As we saw in the previous posting in this series, there is a source of financing apart from existing pools of savings, "savings" being construed as unconsumed wealth. This additional source of financing consists of wealth that has not yet been created, as opposed to wealth that has been created and remains unsold or unconsumed.
Obviously wealth to be created in the future does not exist in the present. If, however, we assume that the individual or business will produce the wealth at some point, we can measure that assumption and quantify it in terms of money. Our assumption rests entirely on how trustworthy we believe that individual or business to be, and our assessment of the individual's or business' ability to make good on the promise that he or it will, in fact, produce wealth in the future. Remember (and this is important, and the basis for refuting Keynes' basic assumptions) — nothing exists in the present except our trust in the promise of that individual or business. Will the individual carry out the necessary tasks to produce the wealth? Will the business exist to do the same? This is the most important question that must be answered before we can place a present value on what is to be produced in the future.
Of course, Keynes also relies on trust, but a much less acceptable kind. Keynesian economics rests on the unspoken assumption that the State will continue to exist, and that it will continue to have the power to print money at will, and be able to coerce future generations of taxpayers into paying for present consumption. This means that future taxpayers must necessarily be empowered with the means to produce so that they have the wealth to repay the debt incurred by today's consumers.
Since future taxpayers will, consistent with Keynesian economics, be in the same position as today's consumers, it is highly unlikely that the debt can ever be paid. In all likelihood, it must be passed on forever to future generations until the State goes bankrupt. The United States is still suffering under the burden of debt incurred to finance the Keynes-designed New Deal two generations ago, while the bankruptcy of Social Security, the largest surviving New Deal program, is predicted within the current generation.
In any event, the "Real Bills" doctrine allows us to take a promise to produce wealth in the future (as opposed to the Keynesian promise to spend wealth at present) to a commercial bank. The bank makes a conservative determination as to the present value of promise, and creates that amount of money. In exchange, the bank takes a lien on the future production to that amount, plus an amount to compensate the bank for whatever risk is assessed, and a just profit for providing the service. These last are considered part of the cost of the project, and are taken into account when determining the present value of the promise so that there is no question of a banking taking back and destroying more money than was created.
Thus, under the "Real Bills" doctrine, we can create money "out of nothing" . . . if by "nothing" we mean the present value of wealth that we reasonably expect to be created in the future out of the productive potential of the individual or business to which we loan the money. Given that, there is no excuse for employing the bizarre Keynesian techniques that, in effect, try to get something for nothing, when we have the power to engage in production and provide for everyone's wants and needs simply by exchanging promises quantified in terms of money and making good on them.
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