Author’s Note: To the issue of funding a basic income, what follows is a proposed rethinking and update about the nature and purpose of money in order to better support the disruptive changes that are likely to be seen in the job market and general economy in the coming decades. This is a multifaceted issue, the components of which must be considered concurrently, so please be wary of drawing premature conclusions.

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The central premise of this article is that current economic challenges derive largely from a monetary philosophy that has failed to keep pace with evolutionary changes in the general economy and in society at large. As a medium of exchange and store of value, money has been with us for so many millennia that substantial mythology and superstition — sometimes bordering on religious reverence — have built up around it. Money is functionally treated as a fundamental, immutable force of nature, therefore it can be difficult to conceive of it operating in any way other than it currently does. Yet money is an entirely human-created institution. Like modes of housing, energy, transportation, or medical practice, money is capable of being reinvented to better meet the needs of an evolving society.

One disruptive societal change is the accelerating pace of technological evolution — a change that can rapidly render a large number of industries and jobs irrelevant. Another is the speed at which production can be moved around the globe in search of cost-savings. Yet another is the concentration of wealth that flows to some sectors and away from others, leading to growing economic inequality. These and other developments threaten to leave vast numbers of a population without means to provide for basic economic survival.

One proposed solution increasingly discussed and experimented with is the provision of an unconditional, universal basic income (“UBI”) for all members of a society. Not considered to be temporary aid, charity, welfare, or a safety-net, this is instead a basic floor of support, provided to all citizens throughout life — sort of like a dividend for their participation in a flourishing society. Even if only for practical reasons, such a proposal has support from members across the political spectrum.

However, considerations of a UBI typically encounter a number of reflexive objections — some legitimate, others based on illusion or misunderstanding. This paper addresses one of the most primary: “It’s too expensive — a budget-buster! How are we going to pay for it?”

The Robin Hood Problem

To date, most proposals for funding a UBI are premised on some sort of wealth transfer — essentially tax the “haves” in order to provide the floor for the “have nots”. While there are genuine practical and moral grounds for this approach and some reasonable means to implement it, still, it would likely be a lengthy, uphill struggle. In today’s political and socioeconomic climate, the control of wealth and the policies that regulate it are largely in the hands of a self-interested few — who, for a variety of reasons, would prefer to see the status quo preserved.

Rethinking Money

This is the point where some novel, radical, prune-it-down-to-the-roots rethinking is called for. This articles is intended to challenge conventional, habitual thinking about the nature and purpose of money.

While industry, culture, and the economy continue to evolve and grow more complex, our conceptions about the nature of money have not — at best, being fixated in feudal times. Today, money serves two functions that are increasingly in opposition: it is both a medium of exchange and a store of value. The more that money is used for one purpose, the less is available for the other. This tension is the primary driver of socioeconomic problems like poverty, growing inequality, lack of access to resources and opportunity as well as secondary problems like crime, addictions, depression and other psychological issues, and general social unrest.

A Very Brief History of Money

In earlier times, money came into existence as a means to facilitate commerce. Larger goods, fixed assets, or assets that would not be available until a future date, were difficult to trade at the marketplace, so currency tokens for the same were instituted as a convenience. Sometimes the currency token had commodity value in itself (gold, silver), sometimes its value was simply guaranteed by the State. All well and good. However …

Although the intrinsic value of monetary media itself was generally trivial (Rome actually soaked metal coins in vinegar to destroy any commodity value) the fact that these instruments could reliably be exchanged for value — moreover any value, not just the item it was originally issued as a token for — eventually caused money to take on a life of its own. Once value was abstracted from actual goods and services, and money became its store, money became the central focus. No longer a token for goods and services, a role-reversal occurred whereby goods and services increasingly became a means to obtain money.

Yet people continue to need goods and services. Accordingly, modern economies are in a perennial tug-of-war between those who seek to maximize the store-of-value function of money and those who seek to engage in commerce. Economic cycles of boom and bust, prosperity and recession largely depend upon who is momentarily prevailing in this struggle.

