More and more voices are being raised to locate the main cause of the crisis in the monopoly of commercial banks on money creation. The Basic Income could not only alleviate the consequences of the crisis, but above all be a political lever to act on its cause, by transforming the modalities of money creation. An analysis of the French Movement for a Basic Income.
Maurice AllaisThe 1988 Nobel laureate in economics, a great specialist in money and promoter of the Basic Income, proposed at the time to remove the banks' monopoly on money creation. History has not taken this into account. Against a backdrop of globalisation, the power of commercial banks over money creation has continued to increase and become deregulated. Since the 1930s, other economists before him had already described the consequences: speculative bubbles, debt explosion, abyssal deepening of inequalities, unemployment and poverty.
We will not detail here the mechanisms of money creation by banks and their deleterious consequences (see approach D in this article). Many members of the Mouvement Français pour le Revenu de Base (MFRB) know them and are not fooled by them. They believe that the creation of money through debt, and the monopoly that banks exercise over this creation, is illegitimate. It seems obvious to them that this system artificially creates two classes of humans: a tiny minority that has the power to create money, and the immense majority that does not. This division of society into two classes with different rights appears to them to be contrary to the human rights according to which: "All human beings are born and remain free and equal in dignity and rights".
According to them, it is illusory to think that a basic income that does not take into account monetary creation can save social peace. They even fear that a basic income by redistribution, as it could be set up in the first instance, would lead to the opposite result if the political game were to make it play the role of a bulwark to maintain a social status quo which they consider iniquitous. It therefore seems essential to study forms of Basic Income that involve money creation, or even that would be completely based on it.
Monetary creation reserved for banks, an obsolete model
Questioning the monopoly of money creation by private banks is taboo, as it is the central rule of the economic game. As incredible as it may seem, unlike Monopoly™ whose rule is written and recognized, that of the real economy is just beginning to be disclosed. Indeed, this rule is what some game theorists call a "homeostatic rule" that all actors apply blindly, without naming it and without question, until the game has reached a certain level of obsolescence.
On this rule, politicians from all sides have been perfectly silent for decades, except for a few random electoral statements ("My enemy is finance" François Hollande).
After Maurice Allais, for many years, no official economist has publicly questioned himself on this subject. Recently, however, some have been talking about money creation again. More and more of them are doing so, and in a very alarmist manner.
To name but a few: Gaël Giraud and Steve Keen (professors of economics), Lord Adair Turner (Director of the British Financial Services Regulator), Bernard Lietaer (former Director of the National Bank of Belgium), François Morin and Bernard Maris (former advisors to the Banque de France), Mervin King (former Governor of the Bank of England), the economists brought together in the Money-Full initiative, etc. Bernard Maris sums up the criticism of these economists Money creation is no longer a public service. Its complete privatization leads straight to a war of all against all...
If institutional actors suddenly question the rules of the game that have remained taboo for so long, it is a sign that the game has reached its level of obsolescence and threatens to collapse. New candidates to replace the current model of money creation will therefore urgently need to be proposed.
As we shall see, the alternative models envisaged by various institutional actors aim to restore a certain public service character to monetary creation. Other approaches aim to attract it in the direction of the common. All these proposals are linked to the notion of basic income.
Private domain of banks, public service, or common?
Before going into detail, it should be noted that in all cases, it is not a question of distributing free change galore. No, it is about giving back to each and everyone the first and principal regalian power that is the creation of money, simply by focusing it on each individual. In this way, it could fulfil the function of a basic income, what some call the universal dividend, enabling everyone to fuel economic life. We shall see that there are two types of approaches to achieve this.
Whichever approach is considered, there are many objections. The first is generally summarized as follows: "How can money created from nothing and attributed to all have value if it does not correspond to any work or resource? ». In response, it is easy to observe that money creation as currently practiced by banks also comes out of nowhere. It is often purely speculative, and in addition to being unfair, it does not correspond to anything for the real economy. The universal dividend, on the contrary, would allow individuals to live, exchange, work, pool their resources, and finally to maintain the wealth bequeathed by their predecessors, or to create new wealth.
