After reading the last few chapters on usury, bankers and decapitalism, a sense of depression may have descended upon you. These counterproductive trends are so firmly entrenched at the financial, political and personal levels that one must question whether there is any chance for reform. Regardless of how correct the previous dissections of these practices have been, herein, shaking bankers, politicians and basic lenders from their predisposition toward usury will not be easy.

Bankers and politicians will resist change because they benefit in the short-run from high interests rates, and they think that there will always be another short-term solution when the present one has run its course. Bankers have had record levels of income during the 1980 and 1981-82 recessions when interest rates were at their high peaks.,

Additional resistance to change comes from the basic lenders of America who think that they, too, benefit from high interest rates. Some basic lenders do monetarily gain more wealth through high interest rates, namely, those people who have vast sums of money. Among the politicians benefiting from high interest rates was President Reagan who earned about $150,000 in interest in 1981 and a Texas Senator (Benson) who added $85,000 to his "fat" $3 million campaign chest through interest income. Just like the politicians and bankers, either these people do not see the inevitable social upheaval from continued high interest rates or, shortsightedly, they think they are immune to the consequences. The majority of savers, however, lose wealth through the decapitalistic nature of high interest rates, especially when they become the unemployed; they will vent their anger in reckless ways, more likely than not.

More important than these previous reasons for continued usury and decapitalism is the lack of an alternative way for people to save excess income. Repeal of counterproductive banking practices will not occur without a viable alternative in which the majority of savers recognize a system that will give them more wealth in the long run.

The alternative to usury and inflation is productive deflation. This chapter analyses the general principles and offers a rough framework (a Savers Mutual Fund) whereby people can save money within a financial network that responds to the needs of the savers by producing needed goods and services. Before discussing productive deflation, some principles need to be reiterated which usury derives from and which usury defeats. In addition, the prevailing intellectual hostility toward deflation needs re-examination.

In general, people save money so as to have a better future; they clearly do not save money so as to make their future worse. Interest on savings seems like a simple and effective way of fulfilling this objective, since one's savings increase as interest payments are added to the principal over the years. The important question for any saver is whether the increase in dollars actually represents an increase in wealth and buying power, for if the additional dollars do not, then one's savings do not represent a better future.

An example of the disparity between increased dollars and buying power can be found in the banking advertisements of 1982: some ads promised to make millionaires out of any twenty-year-old who saves $2000 a year till retirement at age 65. The banks fail to point out how the double-digit interest rates would necessitate a continued high inflation rate and/or unemployment rate. As noted in more than one source, an inflation rate at the existing levels reduces the buying power of the million dollars to less than $100,000 when the person retires. Furthermore, if the high interest rates displace one from a job, as they likely will, then one may become a pauper after draining his savings, not a become millionaire. In the spring of 1982, a survey showed that 68% of the unemployed had drained their savings.

The glamor of high interest rates on savings dulls if one realizes the lost buying power that will come from higher inflation and unemployment. High interest rates on savings defeats the principle of saving for a better future. When in pursuit of a better future, one suffers when the distinction between the symbols and substance is not kept, e.g., an increase of dollars (symbols) but a loss of substance (buying power).

The issue of substance versus symbols has bearing on the widespread revulsion against deflation. Deflation is usually understood to mean an appreciation (increased value) of money so that it will buy more goods and services, that is, the money is worth more buying power.

To many people, deflationary policies are as undesirable as inflation. Through personal or academic experience, they recall the deflation during the Great Depression of the 1930's when there was massive unemployment: 25%. The appreciation of one's money due to deflation is nice, provided it does not cause one to be unemployed, a case that is very similar to increasing one's savings with usury which causes joblessness.

Some economic policy-makers argue that a new bout of deflation will be painful and that people will resist anti-inflationary policies when they recognize the pain.,

On a similar note, the Vice Chairman of the Federal Reserve Board in 1981, F. Schultz, said that an inflation rate of 0% to 3% would be ideal, with the government "pumping reserves" into the economy if inflation approaches zero, which implies that deflation should be avoided. A subtle indication of the aversion to deflation is the rise in the usage of another word for deflation: disinflation.