The two functions of money are largely reflected in the two sectors of the economy known as “Wall St” and “Main St”. Each of these has different needs and pursues different goals — the first being primarily focused on large-scale capital accumulating ventures, while the latter is mainly about daily commerce. Currently, both are vying for a common money supply, and the growing levels of inequality indicate that one is at substantial disadvantage relative to the other. Simply stated, store-of-value for a relative few routinely wins, at the expense of daily commerce for the many.

Recession in the Midst of Abundance

Apart from the two economies indicated above, money is also used to mediate the exchange of two basic types of value objects: those in limited supply and those whose supply and availability can be varied at will — that is, the supply being essentially unlimited. Land, lumber, minerals in the ground and the physical goods and other property that are constructed from them are obviously in fixed supply. In this case, store-of-value money is an effective means to apportion potentially scarce resources. To measure and price these with any medium of exchange is simple arithmetic. If the supply of the exchange medium increases (i.e. more money) thus increasing demand, the fixed supply of material requires that the price also goes up (a.k.a. “inflation”). Accordingly, the amount of currency in circulation for this type of value must be limited.

On the other hand, value objects that are not so tied to a physical medium — public and private services, healthcare, education, childcare, eldercare, transportation, entertainment, to a large degree the food supply — can be increased in supply with far fewer limitations. In principle, currency for these types of transactions can vary as needed, along with the demand.

Yet, when a single currency is used to mediate the exchange of both types of value, there is a tendency for it to collect and congeal on the physical property side, as those who are most adept at accumulating and storing the same, do so. This has the effect of progressively starving the social services side of the equation — requiring either austerity measures or more spending, hoarding, and eventual inflation.

The result is our current predicament: having more money in the economy than ever before, yet large sectors of the population continuing to struggle with chronic recession.

Financing a Basic Income Via a Complementary Currency

In view of the above dynamics, an ideal solution would be to separate the conflicting monetary functions by utilizing separate currency systems for each.

Regarding Main St vs Wall St, the current debt-based Federal Reserve currency system is well-suited to, and clearly effective for the latter — the large institutional, national, capital-seeking economy. Long may it continue!

The purpose of a basic income however, as the name suggests, is to facilitate commerce for the basic necessities of life — food, clothing, shelter, transportation, and the like. Large purchases and long-term saving and planning are not the focus of a UBI. These are better mediated using conventional Fed money.

Accordingly, in parallel to the existing Federal Reserve currency, it is here proposed that a complementary currency system be instituted, designed primarily for daily commerce, particularly serving individuals, localized economies, and small business. This currency would be optimized for commerce, and by design, de-optimized as a store of value. The intent is to keep this money circulating, doing productive work, and not sitting relatively idle in accounts. This is accomplished by issuing such currency as credit subject to demurrage rather than debt subject to interest.

Financing a Basic Income — Rationale for the Division of Function

As indicated above, this is the point in history where some unfettered creative thinking is required. For so many centuries, money has been utilized as a store of value, that it has taken on status as an object of value in itself. Thus, despite the relatively small cost of the actual production of the physical media, one cannot procure money’s symbolic value (“seigniorage”) without the exchange of something of real value — the selling of goods, property, or the earning through labor.

Here comes the paradigm shift: Note that the above value-exchange principle is tied almost entirely to the store-of-value function of money. Were a new currency not to be used as a store of value, it is then free to operate in a fundamentally different way.

It is significant to note that virtually all money-related social problems — crime, corruption, greed, inequality, recession, poverty, litigation, and the rest — all derive directly or secondarily from the store-of-value aspect of money. If a complementary medium of exchange were freed from this function (i.e. be specifically designed not to store value) we would expect an explosion of new economic activity, since all such currency is then available to circulate freely and perform work according to its medium-of-exchange function. Moreover, social problems like those cited above would be substantially mitigated.

