A Tale of Two Economies presents nonpartisan solutions to our nation’s most difficult economic problems—our chronic deficit and spiraling debt, an eroding middle class, and the feeling most citizens report: that it is increasingly difficult to get ahead in life. The solutions in this book are presented as a proposed bill for Congress—the Financial Freedom Act—which is intended to free us from the many unnecessary shackles that are holding us back today.

 

The solutions stem from the fact that our overall economy is comprised of two very different economies, a material economy and a monetary economy. Our material economy is comprised of the production and consumption of goods and services, which form the basis for our standard of living. The monetary economy is comprised of the creation and trade of financial assets, which many assume reflects the condition of the material economy.

 

A small percentage of our workforce (~4%) works in the monetary economy, and among them there are some who generate great wealth for themselves without doing anything that adds to the general production of goods and services. Because of the wealth they create, they can consume a lot.

 

The magnitude of this problem is clear when we compare the sizes of the two economies. The size of the material economy is defined by our GDP—about $25 trillion per year. The size of the monetary economy is defined by the annual flow of money from the creation and trade of financial assets, which exceeded $9,000 trillion in 2022. The monetary economy, therefore, has a life of its own, it is not merely an overlay of the material economy. In fact, it is 350-times bigger than the material economy today, something that has never happened before.

 

During the two years of the pandemic, while millions were out of work, the supply chain was disrupted, and countless small businesses closed, the ten wealthiest men in the world doubled their net worth. It had taken them a lifetime to build their fortunes, but in those two years something happened in the monetary economy that could not have been tied to the robustness of the material economy, but which enabled them to double their wealth. In those same two years, the monetary economy also minted a new billionaire every 26 hours. How is this possible, and how does it relate to our economic problems today?

 

A Tale of Two Economies examines how the monetary economy is holding our material economy back today, and needlessly diminishing our standard of living. This is happening even as technology improves the efficiency with which we produce goods and services. Think of our monetary economy as a financial operating system. It needs upgrading just as the operating systems for computers need upgrading whenever their hardware advances.

 

Did you know that most of the cost of everything you buy today is due to our financial operating system? As a society, we want our financial operating system to improve our standard of living. We do not want our monetary economy to impede progress in our material economy.

 

It probably comes as no surprise that taxes rank high among the needed upgrades to our financial operating system. Our income taxes were implemented in 1903, over a hundred years ago. Our economy has changed a lot since then.

 

Under the FFA we would stop taxing income. We’d switch our tax base from the $23 trillion we collectively earn to the flow of money instead. Since over 99% of payments are in the monetary economy, a fee on payments would shift the burden of taxes from the production of goods and services to the creation and trade of financial assets.

 

Instead of the high taxes you suffer from today (~30 to 50%), the FFA would levy a minuscule 0.25% fee on the movement of money. This would be the only tax we would need! We can eliminate all federal and state income taxes, sales taxes, property taxes, capital gains taxes, inheritance taxes, excise taxes, and tariffs, simply by charging a tiny fee on payments.

 

Today, you pay $40,000 or more in taxes for every $100,000 you earn. Under the FFA, you’d only pay $250 for every $100,000 you earn. You can imagine how that would supercharge the material economy.

 

Simply by charging a quarter point fee on payments, we would go from a chronic deficit to an enormous surplus. In fact, we would collect enough revenue to fully pay off the national debt and give every adult citizen a basic income of $24,000 per year. We could even afford to provide free healthcare and college for everyone and still have a multi-trillion-dollar surplus.

 

We have been needlessly handicapping ourselves by taxing income—the lifeblood of our GDP and our standard of living. There is an ocean of untapped payments in the monetary economy that has been growing unfettered by the constraints that our material economy labors under. We have always had to struggle against the realities of the physical world we live in. Technology has done wonders to free us from those constraints. Now it is our own man-made rules that are holding us back. We can change those rules.

 

After taxes, the second aspect of our financial operating system most in need of an upgrade is our banking system. Our banking system was implemented in 1903, the same year as income taxes. The FFA would turn the Federal Reserve into a true central bank, owned by and for the people. It would eliminate fractional reserve lending, which artificially inflates the money supply, causing inflation.

 

The fact that banks lend out their customers’ money is the main source of risk in banking today, and the reason for many of our heavy-handed banking regulations. It is also why we have a cost-of-funds. Under the FFA, the Fed would be the source of capital that its member banks lend out. Thus, there would no longer be any cost of funds, as the Fed can generate reserves without cost.

 

Think about it. You end up paying the bank more for your home than you paid the seller once your mortgage has been paid off. It is the same for all the infrastructure in the supply chain. When a mine or factory is financed, or the vehicles delivering goods are financed, or a mall or shopping center is financed, the interest builds up over time and is reflected in the price you pay for every product on the shelf.

 

When you add the cost of interest throughout the supply chain to the cost of taxes, you can see how most of the cost of everything you buy is due to our financial operating system. We are paying more for our financial OS than we realize.

 

The upgrades to our financial operating system detailed in A Tale of Two Economies would enable all of us to enjoy a more prosperous life. It would also lead to a more robust middle class and stronger nation for years to come. The technology for the material economy to provide a higher standard of living is already here. It is our financial operating system that is holding us back today.