Blog 19 Making Money: Making Change

Blog 19  Making Money: Making Change. Three Option

Option 1

Reorganizing some old files recently, I came on this argument for debt-free money (Italics mine.):

"Governments possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not, borrow capital at interest as a means of financing governmental work and public enterprise. The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but is the government's greatest opportunity.

"By the adoption of these principles, the long-felt want for a uniform medium will be satisfied The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power."

There has been a lot of scummy water under the bridge since these words from an essay on monetary policy were penned in 1865 by a not unknown American - by the name of Abraham Lincoln. 

I would note two things:  

First, Lincoln not only gave us what deserves to be called the clearest, simplest definition of democracy on record - "government of the people, by the people, for the people," but he left us also with this classic explanation of a critical truth:  that democracy depends on the government supplying non-debt money.

Second: we know, however, what happened on April 14, 1865. A President shot by a lone gunman who was soon shot down himself.  

Odd, that happened again on Nov 22, 1963!

But, on to 

Option 2 The Cashless Society, in which all transactions of any account are made using money created by and borrowed from private banks. We have almost reached this bankers'  dream in 2015.

Unsustainable, of course. Since banks do not create any money to pay the rent on the money they create as loans, the first source of rent money is more borrowing!  (Take another peek at Blog 5, on the growth imperative".)

Option 3

A calculated mixture of government money creation and bank money creation. 

Banks are great when the economy is booming. They fuel the boom with easy loans to keep it going.

But when the economy goes into a downturn, banks are counter-productive. 

They get edgy about making new loans in a slowing economy and they also call in doubtful loans. Both moves reduce the money supply available for the healthy operation of the economy. Anxious borrowers, too, pay back existing loans and borrow less. So everybody is geared up to gear down. The  result: a"credit crunch" (that means "shortage of money") which makes the economy slow further. You have heard of the vicious cycle.

 

                Dad, Why does the government bail out banks?

                   Because they ask.

                  That doesn't sound like a good reason.

                    No.  

So how to thwart a shrinking economy?. What is needed is new money - non-debt money - injected by government into projects or subsidies that maintain people's incomes. With an income, people are likely to keep spending, which keeps the economy active. Virtuous cycle, yes?)

Unfortunately, governments usually listen to the banks, who insist that the only solution is for government to borrow from them, pay them the interest, and wait for them to lend more money into the economy. 

How can governments be so stupid? There are several reasons. One is that governments are not as smart as banks when it comes to monetary policies. And, perhaps too, there might be some more specific means to bully, bribe or bamboozle politicians. 

A credible mechanism for governments to maintain the equilibrium between government-created and bank-created money is worked out in Michael Rowbotham’s The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics, 1998. The mechanism is based on the British economy, but is applicable to any government which is not controlled by its private banks.

Perhaps more of that in the next blog.