A focus on intellectual capital within a 21st century American information society shifts power and control from business owners and capitalists to individuals and entrepreneurs. Capitalists and corporations no longer own the means of production; individuals are now the owners of the means of production in an information society with a knowledge-based economy.
Such a drastic change has enormous implications for current monetary policies within the U.S. Current U.S. monetary policies are set by the Federal Reserve whose function and mandate is to maintain maximum sustainable employment and price stability within America writes John M. Berry in his article Fed Not in It to Back a `Strong Dollar' Policy. Here’s where America’s current economic problems really begin – monetary policy.
As I discussed yesterday, current social policies are based on macroeconomic theories developed during America’s industrialization period. These assumptions are outdated and do not apply to an information society with a knowledge-based economy. Monetary policies are no different.
Powerful banking interests in the U.S established the Federal Reserve in 1913. To fully comprehend how America arrived at this point, you must examine the history that lead us here – major people, events, decisions, politics, etc. Such a description is too long for this post, but it is worthwhile to read. An excellent resource is Murray N. Rothbard’s work The Case Against the Fed.
The Federal Reserve is nothing more than a central bank. Banking institutions do not create anything. Their sole purpose is to warehouse paper money, yet they control all the U.S. money supply through the Federal Reserve System of banks. The Federal Reserve actually creates money from thin air through a printing press. As I have already established in my previous post, money itself has no value. The real wealth of a nation is based on its productivity. However, if you’re a bank and you only have paper money, then somehow value must be created, whether real or perceived is immaterial, in order to make more money. Money, then, becomes the commodity. Unfortunately, this commodity has no real value – in the end it’s just worthless paper. Banks have self-interest, and that interest is in creating more money. However, when our government allowed the Federal Reserve to decouple the American dollar from the real value it was supposed to represent, that was the beginning of the end.
I don’t want to push conspiracy theories as explanations for why we are here, but there seems to be a certain truth to some of their ideas. People have self-interest as their motivation. It’s commonplace for government and business leaders to shroud self-interest with public interest. The result is to serve the public interest through the invisible hand; a term created by the classical economists Adam Smith in The Wealth of Nations in 1776. Smith demonstrated that, in a free market, an individual pursuing his own self-interest tends to also promote the good of his community as a whole through a principle that he called “the invisible hand”. He argued that each individual maximizing revenue for himself maximizes the total revenue of society as a whole, as this is identical with the sum total of individual revenues.
Smith's Wealth of Nations represents the first serious attempt in the history of economic thought to divorce the study of political economy from the related fields of political science, ethics, and jurisprudence. Here’s the problem – the U.S. economy is not divorced from politics and government. The U.S. political economy is tightly integrated through a marriage of business and government. In its current condition, it simply doesn’t work. It’s broken and it must be fixed.