Recent events in the 1980's reinforce the seeming relationship between deflation and rising unemployment. A record 17-year drop in the Consumer Price Index in March of 1982 was accompanied by a 40-year record high in unemployment. Does achieving deflation (or "disinflation") always require unemployment? Or, is the situation analogous to people confusing the symbols of saving with the substance of a better future?

Deflation has an undeserved bad name resulting from the necronomists divorcing the symbols of time from the substance of time and failing to distinguish between the two. When talking about deflation, one should distinguish between

deflation of the current official symbol of production time--money--and
deflation of that which currency is supposed to symbolize--production time.

Deflation of currency means that the value of money increases in its buying power while deflation of time--as put forth herein--means the appreciation of what an hour of life--a lifehour*--is worth.

When policy-makers divorce the symbols of production from production itself illusions can and do develop. An example is the belief that inflation was whipped because of a record drop in the price index which occurred in Spring of 1982. Actually, inflation was not beaten; the focus of inflationary suffering was merely shifted from cheapening people's time through price increases to cheapening time through unemployment.

Top policy-makers are not alone in pursuing the symbols of time in ways that cheapen the substance of what one's time is worth. In the nature of wage-earning, the same duality exists and is followed in addition to usury. In recent years many people thought that they were progressing forward by pay raises; instead, they were merely pursuing the symbols of production. They could (and did) end up with fewer products for every hour that they worked or lived; in substance, their time was worth less. People received fatter paychecks that bought fewer products, even though they worked and lived the same number of hours as they did when they received thinner wages. The inflation of the 70's and 80's made each workhour and lifehour* worth less. This is the same basic reality that happened with the so-called deflation of the 1930's.

In terms what counts--the worth of the average workhour--the progression of the 1930 deflation and 1970 inflation were the same. Both were periods of inflationary suffering, i.e., the cheapening of human time. Only in the symbolic scribbled-on paper products (money) are these two periods of monetary instability different: deflation versus inflation.

During parts of the Great Depression, the politicians, bankers and necronomists allowed currency to be increasingly over-valued, appreciated or deflated. In the 1970's, currency was divorced in the opposite direction. To prevent the cheapening of human time from either deflation or inflation, the symbols of production should be married in a monogamous manner to production time: One should not be paid any more than what his goods or services are currently worth. Establishing currency stability requires eliminating the various forms of legisflation which legalize inflationary income.

Because people did not and still do not realize that the deflation of the 1930's was really a period of inflation--relative to the current worth of a workhour--people immediately do not want deflation. They assume that deflation means massive unemployment. This is only true with deflation of an official currency that is divorced from production time.

Deflation of currency need not be abhorrent and will not be when currency is kept constant and current with its namesake, time. If the money of a system of production is always lent so as to maintain and improve existing needed production, an economy will experience "productive deflation." As productivity improves, less production time is required to produce needed goods and services; prices will fall accordingly. By some accounts, a 1% rise in productivity will translate into a 2% drop in prices.

The advent of productive deflation requires three changes in existing political and economic institutions. Concisely stated with elaborations to follow, they are:

1. A price index measured in time, not currency.

2. A listing of all the available goods and services on a continuum according to a democratically derived basis of essentialness to human survival.

3. Tax reform to prevent stimulation of less essential business when essential production is suffering short-falls.

Applied concomitantly, productive deflation and employment stability would occur rapidly

A Consumer Price Index, the CPI, should not be measured in dollars and cents; these units are easily changed by human intervention. A more relevant and stable measurement is time, that is, how long it takes the average person to work in order to buy goods and services. Thus, prices would be measured in the substance, not symbols, of time, i.e., how long it takes the average person to work in order to buy the product. For instance if the average person spends seventy dollars on food each week and earns seven dollars an hour, his food costs in time would be ten hours. Regardless of which way prices and wages go, a time index shows whether the standard of living went up or down in the unit of measurement which is common to workers everywhere: time.

Construction of this index would not be hard, for many examples exist that compare standards of living between nations based on the time it takes to produce and own goods and services. For instance, the number of hours to buy a standardized "package of basic goods, [and] services" ranges from 75 hours in Chicago to 548 hours in Manila. Similarly, taxes are a matter of time, for the average person works the first few months of the year for the government, till May 10, annual cost in time which is the equivalent of 2 hours and 29 minutes per day. Once constructed, the people of a family, community, nation or civilization can tell whether they are going forward or backward by comparison of the index over months or years. A graph constructed of subsequent index measurements would show whether the amount of time needed for a basic standard of living is increasing or decreasing.