Finally, it should be noted that the forms of basic income by monetary creation discussed here should not be confused with the form based on the taxation of financial flows (of the type Tobin tax). To us, this idea is like trying to warm up by trying to draw some flames from hellfire. The taxation of financial flows, however praiseworthy it may be, would implicitly validate the system of monetary creation that is at the origin of it, and which seems destined to disintegrate. No, here, on the contrary, we are talking about changing the source of this system.
There are two types of visions to achieve this:
- Distribution by a power center of units of account that it has created ex-nihilo. In the best of cases, the underlying vision is to consider money creation as a public service. This distribution would be carried out through a centralized or decentralized network, respectively according to approaches 1 and 2 introduced below.
- Implementation without an issuing centre, self-regulated and transparent, of units of account by each citizen, so that they can feed economic flows. In this case, the monetary creation, or rather the monetary protocol that would supplant it, would be a common one. This would be implemented through a peer-to-peer network. See approaches 3 and 4 introduced below.
The power implications of these two visions are obviously considerable. They can be broken down into four approaches to basic income by money creation envisaged by different actors. The first two approaches presented below (1 and 2) show that the pressure of events pushes institutions to go willy-nilly down this path. But when they do, it is often a last resort, in small steps, in a covert, almost clandestine manner. Above all, their approach does not call into question the dogma of the currency-goods system, to which we shall return later.
On the contrary, the following approaches (3 and 4) are public interest citizens' initiatives, developed as transparently as possible using open source software.
Approach 1. Quantitative Easing for the People (QE4People)
Against the backdrop of the general crisis in Europe, the European movement QE for Peopleclose to the MFRB and the UBIEThe European Central Bank (ECB) is asking the ECB to allocate a share of monetary creation to Europeans, rather than refinancing private banks as in 2008 - this does not stimulate the real economy - or to lower rates below zero - a probable suicide.
Mario Draghi, President of the ECB, judged himself this "very interesting" idea before adding: "We haven't really studied the concept yet". However, his chief economist, Peter Praet, confirms that this monetary weapon, known as helicopter money, is well within the arsenal of the ECB.
A QE4People would show that money creation is still in part a public service that can affect real economic activity. precedents in Australia and the US have shown that it works. In addition, it could trigger some awareness of the link that could be forged between money creation and Basic Income - See What some of the economists dug up said in the past.
If there is the political will to do so, the question of adjusting the amount and recurrence of QE4People arises. The situation is complex because of the opacity of the financial system. As long as there is no precise accounting measure of real bank money creation, and as long as we do not resolve to withdraw a share from private banks, the QE4People will remain far from a basic income worthy of the name.
Approach 2. Citizens' accounts at the Central Bank
If it is not dealt with at European level, the political instability that we are currently experiencing, which is not unrelated to the uncontrolled and unfair method of monetary creation, could lead to States turning in on themselves.
Switzerland, known for its independence, sets the tone. The Full Currency Initiative Proposes that the legal monetary creation of the National Bank of Switzerland (SNB) be given without debt, either to the confederation, the cantons or directly to the citizens. In addition, it is also a question of every citizen holding a SNB money market securities account through his or her bank, as is already the case in other latitudes, for example in Republic of Ecuador. In this case, commercial banks would become mere providers of financial services to which the creation of money in the form of central bank money would be prohibited.
This model, which is similar to a recurring, state-wide QE4People's Questionnaire, coupled with a reform of the banking function, could inspire other countries that want to stand out from the European Union. In 2015, the Central Bank of England proposed to study this type of measure and to issue a specific digital currency to implement it, (see here, page 32). The movement Positive Money published a report on this subject which inspires the Dutch government.
Note that the same problem arises in this case as in QE4People. That is, the problem of calculating the necessary and sufficient money creation to ensure a basic income. There is also the question of the harmonisation between the different countries of their respective monetary creations, just as it also arises in the previous case between Europe and the rest of the world.