When used to mediate the commerce of physical property, currency can be viewed as a direct token of equivalent value for the physical object it represents (e.g. a toaster oven or a $100 bill). Therefore, the amount of currency in circulation must be somewhat matched to the amount of physical property available for sale. Failing to do so results in inflation or deflation.

However, for goods and services less subject to physical limitation, the exchange media need not be viewed as a token of equivalent value. Instead, it is better conceived simply as a tool, a vehicle, or a public utility that enables a transaction to be performed. (Think of it somewhat like a transferable coupon.) Its supply can be increased or decreased to meet current need. Following are a couple of analogies:

• If a million-dollar home is to be built with 10 workers, 10 hammers and 10 saws may be needed. If 100 workers, then 100 of the same. The value of all hammers and saws need not equal the one-million-dollar value of the home. They are simply tools that are utilized in an amount sufficient to get the job done.

• If four people need to carpool to work, a mid-sized sedan is a fine mode of transportation. If 60 people need to do so, a bus would be required. While the vehicles themselves differ in cost, the value of neither vehicle is tied to, nor needs to be equivalent to, the value of the work produced by the riders.

• Like the money system, a highway is a piece of infrastructure that enables commerce to be performed. Yet the cost of the highway is largely independent of value exchange that it enables.

Similarly, a medium-of-exchange-only currency needs to exist only in sufficient supply to enable the necessary number of transactions to be performed. Like any tool, the total quantity in circulation can be varied to reflect the market needs of the moment.

Whereas a key metric for Fed currency is total amount — for example, the valuation of a business enterprise or the valuation of a transaction or the GDP of a total economy, the central focus of a medium-of-exchange-only currency is the speed of circulation. How many times does it change hands? If such currency is pooling in accounts, that indicates an overabundance of the new currency, which may then be removed through progressive demurrage.

Because such a currency is designed for smaller ongoing purchases, and because the income payments are made on a predictable basis, there is little need store the value. Major purchases that greatly exceed the value of the UBI payments are better transacted using the conventional central bank currency.

The Fiat Nature of Modern Money

The ability for a currency supply to vary dynamically may seem to run counter to common sense. The popular naïve view of money holds that it is in fixed supply, “printed by the government”, and each coin or bill intrinsically contains the value printed on its face. Burn a hundred-dollar bill and there is a tendency to assume that one hundred dollars-worth of value is gone from the economy. Yet note that today’s money (especially since the unhooking from the gold standard) is “fiat currency”. Except for coins and paper bills (about 3% of the money supply) money comes into and goes out of existence as loans are made and repaid. Accordingly, the total amount of Fed money in circulation fluctuates dynamically — controlled to a great degree by central bank interest rates. That is why a credit crunch can be so threatening to an economy.

Why the UBI Does Not Need to be Paid for In the Conventional Sense

Millennias-worth of history and habit have left us with deep conditioning that any economic endeavor has to be paid for with money that “comes from somewhere”. In past centuries, gold and silver were extracted from mines. Today, ventures must be financed with bank loans. Government services must be funded through taxation. This is all premised on the principle that to obtain something of value, an immediate exchange of equal value is required.

Note however, that behind the smoke and mirrors of the modern banking system, the vast majority of money in circulation comes from bank loans of fiat currency. Because of the fractional reserve principle, banks are currently allowed to loan out 90% more money than the funds they actually have in reserve. This money comes into existence “ex nihilo”, as if by divine fiat, when a loan is made — and disappears when the loan is repaid. (However, the fees and interest on that loan remain, and that is the fuel that drives the process.)

Because fiat currency has no physical existence or material value, in practice it functions more like an abstract token that simply enables a transaction to be performed. (The fact that smaller amounts of it can be exchanged for coins and bills supports the illusion of physical value.)

