Essential CGB System Features for an Ideal World.
(The essentials for democratic economics, sustainability, and economic justice)
- All CGB (net) profits go to nonprofit organizations, to serve the common good. Redirects wealth to leverage funding for the common good. (I(I) Design Principle #4. See also the reasons for #13 No unearned income, below, and the section on "How to Fund Nonprofits" in Let's Create Money As Debt!.)
- Community divisions. Meaningful participation by everyone is only possible at the local level. Community-level decisions requires community-level accounting.
- Participatory budgeting for investments. (Design Principle #3)
- Members accept some amount of personal responsibility for those investments. (See Design Principle #5 Aligns individual profit with profit to the community.)
- Participatory budgeting for distributions of profits. We want to develop a culture of giving and train people to think well about the common good. (See Design Principle #3.)
- Election of directors and control of other broad policy decisions by direct democracy (Design Principle #3.)
- Internet based (self-service and automation). This will help make the CGB system cost-effect and will allow it to scale up rapidly (Design Principle #6).
- Merchant tithes to the community (Sales tax — with different rates for different products and services). A tax on consumption makes sense because it aligns cost to the individual with cost to society. The amount of tax on a particular product or service should eventually reflect the cost to society of that product or service. For example, the tax on oil or gasoline should be sufficient to cover the (astronomical) cost of producing new oil. The tax on liquor should be sufficient to cover the societal costs of alcohol addiction, alcohol-related accidents, and alcohol rehabilitation. For now the merchant tithes are optional, but they can easily be made mandatory for particular products and services, in a community where the CGB system is dominant.
- At least half the profits and merchant tithes are given outside the community. (See reasons for #1 and #5, above.) This feature has been controversial, but it is essential. This is the means by which distribution of wealth is kept balanced. In general, wealthy communities will have larger profits to give away than poor communities, so wealth will gradually get redistributed more evenly.
This feature is also the underpinning for community discussions about the greater good of ALL. It is the centerpost in a Culture of Giving.
Charitable giving is properly the business of everyone. But humans will rarely deny their own self interest, unless in the context of community. We support each other in fulfilling our responsibility to others, by exercising that responsibility together.
- At least one tenth of the community's lending capital must be invested as philanthropic risk-free, interest-free (inflation-rate) loans to other community divisions at their request. (See reasons for #1, #5, and #9, above.) Along with the requirement to gift half the profits and merchant tithes outside the community (#9 above), this feature will tend to redistribute wealth more evenly and will nurture a culture of giving. The lending community can optionally earmark funds for specific projects that the target community has approved. The target community will normally charge a higher interest rate when lending to such a project, sufficient to cover the risk. If that project fails and defaults on the loan, the target community must nonetheless repay the lending community, from the target community's loan-loss reserve.
- Transparency / open-source. (Design Principle #7.)
- Anyone can participate. Democracy means participation by everyone (Design Principle #3).
- No unearned income to individuals: no more than 0% return in real terms, no excessive salaries or benefits. Since excessive compensation does not increase the amount of goods and services available, that excess entails inadequate compensation for someone else. An economic system (such as our current global economic system) that rewards wealth (ownership) creates a vicious cycle. Faster and faster, the wealthy become wealthier and the poor become poorer. More and more people starve to death. We want a sustainable system that benefits everyone. (See Design Principles #1 and #6.)
- High security, including secure redundant distributed infrastructure. Security is essential, in order to maintain the integrity of the system and public confidence in it. Corruption or loss of data leads to loss of confidence, resulting in devaluation of credit or (in the worst case) mass panic. We must ensure that that will never happen.
- Communities create the money they need. (Design Principle #2 and #4)
- Money is created as debt -- either as a loan or by the community spending it into existence. This assures that the amount of money in circulation expands and contracts as needed.
Spending. A Common Good Community can create mutual credit by spending it into circulation, provided that the money so created is treated as a liability (to the wider Common Good Economy) balanced by tangible assets. For example, the community can create mutual credit to purchase saleable or income-producing assets, such as a local power company.
Lending. Borrowing money against an intended socially productive activity puts an amount of new money into circulation sufficient to pay for the goods and services that the borrower needs, pending fruition of that activity. Once the borrower's customers have consumed an equivalent value of the newly-produced goods or services, the loan is repaid and the money vanishes. (See also Let's Create Money As Debt!.)
- Fractional reserve or other sensible formulae for limiting how much money a community can create (see also Why will use the fractional-reserve system?). Fractional reserve lets a Community Division create money in proportion to how much credit its members have saved — that is, what they have produced beyond what they have consumed. Socially responsible behavior is rewarded by granting credit toward additional productivity. This is analogous to giving an individual a credit line sized in proportion to the quality of his or her credit history.
As an automatic limit, this is sensible. But what about special cases, such as an impoverished community that has no bad credit history, but very little savings? Shouldn't they be able to build a $10 million cooperatively-owned power plant, just like a wealthier community, even though they have only $10,000 in savings?
The danger of course is that the project will fail and the community will consume $10 million in goods and services without ever producing $10 million worth of power. Someone would have to accept responsibility for that risk. The community itself is not able to, so other communities would have to accept the risk. And if other communities are accepting the risk (as a gift to the impoverished community), then THEY should be the ones to decide whether or not to fund the power plant. The fractional reserve limits make sense even in this special case.
The CGB system allows for the possibility of wealthy communities investing in poorer communities, by letting communities invest in anything they want — including a cooperatively-owned power plant in some impoverished other community. In fact, communities are REQUIRED to invest a percentage of their lending capital outside their own community (see #10 above). They are also required to give half of their profits away outside their community (see #9 above) — for example to reduce the interest rate on a loan to another community's cooperative power project.
- Indiduals and organizations with excessive income or assets will be expected to contribute that excess to the common good. (See the "Money Destruction" section of Let's Create Money As Debt!.) Note that the contribution is to be "expected" not required. This leaves open the possibility that a community could go further and require such contributions.