual atmosphere that is basically confused. If the public cannot understand how money is being created, issued and controlled, how then can there be accountability? The direct public issuance of money would cut through the lack of transparency, control and accountability, which, in the end, is the key to controlling "inflation."

In the next column I will describe more specifically the root mechanism that currently drives "inflation."

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Tuesday, January 6, 2009


(Week 22 - Monday, Jan. 5 / 2009)

In the last column I talked about how, from a national (macro-economic) perspective, universal health care could be readily monetized ("paid for") to any extent deemed desirable within the limits of material and human resources available to provide it, by the issuance of money directly out of the US Treasury. The very notion that there is a national health care crisis because of a shortage of money is contrary to any real economic logic. That this idea even exists, and has moreover gained an iron grip over our culture's economic mindset, is largely attributable to the fact that our thoughts have been so taken over by the notion that our money supply must be borrowed into existence at "interest" from a private banking system that we have lost the ability to think in any other terms.

Let me state this emphatically so there can be no confusion. THE VERY IDEA THAT THE NATION IS LIMITED IN PROVIDING HEALTH CARE TO ALL ITS CITIZENS DUE TO A LACK OF MONEY IS AN ABSURDITY. This country possesses the macro-economic ability to issue its own money and thereby provide the circulating media necessary to finance its own health care to whatever extent is deemed appropriate. The task that remains, then, is to issue such funds in a quantity and mode that is optimal to make them accessible in the micro-economy to the people who need health care and the people that can provide it. This is essentially a matter of good monetary management.

The real limit to health care, then, is the availability of the material and human resources to meet the need. Such resources do entail a material and human cost in their development, but from a macro-economic (national) perspective the work to develop and employ them is something to be monetized (money issued on the basis of such activity). It is never a monetary "cost." That we are suffering as a society over a supposed lack of funds to take care of people is tragic and unnecessary. We will not, I suggest, resolve the cost-of-heath-care crisis until we wake up to that.

All this said, a caveat is in order. The assurance that health care services can be offered readily to all members of the society without any serious monetary impediment has the potential to be an immense blessing, but also carries with it a danger. The conscious taking hold by our society of our monetary prerogative unleashes a power into human affairs that has not been fully present heretofore. That is, the very ability for society to "monetize at will," so to speak, anything it decides to do up to limits of its material and human capabilities means, among other things, that we could created a "medical monster" that would have a virtually limitless powers for good, or oppression. A medical establishment could be conjured that would assume vast control over people's body's and minds, and, in a manner of speaking, "put everyone on meds." Increasingly, misgivings are voiced concerning the supposed intrusiveness, abuses and inappropriate influence of the medical system we already have, even by professionals within the system.

That said, I think one would find it difficult to deny that the medical discipline has provided many benefits, including extraordinary life-saving services. Regardless of how corrupted one might think the medical system has become, it is hard to imagine any but the most fanatical detractor (or perhaps most extraordinary person) turning down critical intervention at their own point of crisis.

My purpose in bringing this up is not to join the debate over the vices or virtues of this or that medical regime, but to suggest that such matters ought to be decided on their actual merits, free of being influenced unduly by the imperative to grow the medical economy to service the "interest" payments on bank-issued money.

Within a society that fully recognized its own power to provide the funds for any type and degree of health services it so chose, whether directly (as in a government paid system), or indirectly (as in insuring through public policy that there is enough money in circulation to enable people to manage their own medical finances), the possibility of developing diverse health regimens that are taken on their true merits and available to everyone who could benefit from them would at last be realizable.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Saturday, January 3, 2009


(Week 21 - Friday, Jan. 2 / 2009)

A debate has been raging for years as to how to make health care available to all the people of the nation, including the tens-of-millions of uninsured. Virtually everyone agrees that this is a need that should not go unmet for any human being, but finding a way to get it done seems to have eluded us. At one pole of the argument there are those who say that health care is an individual responsibility, the obtaining of medical services should be left up to personal initiative and the workings of the marketplace. Others assert that it is a human right that ought to be written into the Constitution.

