I'm going out of town for a few days, so I decided to make another post tonight. I'll try to keep up with everyone's blogs, but I probably won't have time to make another post for a bit. Rather than leave you hanging about alternatives to the Federal Reserve system, I'll sketch out my idea.
First, let's go over the Fed system in a nutshell. Despite its flaws, it does have some good aspects. For instance, it allows the money supply to be more fluid than fixing it to a single commodity, like gold. It also has a way to keep inflation at least somewhat in check: taxes which go directly into paying the national debt (which is really just a measure how how much the government has inflated the currency). I think we can retain both of these benefits while not slanting the system in favor of the people who regulate the money supply, and also with the benefit of tying the money supply to actual resources. The Fed money system lets money go off into its own mind and do all sorts of absurd things without much regard for the actual amount of resources available, and that's how it causes most of the economic problems facing our country as a whole.
Now, if we're interested in tying the money supply to actual resources, we should favor a tax on consumption rather than a tax on earnings. Lots of people do jobs that don't consume non-renewable resources, such as people in the helping professions who help their clients work through things rather than prescribing tons of drugs.
Here's the plan: first we repeal the Federal Reserve Act, re-asserting the power of Congress to coin money and regulate its value. With the Fed gone, there are two ways the government can affect the money supply: by spending money implementing programs and providing grants, and by taxing money and removing the money taken in this way from circulation rather than spending it. This allows the government to inflate and to deflate the currency, depending on the total sum of taxes vs. spending.
Next we create an agency whose sole aim is to assess the remaining known amounts of non-renewable natural resources in the country (as well as keeping estimates of how much of that resource remains on the planet). We implement a consumption tax. This tax is assessed against persons (corporate or human) who deplete non-renewable resources by using them in manufacturing. This would cause the price of consumer technology to go up, but it would also create an incentive to companies to seek renewable or widely available alternatives to the rare materials used in certain products. It would also cause people to think carefully before buying frivolous technology that depletes rare resources.
Manufacturers that re-appropriated resources from already existing devices that are no longer in use (such as old cell phones) and used them in the products they created would get tax breaks: the amount re-appropriated would be subtracted from the amount consumed when assessing their taxes. The new agency would carefully oversee this process, replacing income tax audits with something tied to reality.
Money taken via this consumption tax would be removed from circulation, but the amount would be carefully kept track of, and kept in mind when the government was funding new programs to help stabilize or increase the supply of renewable resources.
As a result of this system, things like recycling on a massive scale would suddenly become profitable. The amount of new money (inflation) created would be easy to keep careful track of, since it wouldn't be the province of a quasi-government agency that doesn't get audited. Transparency would be required at all levels of the resource regulation agency, and corruption charges would have to be taken very seriously, with severe enough consequences to prevent lower-level regulators from taking the fall for their bosses iniquities and receiving compensation for doing so. Further, money is no longer tied to debt, so no specific group automatically receives and unbalanced boon when they expand the money supply via interest.
Unfortunately, with the relationship of the two parties we currently have to corporate lobbying, it's very unlikely that a system like this would be implemented without drastic political change first. As a nation we would have to demand much more serious strictures against state corporatism, heavier and more frequent corruption charges, and the departure of the lobbying industry from national and state capitols.
I'm interested to hear your feedback on this idea. It's a new one, and it probably has some potential problems I haven't thought about (besides corruption of the resource regulation agency). I'd also be excited to hear anyone else's ideas for alternative monetary systems. My current favorite besides this one involves opening up the currency market to competing local and international currencies through non-enforcement of rules about what is and isn't legal tender.