The friend’s analysis raises a second problem. Compared to allowing the government to emit
bills of credit at all, this is a relatively minor issue.
Consider: If
Say’s Law is allowed to function through the application of the real bills
doctrine, and government spends no more than it collects in taxes, ceteris paribus — everything else being
equal — (including democratic access to capital ownership as well as labor and
thus the capacity to produce), then the value of the money supply will exactly
equal the value of existing and future marketable goods and services in the
economy.
Given the operation of the real bills doctrine, then, the
money supply will always and in every case adjust automatically to the needs of
commerce. (The so-called “law of reflux”
on which the classical banking school economists relied to try and make their
case is a somewhat crude and partial recognition of this.)
If, however, the government abolishes all banks of issue and
the government or some other agency tries to guess how much money the economy
needs and the government emits bills of credit accordingly (as Henry Simons
proposed in his “Chicago Plan”), the money supply will not be
self-regulating. Except by chance, there
will always be either too much or not enough money in the economy.
There is also the problem that if an independent agency is
established to attempt and determine how much money should be added to the
economy periodically, the politicians will inevitably find some means to
subvert the agency and take effective control of the money supply, as Congress
did in the 1930s with the Federal Reserve.
The inability to come up with a way to prevent this is why Simons refused
to endorse his own plan, despite the urgings of many in the financial world,
Congress, and academia, including such disparate characters as Irving Fisher
and the Reverend Charles Coughlin.
In conclusion, binary economics is, in part, based on the
absolute necessity (a need growing more critical with each passing day) of
restoring the institution of private property fully and democratically in our
society, and tying all money creation directly to the present value of future
marketable goods and services through direct and widespread private property in
capital.
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