The second step toward productive deflation requires a democratic polling of the people as to the essentialness of the available goods and services. By essential, it is mean that which is needed to maintain the essence of human life. For instance, corn and water are more essential than whiskey or politicians. By using established statistical methods, random selections of the population could be assigned a limited number of products so as to establish the proposed continuum of essentialness. Anything less will not be a true representation of the people's needs.

Thus, when a monthly CPI is tabulated, it will be obvious whether production and productivity per capita is rising or falling in needed goods and services. If per capita production is falling in any goods or services, without a change in demand for the product, an inflationary price rise will be observed. This is another way of stating the law of supply and demand. Inflation is an index of product shortages more so than money surplus.

If a government is responsive to the people, it will not allow shortages and inflation in the essential goods and services. Thus, armed with a price index measured in time and with an essential/non-essential continuum of products, the government can set financial and tax rules to guide a continual, permanent rise in the standard of living. By maintaining and improving essential production, the basic needs of the people are met. ??.ce?By maintaining and improving essential production, the basic needs of the people are met.?.ce?? By not doing this, the government is more than likely allowing the development of non-essential services, to benefit a few, which comes by decapitalizing the essential production needed for the many. As ancient and contemporary history shows, such foolishness is a prescription for social turmoil.

This analysis of all goods and services as to their essentialness to human survival is a restatement of the analysis of what is a product, that is, what is "forward leading." If non-essential business activity cannibalizes essential production, then the economy is being reduced, i.e., lead backwards. The formal and democratic construction of a product continuum based on essentialness is fulfillment of a statement in the chapter on the capitalistic choice: For a nation, the standards of forward versus backward should be developed through a democratic process in which the needs of the people are represented.

When an inflationary cost is observed in essential goods and services (measured in workhour or lifehour cost) the government should dampen the business activity in the non-essentials through taxation which is the third step toward productive deflation. If a government doesn't dampen non-essential busyness activity, when needed, the economy will become imbalanced and teeter into collapse. Can a country thrive by catering to the non-essential desires of a few while depriving the majority of basic needs, e.g., cake for a few in a city of breadless masses?

Is the solution to depressed steel, rubber, auto, construction and agricultural industries to tax the citizens in order to provide financial subsidies to these essential goods and service, as is done presently. With a "subsidy-happy" government, the people lose in two ways. There is the loss of tax dollars to directly support essential production and there is the inflationary cost of bureaucratic waste. Bureaucratic waste consumes human resources that could be producing the needed products that experience shortage inflation. An example of support for basics is in the sugar industry, which has suffered numerous plant closings but which has a support system that is inflationary in nature.,

As a phrase, "productive deflation" does more than point to the role of increased productivity as the means to lower prices and appreciated lifestyles, for it implies an opposite; the present policy of the Reagan Administration generate counterproductive deflation(or disinflation). Counterproductive deflation uses unemployment and recessions to prop up the value of a currency suffering inflation. These attempts to lower prices are counter to production; thus, the policies pursue counterproductive deflation. Between the two means to deflation, which has been the policy of recent U.S. presidents?

The use of unemployment to fight price rises and to increase the value of the symbols of time (money) cheapens human time. It should not come as a surprise that the vested powers chose to use unemployment, since their wealth is in symbols, not in the direct production value of their time. People possessing a lot of symbols will seek laws that appreciate the symbols (deflation of currency) even if it means cheapening the value of other people's time through unemployment.

American production presently suffers because economic policy-making is not controlled by the people who must have production time in order to survive. Rather, America is controlled by people who have numerous symbols of time (currency, stocks, bonds and real estate) which they want to appreciate without putting any more production time into them; at the top are Reagan and Regan. Attempting to appreciate the value of anything without putting more production into it is the crux of all inflationary bubbles which cause them to eventually burst.

As with all inflationary bubbles, attempts at getting something for nothing are illusions that can last only for a short while before the pyramids collapse. When economic policy-makers use unemployment to prop up the value of currency (counterproductive deflation), they are building an inflationary bubble; they are trying to get something for less than nothing, that is, wealth from less production. The bubble will burst.

