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Stephen Zarlenga's American Monetary Act: A Review

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The Money Tree

Noted monetary reformer, Stephen Zarlenga spoke to a standing-room only crowd at the New York City Henry George School on December 6th for two hours, followed by a well-attended dinner at our regular restaurant, Zana's, where we got to question him in more detail. You can read about the act on the American Monetary Institute's site here: http://monetary.org/. The actual act is here: http://www.monetary.org/amacolorpamphlet.pdf

Zarlenga spent about a third of the lecture quoting and elaborating on George's views of money, credit and monetary policy, which is based on his years of research both independently, and from a research grant provided by the Robert Schalkenbach Institute.

In addition to supporting Henry George's views - "he was right!" Zarlenga said, several times - Zarlenga has a workable alternative to the current debt-based money system. Just as importantly, it is fairer, removes the function of money-creation, but, critically, not banking, from the bankers, where it has led to bad judgment and outright fraud, usury, and economic booms and busts for centuries.

Would his 9-member Monetary Authority - to be appointed by the president and confirmed by the Senate - be immune from political manipulation, as well as the usual financial establishment influence? No, but if they are tasked by charter with maintaining neither inflation nor deflation, that is a good start, and an even better start is that they won't be creating money to bailout the TBTF friends - at least their is no legal reason for them to do so.

I do worry about this government being capable of watching over anything as essential as money-creation. In its limited way, the Fed is acting as a Greenbacker (like Zarlenga) and is currently providing money to a formerly weak area of the economy - the banking industry. The problem, of course, is that money isn't making it onto Main Street, but only to Wall Street for more gambling. We are seeing inflation in the FIRE sectors as a result, not real production in vital areas Zarlenga cites, like infrastructure, education (here in NYC, thousands of teachers are about to be laid off, which will raise the average public high school class size to 27), and health care for the uninsured. The Fed can't, by law, provide money for any of that, only Congress can, but would a newly empowered Congress, hampered only by a new Monetary Board, be any less constrained than it is now?

It is worth remembering that the Fed, and the Administration, will do absolutely ANYTHING to boost the markets, in part because that is where 10s of trillions of dollars in agency, state, municipal pension funds, and federal money, are stored - as documented in Comprehensive Annual Financial Reports (CAFRs), available online. According to some writers, and my own early and limited analysis, there is enough money in these funds to make paying taxes almost unnecessary, just from the interest alone. Governmental budgets routinely look at current receipts (mostly from taxes) and measure them against current and future liabilities - a sure way to see red all the time. These accumulated but dedicated monies are never considered part of the pie, except in the CAFRs.

Would this policy change under the AMA? Not likely. More likely it would increase, as government investments, at least on the Federal level, would suddenly become self-funding via money creation. The government's love for all things on FIRE would lead to even more inflation in that area, and trickle-down inflation, but not trickle-down jobs, especially in commodities.

Now, Zarlenga, along with other Greenbackers like Ellen Brown, make the case that money is not a "thing" that a government can run out of, if it exercises its sovereign right, already in the Constitution (Article 1, Section 8) to "coin money." Still, given Congress's propensity to overspend, I view the proposed 9-member Monetary Board as an insufficient safeguard, particularly when that same Congress gets to confirm the appointees. Zarlenga says we have to use our ballot power and "keep an eye on them" to make sure they stay within their mandate to control inflation, but if its constituents' own pet projects are those being funded by New Money, who will vote against that?

This is why I cannot support the AMA without a commensurate passage of a land value tax (lvt), from which ALL natural resources could be taxed in their raw, undeveloped state, before speculators can take their cut (it is now clear the super-spike in oil in the summer of 2008 was mainly due to speculation, and we may be headed there again next year, as the market practices "price discovery," read: jacking up the prices until enough starving people openly revolt). The lvt, broadly applied, would take the wind out of the speculator-driven resource markets before it could get started, and also provide sufficient revenues for government, and even a citizen's dividend - a basic right since access to Land is a basic human right. Without that, I don't see how you can have a stable monetary system, even with better overseers who produce public money instead of private credit.

Dissention among Greenbackers

I also disagree with the American Monetary Institute's critique of Ellen Brown's Public Banking proposal, with one important caveat: it is hard to know exactly what Brown's proposal actually, or currently, is.

I know her proposal almost entirely from reading her dozens of articles (she is a prolific writer, writing about an article a week in Huffington Post, Yes! Magazine, Op Ed News etc. in the last year or so), email, and her postings on the Public Banking Group, where she invited me to become a member over a year ago, and where some 200 members keep up a lively and thought-provoking 50-100 message/day dialogue and preview her articles. I haven't read her book, Web of Debt , which by her own admission has changed considerably from the first to its, now, fourth edition, ranked #61,122 on Amazon.

She currently enjoys a bigger following than Zarlenga, perhaps because of the populist appeal of wresting control of the money function from the "shadow-banking elite" and putting it closer to the people at the state level.

As far as a model of conservative state banking, Brown cites the Bank of North Dakota (BND), making prudent non-securitized loans, only in the state, and funded by all the revenues of North Dakota. They haven't needed nor requested FDIC insurance since they opened their doors in 1919. In 2009, they transferred $15 million to the state's general fund.

This strikes me as a conservative and workable model, and I endorsed it in October when I presented to the New York State Trilevel jobs task force (see the Sept/Oct issue of GroundSwell, or here). It is also probably easier to achieve than Zarlenga's 3-point monetary reform model - a significant consideration in today's paralyzed political climate.

Yet, I also find myself agreeing with the American Monetary Institute's reviewer, Jamie Walton, when he says, as Zarlenga says and Henry George said, that banking is not the proper function of government, and that fractional reserve banking is a system destined, like musical chairs (my phrase), to leave someone standing and bankrupt. This may sound contradictory to my support of fractional-reserve state banking, but it is not necessarily, because the Megabank public banking model described by Walton, if accurately extrapolated from Brown's book, bears little resemblance to either the BND or to what she talks about in her articles. In contrast, the BND exists alongside independent private banks in a harmonious relationship that benefits both parties. Nowhere in Brown's articles that I can find does she advocate putting the megabanks (or, Money Leveraging Institutions , (MLIs) as I call them) into permanent receivership, as Walton claims of her book, though she, and I, do recommend dissolving them in an orderly way when they become insolvent or even TBTF, and even prosecuting their officers for fraud.

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Scott Baker is a Senior Editor/Economics Editor and Writer at Opednews, and a blogger for Huffington Post.
Scott Baker is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist group. He has written dozens of (more...)
 
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This article will be X-posted in GroundSwell, the ... by Scott Baker on Monday, Dec 20, 2010 at 9:32:57 AM
It is ridiculous to cite the Constitution as indic... by June Genis on Monday, Dec 20, 2010 at 5:17:43 PM
Actually, section 10, which is what you're referri... by Scott Baker on Wednesday, Dec 22, 2010 at 5:04:14 PM