The point of the above is that the UBI system here proposed is not so radical a departure from what currently exists. The UBI money simply enters, flows through, and exits the economy by different means.

Implementation and Operation of a Complementary Currency UBI

While a detailed proposal for the creation and operation of a publically or privately issued, complementary currency-based UBI (let’s call it a “CUBI”) is beyond the scope of this paper, the following is an overview of the main features:

• Ideally issued by the Treasury, but might also be issued through a private entity with faith and credit approaching that of the Federal government (e.g. VISA, Amazon, Apple)

• An entirely electronic currency, held in citizen accounts at the above agency

• Accessed through smartphone or smartcard

• Initially set at value on par with the Federal Reserve dollar, though would float thereafter

• Products and services would carry a dual price tag

• To support acceptance, value would be guaranteed by the issuing agency

• … though intended not to be readily convertible to conventional currency

• Payments (roughly $1000) issued monthly. Similar to Social Security, but for all adult citizens

• User accounts are subject to a monthly demurrage (negative interest) charge of 1% per month — increasing as account balance exceeds particular thresholds

• Employees paid (and if CUBI is government-issued, taxes payable) up to a certain percent in CUBI dollars

A Society in Transition from Poverty and Insecurity to Opportunity

Many of the initial proponents of a UBI view it from a single-issue perspective: as a means to support disruptive technology and displaced workers, a means to encourage entrepreneurship, a means to eliminate or streamline government aid programs. However, we propose that benefits more fundamental and far-reaching are also likely to ensue:

Personal Economy:

• Support through life-transitions and retraining

• Workers not tied to unrewarding, underproductive jobs simply to pay the rent, but are freed to find work that better suits their talents and interests.

• … thus facilitating the emergence of novel value for economy and society at large

• Freedom from the zero-sum mentality that drives destructive competition, jealousy, divisiveness, schadenfreude, excessive social hierarchies, and antisocial acts driven by rage and desperation.

Commercial:

• Broader, more rapid pursuit of disruptively new technologie

• Mitigate negative effects of the “business cycle”

• Less pressure for business activity that simply churns dollars instead of creating real value

• Less pressure for media producers to focus on profit, pandering with content that merely “grabs eyeballs” for advertisers rather than informing and educating

Social Psychology:

• Reduction in psychiatric issues driven by economic desperation: depression, alcoholism and other addictions, ennui, learned helplessness, suicide, abandonment, abuse and other domestic problems.

• No one is one paycheck or unexpected major expense away from insolvency

• Freedom from fear of falling into abject poverty and homelessness

• … thus reducing motivations for criminal and other antisocial acts to mitigate the same

• Rather than feeling irrelevant and discounted by a system that favors the wealthy and “successful”, every person is now deemed valuable and “invested in” toward becoming contributing citizens

Societal:

• Support for social sectors that add critical value to society but are not profit-generating of themselves: public services, NGOs, childcare, eldercare, general education, fundamental research and exploration, arts and music programs, libraries, parks, nature conservancy among others.

Existential Crossroads

Any exposure to current local, national, or international news reveals a significant amount of chaos and breakdown in society and its institutions. However, evolutionary biologists observe that chaos and breakdown often precede the transition of major geological eras. In past times, this was largely driven by ecological factors. Today however, knowledge and technical ability have reached a stage where human activity is increasingly able to alter the social conditions and greater ecology upon which we as a species depend for survival — for good or ill. We propose that the ancient competitive, survival-of-the-fittest, winner-take-all paradigm for human activity — while greatly responsible for human ascendancy to date — has run its course. Like the evolutionary transition from simple, single-celled organisms competing in a hostile environment, to a more complex, multicellular organism capable of gene manipulation and extra-planetary travel, it is now time for a multi-cellular society in which each member is valued and enabled to make their maximum contribution to the grand enterprise of life.

We propose that a basic income is one humble, yet do-able initial step.

Bill Miller

November 2017