Bankers' Despotic Decapitalism

Why hasn't America had the benefits of productive deflation over the years? At times, it did, for in the fifties and early sixties productivity gains increased the standard of living. Since then, a lot of "get rich quick" schemes have arose within the banking community involving the manipulation of scribbled-on paper products. As a result of these new financial shell-games, people's time and energy have been soaked up from activity that is more productive of needed goods and services.

An example of additional wasteful scheme is usury. The basic producer--who is also the basic lender and who depends on production time in order to survive--has not directly controlled where his savings have been invested. Producers have increasingly allowed bankers to pay them usury interest on their money which has not been lent for maintaining production. Instead, the money has been lent for getting more dollars for the bankers, the modern money-changers whose wealth depends on symbols.

An example of the latter, as well as an example of additional shell-game in the economy, is the rise of speculators competing against producers for the available loan funds: Under which speculative buy lies a return? If all the speculative loans could be eliminated, the cost of production would be less with a resulting drop in the price of goods. For instance, if all the people speculating in farm lands and farm commodities were not allowed to borrow money, farmers could borrow money at reasonable rates for their seed, fertilizer and fuel. This cost savings would be passed on to consumers in lower prices.

The money of America has not been lent to benefit the original lenders of the money--the savers--but to benefit the needs and desires of the middleman bankers, e.g., bonuses, branches and tennis classics. This over-centralized control of the currency in America merely proves once again the historical fact that despotism (over-centralization of power and responsibility) causes problems or ignores problems.

Despotism within the banking community has reared its ugly face in the form of bankers lending American dollars to the highest bidder regardless of the production consequences. Increasingly, the highest bidders are foreigners who clearly indicate that they are going to acquire, streamline and vivisect American production, e.g., Seagram. In light of the banking omnibus law that promises more interstate banking and more small bank closures, is the despotism of bankers' decapitalism a thing of the past? No. Will America have the lowering of prices due to increased productivity (productive deflation) or have the higher prices of sinflation?

Producers' Democratic Tuning Of Capital Use

America needs a banking system that can provide financing for all levels of production, from the individual through local (zip), community (district), and national levels. The present system pools the money of all units and auctions it off to the highest bidder, leaving some communities nearly bone dry, e.g., Houston, MO. The main vehicle by which currency is dislocated from communities is the federal funds systems in which banks place their excess reserves for sale to other banks. A financial system that pits local units against local units to the detriment of all except the pit masters (bankers and brokers) is a despotic system that must be change. Otherwise, the system will go broke: you can bank on it.

America needs a financial structure without the necronomic, decapitalistic nature of the present banking system. America needs a financial community that does not have record levels of income each time that the prime rate goes up; America cannot survive 25% prime lending rates regardless of how many millions the bankers make as a consequence. America needs a financial system that promotes greater profits on real production. Does America need more bank-backed, financial killings which come from manipulating the symbols of production so as to vivisect the substance of productions, e.g., takeovers and streamlining?

America needs a financial system that promotes capitalism as a means to lower the cost of living and to raise the standard of living. America needs "democratic tuning" of people's excess capital so as to maintain and improve production on which their standard of living depends. With democratic tuning, America would have productive deflation in which each hour of life appreciated in value as productivity per capita is maintained or improved.

The following is a rough outline for how America could have productive deflation through democratic tuning. In each zip code area, a bank should be established in which the directors are elected from the savers on a regular, non-incumbent basis. Half of the savings would be lent by the directors to activities within the zip code area so as to improve productivity of the products and thereby lower prices. By the directors being elected directly by the savers, the local investments would be responsive to the needs of the savers: democratic tuning. The investments at this level could be inexpensive loans for consumer goods such as cars and appliances or loans for homes or farms.

The other half of the savings would be forwarded onto higher levels of the financial system. At the district level, the savings from all the zip codes would be pooled with the directors lending out half to activities within the district based on perceived needs and improved productivity. The district directors would also be elected on a frequent, non-incumbent basis so as to have democratic tuning of the savings. The investments at this level would be involve bigger projects, e.g, food processing or light industrial manufacturing.

Regional units consisting of several districts would be established for pooling the money from the districts so as to respond to the needs that require more money than a zip or district level of savings could provide, e.g., auto, lumber or steel. At the next level, the national bank would receive half the money collected by the regional units, to be used for large projects that benefit the nation, e.g., the construction of cheaper planes, tanks, destroyers, railroads or interstates.