Approach 3. Distributed money creation network
This public interest citizens' initiative presents both a theoretical and practical approach. From a theoretical point of view, it responds (among other things) to a common objection: "How to fix a money creation that does not depend on the arbitrariness of power and political hazards that probably lead to an explosion of the money supply and create uncontrolled inflation, or the opposite: implosion and deflation? ».
The answer is math. Indeed, a theory exists. It's called the Relative Theory of Money (TRM) due to Stéphane Laborde (initially a telecom engineer). The TRM joins the work of the economist Yoland Bresson on the time value. It makes it possible to calculate the amount of a universal dividend based on the average life expectancy of individuals, the money supply, and the number of people in the monetary community, so that money creation is egalitarian and does not favour members of the current community to the detriment of those of future generations. Stéphane Laborde describes this co-creation of money as "symmetrical in time and space".
The best practical implementation of a distributed money creation network to date is the free currency generator called Ucoin, operating on MRT principles and using blockchain and Web of Trust (WoT) technologies.
Everyone can already test Ucoin. A first territory-wide implementation has just been completed. launched in Mayenne. Ucoin is of course free software. At the moment, as far as we know, there is no equivalent in the world.
Approach 4. Monetary protocol between individual banks
The public interest citizens' initiative, called the Balanced Monetary System (BMS), initiated the idea that the notion of currency would become obsolete in favour of that of protocol. It is complementary to other ideas that have been found here and there in the academic world.
The EMS proposes to create a cooperative of individual banks. This is a non-centralized organization, implementing a generic accounting protocol, allowing each citizen to create an electronic payment account. This account would regularly release a mathematically equivalent personal monetary advance for all, regardless of the free and independent choices each person makes for the parameters of his or her own individual accounting. Part of this individual advance would be renewed naturally to allow everyone to have the minimum goods and services necessary to live - this is the basic income function. Another part would be devoted to participatory financing according to the wishes of the individuals in order to make common projects exist. This organization would therefore not be a bank, but a cooperative organizing the emergence of individual banks. Each one, equipped with ad-hoc software, would become its own banker, holder of its own payment account, creator of its own share of monetary units of account, a share identical to that implemented by any other citizen.
The conceptual advance of the EMS is that it is a distributed system for recording economic flows, in which the units of measurement have no more value than degrees Celsius or centimetres. This would eliminate the illusion of good money, which suggests that units of measurement can be created or lent, and thus the scam of buying foreign currency (one does not pay in degrees Celsius to obtain centimetres).
In application of the theoretical work done, a practical demonstration of the EMS is being developed. Members of the MFRB who wish to test it will soon be invited to come forward. Links and documents will be made available soon.
So, how much?
How much? This is the simple question often asked first by those who are new to the idea of a Basic Income. The different approaches to a Basic Income by money creation do not offer a simplistic answer. On the contrary, they are thought-provoking because they challenge many of our prejudices and illusions about money and the economy.
According to approach 1, "if the money created through the QE were instead distributed among all the inhabitants of the euro area, each citizen could receive up to 175 euros per month," calculates the QE4people movement. As you can see, this sum is relative to the classical EQ that the ECB regularly practices in the current economic climate. It is therefore dependent on the evolution of the current economic situation. With approach 2, it seems impossible to evoke a figure for the same reason, all the more so as the calculation should be done country by country.
As regards approaches 3 and 4, some calculations can be attempted with great caution by applying their respective conceptual frameworks to the Euro area as it is today. This exercise is of limited scope because the monetary world on which it is based comprises an invisible part and is undergoing a rapid transformation. Moreover, these approaches are in no way equivalent to approaches 1 and 2, particularly in terms of citizen power, and therefore of society.
Under Approach 3, by sticking to the data ECB officials - provided that they reflect the whole of money creation, which is doubtful - it is possible to calculate thanks to MRTthe theoretical amount that the universal dividend should take in the Euro zone: €559 per month for each European, unconditional and cumulative with other income. This corresponds roughly to the amount of the RSA as conditionally allocated in France. If the ECB data are underestimated - it is not known to what extent - it would be an even higher amount. But again, this only makes relative sense.
