Should the Federal Reserve establish a two-tiered interest structure that sharply differentiates between participatory and productive uses of credit and exclusionary and/or nonproductive uses of credit? Under such a system, the first or higher tier, as at present, would be based on market-determined yields on already accumulated savings available to the economy ("old money"). Interest rates on old money would contain whatever "inflation premium" is appropriate to offset the direct and indirect inflationary effects of present monetary, fiscal, employment and income maintenance policies. The lower tier would be based upon "new money" created exclusively for financing private sector capital expansion in ways that democratize access to future capital ownership and profits, a counter-inflationary process the Center for Economic and Social Justice calls "Capital Homesteading."10 As illustrated below, Capital Homesteading would provide all citizens with access to self-liquidating capital credit to purchase new and transferred capital secured by future profits of viable enterprises, as opposed to limiting such access to the fortunate few who own most of today's’capital.

The lower tier of expanded bank credit for Capital Homesteading projects would be grounded on a Federal Reserve discount rate or "service fee" of 0.5% or so to cover all central banking costs. The markup above each bank’s cost of money would be market-driven, based wholly on (1) the risk of loan default (the "risk premium"), (2) the cost of administering the loan, and (3) a reasonable profit for the lending institution in competition with other lenders.

Part 6