Whatever view of a solution one might hold, it will invariably be centered around the question of how and by whom the spiraling "cost" of health care will be paid. Increasingly doubts are expressed as to whether health care for all is ultimately "affordable."

The existence of such doubts indicates a lack of awareness on the part of the citizenry that there is both a micro and macro-economic dimension of money, and of the respective characteristics and virtues of each.

From a micro-economic perspective, there is indeed a financial cost associated with health care because a source of revenue for employing medical resources must be found.

From a macro-economic perspective, however, there is not a financial cost associated with health care; only a question about much money to create and issue to assure that there is enough in circulation to pay for it.

Stated more succinctly, from a micro perspective health care must be paid for, but from the macro health care is monetized. The way this would ideally play out in practice is as that at the macro-economic level, the social order (through the Federal government) would look out over the society and discern what material resources are available to meet the health care needs of its members, and then formulate a picture as to how ideally they might be utilized. The Congress would then pass legislation that instructed the Treasury to issue money in sufficient quantity that this monetization picture could be realized in actuality.

The ability of our society to fully fund health care to whatever extent it decides is optimal within context of the material and human resources available is thus assured. The notion that the citizens of this country cannot "afford" medical services to the limit of the actual means available to provide them is economic nonsense.

In a micro-economic sense, health care carries with it a financial cost. In contrast, on a macro-economic level the activities associated with health care constitute the very basis or "backing" of the money required to fund them. Stated another way, on the micro level, medical care costs, but on the macro it pays for itself. The key, then, is to cover the micro costs from money issued at the macro level.

For example, to whoever is managing a hospital's budget, a doctor seeing a patient appears as a financial cost for which funds must be found. From the national perspective, however, that same doctor and patient coming together appears to the government, not as a "cost" to be paid for, but as economic activity for which money can be issued. Indeed, any bringing together of human need with the resources to meet it is the very basis for issuing money. It need only be done in an amount that is commensurate with the level of activity to be monetized.

In the light of this understanding, the way out of the nation's health care crisis is this: The Congress would authorize the issuance of money on the macro-economic level according to its Constitutional power to "…coin Money (and) regulate the Value thereof" in such quantity that the extent of enterprise that would naturally emerge in the health-care field if money were not a limiting concern could go forward. This could be accomplished in either of two ways.

One is that medical services could be paid for directly by the Federal government out of funds created for that purpose. This would resemble in appearance the mode of funding commonly referred to as "single payer," as often advocated by the liberal perspective in current political discourse.

The other is that an adequacy of funds to pay for health care could be assured indirectly through the Treasury maintaining sufficient money in circulation to finance whatever level of commerce would naturally occur in the economy, health care included. This would put a larger responsibility on people to manage their own medical-related finances, as is favored by the more conservative side of the political spectrum.

In reality elements of both approaches would almost certainly be employed. Regardless of the details of how that might be worked out, the important thing to know is that the availability of enough circulating medium to fully finance heath care at whatever level was deemed by our society to be optimally desirable and materially doable would be assured.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Thursday, January 1, 2009


(Week 21 - Wednesday, Dec. 31)

There is a tendency in our culture to treat "money" as a commodity of a single nature that moves about in the matrix of economic relations, conveying value from one hand to the next. Is that not what we mean when we call it a "medium of exchange," "store of value," "unit of measure" or "common currency"? "A dollar is a dollar", so we are accustomed to saying, and if we want a stable economy the thing to be done is to pin down what exactly that means in terms of some representative "market basket" of goods. The orthodox view would say that a unit of currency may for the moment pass from this hand to that, play a roll in certain public or private cash flows, or facilitate trade in either the world of real goods or "investments" in the financial sector, but it remains a "dollar" nonetheless. It is, in a sense, presumed to be the common denominator of the whole economic order.

Outwardly this may seem obvious, but it is a narrow material assessment that produces only numbers and misses the many levels, essences and meanings that attend this all-pervasive social element. Money is a multifaceted manifestation, and to even begin to master it we must come to a living consciousness of that reality.