A number of positive principles can be cited which the above framework observes and institutes. The use of regular elections in which no incumbency is allowed will result in the election of directors that are more responsive to the needs of the people than habitual money-changers. The lending guidelines for these directors would be the consumer price/time index and an essential/non-essential continuum of products as determined by the people. The resulting democratic tuning will maintain productivity in existing, needed production so that prices will eventually fall: productive deflation.

This proposed financial system recognizes the need for various sizes of loans, from small personal loans to multi-million dollar national loans. Unlike the present financial system which provides this range of loans, but which pits economic units against each other, the pooled savings are proportionally and democratically lent to the economic units of which they are apart. This system, tentatively called a "Savers Mutual Fund", would never lend money to foreigners for putting Americans out of jobs and homes.

The pooling and halving of the savings between the immediate and larger unit of the Savers Mutual Fund institutes the essence of the word "profit". By the savings being divided between the immediate and larger needs of the savers, the economy will go forward on all levels. Presently, the savings of the small person are being collected for huge loans which crowd out the small businessman. A Savers Mutual Fund would promote balanced growth of an economy.

The directors within this Savers Mutual Fund (SMF) will be elected from the savers and will serve after their normal working hours. This network will be designed to be a cooperative using the members. Now, some may say the average saver lacks the wisdom to deal with the complex world of finance. First of all, can it be said that the existing bankers are all that astute in productively dealing with the finances of humanity? Evidence for the inflated opinion of the financiers is in the failure of savings and loans, in the collapse of banks, and the third world debt.

With the onset of the SMF, a whole new ballgame will exist in banking for two simple reasons. The directors of the SMF will not speculate for income from the various financial scribbled-on paper products concocted by the necronomists, e.g., call money, commercial paper, bankers' acceptance, eurodollars, treasury bills, stocks, bonds or currency exchange. Secondly, the advent of a SMF will prompt a run on the existing banks which will bring the demise of these financial instruments that soak up and waste the savings of America.

The withdrawal of funds from the existing banks will occur because a Savers Mutual Fund will offer more buying power as the following example shows, which will be the impetus for people switching. The rationale for most people joining a SMF will be the refinancing of their homes and loans at a much lower interest rate. Consider the difference in monthly payments between a $36,000 home loan financed at 12% and 0% for 30 years: $380 and $100. Suppose you had a 12% mortgage and suppose you could refinance it at 0% if you would save the difference, $280, with the refinancer at 0% for the duration of the loan? You'd be a fool not to. Under a 12% loan you'd have only a home to show for 30 years of paying out $380 a month whereas agreeing to the conditions of the refinancer, you'd have the home plus $107,800 (360 x $280).

A Savers Mutual Fund could be started using the above rationale with a few qualifications. The first requirement would be that you not only save the difference between your old or new payment at 0% but 7% of your gross income. This additional 7% will be used to refinance other high-interest loans which in effect would amount to switching some of your existing savings to the SMF. Before arguing that you will be losing money by switching from a high interest savings account to a zero interest account, recognize how you will be in effect receiving $280 a month interest on whatever you save.

An additional qualification is that the Savers Mutual Fund be established as a quasi-governmental agency with the directors and other personnel receiving tax-credits for their part-time work in bringing down interest rates. This would come under the requirement of rebalancing the tax system for more productive stimulation of the economy. As such, the SMF would be no different than similar agencies that use tax dollars for overhead, e.g., the federal land bank and the emergency loan funds. Nor would the SMF be different than the banking system which has a negative rate of taxation as well as tax-dollars covering the cost of processing checks and check floats privileges through the Federal Reserve System. Wouldn't the capitalization of America fare much better if this tax-support were geared toward low-interest banking activity?

This thumbnail sketch describes how lower interest rates could be achieved by implementing principles that would bring about productive deflation. Productive deflation requires the elimination of inflationary attempts to get something for nothing and requires the institution of rewarding productivity. This will bring prices down in the long-run with full-employment, quite different than the short-term price-drops wrought by a policy of joblessness and recessions.

Warning: Anyone found stealing lifehours will be forever banned from participation in and rewards of Better Democracy and Capitalism.


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