Academic journal article The Journal of Social, Political, and Economic Studies

Capitalism's Deepening Crisis: The Imperative of Monetary Reconstruction

Academic journal article The Journal of Social, Political, and Economic Studies

Capitalism's Deepening Crisis: The Imperative of Monetary Reconstruction

Article excerpt

At one level, a world consensus has come to favor the market economy, and yet the recurrent economic crises to which such an economy is subject have again come to pose an ever-deepening threat to its legitimacy (i.e., its acceptance within a society). The Great Recession that began in 2007 illustrates, as have many crises before it, the insufficient financial foundation that has long been questioned by thoughtful commentators from both Right and Left. The insufficiency will become increasingly apparent as non-laborintensive technology continues to move the world away from remunerated employment for many millions of people. That is the context in which this article explores the author's thinking about (1) the crisis just mentioned; (2) the proposals for monetary reconstruction set forth, especially by a number of prominent economists, in "the Chicago Plan" in 1939 and by the American Monetary Institute today, involving a move away from fractional reserve into full reserve banking and shifting money-creation from the banking system to a governmental Monetary Authority; and (3) why it is desirable, indeed vital, that the money that is created be used to establish a "shared market economy" that will both support a vigorous market economy and establish a system of broad income distribution. Such a use would differ substantially from the uses (many of them highly desirable in themselves but geared toward governmental activism) proposed by the American Monetary Institute, which has been leading the way in support of the Plan.

Key Words: Crisis of capitalism; Monetary reconstruction; Chicago Plan; American Monetary Authority; Irving Fisher; American Monetary Institute; Anthony Zarlenga; Dennis Kucinich; Shared Market Economy; Fractional reserve banking; Full reserve banking; Government creation of money.

I. Capitalism's Expanding Crisis

Since World War II, a world consensus has come into being in support of the market economy (i.e., "capitalism") as by far the most innovative and productive economic system. Democratic socialists in Europe abandoned their opposition to the private ownership of capital soon after the war, as we saw in Germany where in 1959 the Bad Godesberg Program made a sharp break with Marxism and public ownership. (Later, we will see how in 1960 F. A. Hayek noted this abandonment of strict socialism.) The collapse of the Soviet Union and its satellite empire, and the move of Chinese and Vietnamese Communism into market systems, contributed enormously to the world consensus. (This is not to say, of course, that these are free markets as envisioned by laissez-faire philosophy, since there is most often considerable government involvement, especially at the "commanding heights.")

The Great Recession that began in 2007 has, however, served as a potent reminder of a fact that serious commentators on both the Right and the Left have long taken quite seriously, leading over the decades to an abundance of theories about what ought to be done. This is that market economies are prone to recurrent "business cycle" crises - crises that always cause painful dislocations to individuals, families and firms, and that sometimes are so severe that they threaten the continued existence of a market system. With the severity of the most recent collapse, it is apparent to many serious observers, as it was during the Great Depression, that "capitalism is in crisis."1 In view of the world's recent consensus in favor of the market economy, it is perhaps safe to say that such a situation is no longer tolerable to either the Left or the Right.

What we see is the old conundrum: dislocation, failure and much personal misfortune at the very same time that there is immense and increasing productive capacity. The situation is not unlike that of a man who, in otherwise perfect health, is imperiled by a gushing artery.

On top of the long-standing problem of the business cycle, market economies (and indeed economies of any kind) are now confronted with a rapidly developing force that portends a displacement far beyond anything seen before. …

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