Approach 4 starts from need: how much does it take to live each month? The poverty line at 60% of median income gives a good indication. It is currently around 900 € per month in France, or 2200 F. in Switzerland, for example. This threshold is relative to the prices observed in each place. According to the EMS protocol, this amount is the basis of the measurement scale that everyone is free to choose, and to which any other accounting quantity is relative. The EMS protocol mathematically ensures that everyone has the amount of the scale to live on each month, knowing that everyone is free to adjust all their accounting parameters relative to their personal situation and independently of the choices of others, while maintaining reciprocity, i.e. without harming anyone or harming themselves.
To conclude, let us try to formulate a hypothesis concerning the evolution in the short, medium and long term. How can the approaches introduced above be developed?
Following approach 1, it seems difficult to imagine the ECB suddenly doing something different from what it has always done, namely to release the ballast in small bursts of hundreds of billions of euros created ex nihilo, in order to make the system float at the mercy of the vagaries. This approach to a basic income by monetary creation could therefore, no doubt, be put in place by successive political tinkering. The QE4people is not the only one calling for money creation. There could then be a Green-QE for the energy transition, or even others for such and such a desperate cause - one day perhaps for the decommissioning of nuclear power plants?
If QE4people and other EQs could contribute to the creation of a Basic Income and serve to repair the ills bequeathed by the 20th century, why not? But will this Europe-wide approach withstand the constant conflicts of legitimacy and sovereignty that could lead to the withdrawal of nations into themselves? Will it resist nations that propose to do the same thing (according to approach 2) in a disparate manner and on a smaller scale?
Finally, how long will this old financial engineering and the dogmas it is the vehicle for, in the face of the technological steamroller? Any prediction seems futile. Nevertheless, as the underlines Joi Ito (MIT), Bitcoin, the free software that has been in the news for a few years, and its variants, are not mature, less for technical reasons than for governance reasons. They secrete new powers in hands that have no a priori legitimacy to exercise them. Traditional banks could be the victims. According to some analysts, they could even lose out in the long term. 95% of their activity. Power would thus be confiscated in new hands that are not a priori more legitimate than those of their predecessors.
What about approaches 3 and 4?
In contrast to what Institutions, banks and new players in financial technologies (FinTech) are undertaking, these public interest citizen initiatives are primarily concerned with ethics, legitimacy and governance.
Everyone will agree that these are all fine ideas, but few will think that they have any chance of succeeding in the face of the usual logic of profit and power. Yet we believe they will. Indeed, in the global change of perspectives that we are going through, many elements suggest that Legitimacy is a key evolutionary advantage of information systems.whether monetary or otherwise.
These approaches may make you think of Bitcoin as well, as mentioned above. However, Bitcoin is in many ways a counter-example to what is considered here. Its currency (Bitcoin) is inherently speculative and does not include any idea of unconditionality. On the contrary, the last entrants pay more than the first ones. Nevertheless, Bitcoin has the merit of showing that a form of distributed accounting is possible, without cheaters who would create units of account in a hidden way.
In our view, the popularization of this type of software should legitimize an in-depth political discussion on possible monetary systems. We would come to recognize that the monetary unit of account is not a good, as the dogma of money-goods dictates, but only the recording of a flow. The very notion of money would be overtaken by that of protocol, and the monetary protocol in question could one day become intellectual property that is part of the commons!
As Bitcoin has shown, there is no need to wait for the approval of a High Authority to start building them. And, unlike Bitcoin, these citizens' initiatives are not clandestine or speculative in nature. They are intended to be open and transparent, and to cooperate with each other as much as possible.
One day, who knows, if the actors talk to each other and if an informed debate is finally born that does not exclude anyone, all these approaches should be able to come together to find a realistic, positive and sustainable formula for Basic Income and money creation.