Some Thoughts on Money, Part XI: Application of the Real Bills Doctrine

As we saw in the previous posting in this series, the real bills doctrine claims that it is possible to create money as needed without inflation if (and only if) the new money is backed by something that has real value and is used to finance something that generates its own repayment. Not only can this be done without using existing accumulations of savings, it results in a net increase in the productive wealth of the community. As Henry Thornton pointed out,

Country banks, also, as well as the Bank of England, have been highly beneficial, by adding, through the issue of their paper, to the productive capital of the country. By this accession our manufactures, unquestionably, have been very much extended, our foreign trade has enlarged itself, and the landed interest of the country has had a share of the benefit. (An Enquiry into the Nature and Effect of the Paper Credit of Great Britain, 1802, 176-177)

Thornton concluded that, "The paper has thus given to the country a bonâ fide capital." (Ibid.)

Not surprisingly, this same process can — and frequently is — used to "monetize" not just the present value of a future stream of income, but of existing inventories of marketable goods and services, as well as expected future inventories. If something has a definable present value, then it can be monetized before it has actual existence. The only thing absolutely necessary in this process is not existing accumulations of savings, but the ability to make promises and honor them. In this way an individual, a company, or even an entire country can start with absolutely nothing, and begin building wealth on a foundation of trust and solidarity, not the accumulated wealth of an elite few.

As we can see, the real bills doctrine embodies within itself the fact that, it is not human labor that generates the bulk of production, but capital. As both capitalists and socialists realize, no mere human can possibly have labor sufficiently valuable to be able to accumulate the incredible amount of savings necessary to finance capital. The socialists, as we have seen, claim that, therefore, the capitalist is a thief, stealing surplus value from the workers and the consumers. The capitalist claims that this is not theft, but the reward due to the godlike capitalist for his or her special abilities that make his or her labor tremendously more valuable than the run of the mill human being. In reality, of course, it isn't a question of how productive human labor is at all, but of how productive capital is, combined with the fact that capital can be financed without first accumulating savings, and that capital pays for itself out of its own future earnings.

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