This is a huge topic, and there is not room to do it justice within the context of this short article. Indeed, it may seem too daunting to even approach the matter. It need not be so, as the topic may be opened up and developed on a digestible-bite-at-a-time basis from thoughts and observations that are perfectly within the reach of any thinking person. We, individually and as a race, simply have not done the work. That said, it is a consciousness that must be cultivated if we are to have any hope whatsoever of attaining a healthy social order, or perhaps for civilization to even survive. The question is, where to begin?

In the column previous to this I introduced the idea that the economic order has both a micro-economic and a macro-economic domain. This is a foundational concept upon which we can begin to build a new monetary/economic understanding. Micro-economics relates to the values, fortunes and acts of the "players" in the economy, while macro-economics relates to the structure, control and aggregates of the economy as a whole. The relationship of micro-to-macro is much like the trees to the forest, or sports teams to their league. The relevant question here is, "What is money with respect to the micro-economic, as differentiated from the macro-economic, domain?" Can money be described as dollars moving around within and between spheres, or does what we call a "dollar" have a different meaning and essence in each?

In my Econ. 101 course, I was taught (correctly I believe) that the micro and macro-economic aspects were indeed different realms with their own respective rules, functions and dynamics. The problem I experienced is that once that premise was established it was seriously violated to the point where orthodox economic thought has become a mish-mash of confused thinking caused in large part by failing to follow though on the rigor required to keep the micro and macro dimensions properly distinguished from each other, and in their rightful places. One manifestation of this is that a macro-economic function (the creation and issuance of money) has been vested in a micro-economic entity (the private banking system). The result is that the United States as a whole (a macro-economic entity) has become a business (micro-economic entity) in the portfolio of a private corporation, the Federal Reserve (See Col. #38 – The United States as a Business). What is more, a whole culture of inconsistent financial thought has grown up around that anomaly to obscure the inconsistencies thereby generated.

What, then, is money with respect to the micro-vs.-macro-economic domains?

In micro-economics money can indeed be described as a "medium of exchange", "store of value", "unit of measure" or "common currency." It is the very life's blood that circulates in the economic social body, and fits in a general way many of the descriptions commonly associated with money.

In macro-economics, on the other hand, money is a structured matrix of relationships established in the law which governs how currency is created, issued and controlled. Whereas money on the micro level manifests as the blood that circulates in the economic social body, on the macro level it is the economic social body itself. It does not conform to the micro-economic processes by which it is presumed to operate, but in fact the opposite.

One place where the confusion between the micro and macro aspects of money can be clearly seen is in the current debate concerning what to do about the enormous "debt" that is mounting in the current financial crisis. The remedy that is commonly put forth is that we have to get our taxing-&-spending priorities under control. For a governmental body that is below the Federal (e.g. state government, which operates on a micro level), this makes sense. For them money is a stream that flows into and out of their operations. Public bodies that do not issue money must, like any business, find sources of revenue to balance spending.

In actuality the phrase "balanced budget" has no meaning on the Federal level, as it is a micro-economic expression that pertains to micro-economic phenomena. It would be more proper to describe the creation and issuance of money at the Federal level as a "monetization" process, which is kept in balance by the collection of "taxes." "Taxes" on the macro level are not a way to fund Federal programs, but a mechanism to remove overflow currency from the monetary pool. The issue of money, then, on the Federal level is a matter of structuring macro-monetary body in such a way that its life's blood (currency) can ebb and flow naturally through its micro-economic organs.

The failure to differentiate between the functions of money at the micro vs. macro-economic levels is at the very heart of the current financial crisis. I would venture to say that if these two levels of money were fully understood (and presumably acted upon), there would be no "national debt" crisis. Indeed, there would be no "national debt."

In the next several columns my thought is to show how this confusion plays out through some of the major issues besetting our nation, and how a simple comprehension of the distinction between the character of money on the micro and macro levels of the economy could serve as a catalyst for the resolution of the current crisis.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.