No
sooner had we explained that the whole idea of “debt free money” is an oxymoron
than we got a response patiently explaining that we just don’t understand what
we’re talking about. Not that we were in
any way annoyed. Every question like
this — even the same question repeated endlessly — gives us a chance to restate
what we’ve been saying all along. After
all, if the questioners can ask the same thing over and over without first
reading the answers we’ve given before, we can simply say what we’ve said before. You never know. Someone might actually read it this
time. Anyway —
“I repectfully
dissagree the state should create money but a special dept that would issue
money in relation to economic development made up of congressmen statititions
and economists would be in charge. There books would be open to the public.
Gertrude Cooper in the money creators as well as Fr Fahey both lay out what i
believe are good plans. Money creation cannot be left up to private bankers.”
Again, we didn’t
change any of the spelling or punctuation.
We enjoy creativity in these matters just as much as the next
person. It helps keep us on our toes
trying to figure out what someone is talking about. Fortunately, we’re very familiar with the
thought of the accepted experts in the field of “debt free money,” the Jooz,
and the Gnomes of Zürich, so we can usually figure out what someone is trying
to say, even when he or she doesn’t seem to clear on it him- or herself.
Anyway,
what the questioner describes was essentially the proposal Henry Simons made in
the 1930s (the “Chicago Plan”). Irving
Fisher and Father Coughlin urged Simons to endorse his own proposal, but he refused.
Simons’s reasoning was that he could not figure out a way that the politicians
wouldn’t take over the special department, i.e.,
“Who’s guarding the guards?”
“Gertrude
Cooper” threw us for a microsecond, but then we recalled the works of Gertrude
Coogan, a monetary theorist whose works we’ve read, and that we have on our
shelves. Coogan may be the most
consistent and honest of the “debt-free money” school of money, credit,
banking, and finance . . . which does not mean that she was either completely
consistent or honest in her thought.
Coogan’s
position was, obviously, that money is a non-repayable debt the nation owes
itself. In that, her thought is
essentially a precursor to Keynesian “Modern Monetary Theory” or “MMT.” MMT developed out Georg Friedrich Knapp’s “state
theory of money,” also known as “chartalism.”
 |
| Keynes's monetary mentor. |
Chartalism
was a proposal to impose socialism by manipulating the money supply by disconnecting
it from private sector assets. The whole
of the money supply would consist of currency, and be backed exclusively with
government debt. Fr. Denis Fahey’s
position in his book Money Manipulation
and Social Order was essentially the same. Again, Dr. Harold Moulton refuted this
position in The New Philosophy of Public
Debt (1943).
MMT,
chartalism, or whatever you want to call it, is based on the currency
principle. The basic assumption of the
currency principle is that the amount of money determines the velocity, price
level, and number of transactions.
In
contrast, binary economics and Moulton’s theories are based on the banking
principle. The basic assumption of the
banking principle is that the velocity of money, the price level, and the number
of transactions determines the amount of money needed.
Both
the currency principle and the banking principle thus comply with the Quantity
Theory of Money equation, M x V = P x Q, where M is the amount of money in the
system, V is the velocity (the average number of times each unit of currency is
spent), P is the price level, and Q is the number of transaction. The similarity ends there, however, for the
currency principle and the banking principle result in different
interpretations of the Quantity Theory of Money equation.
In
mathematical terms, the currency principle assumes a single independent
variable, the quantity of money, and three dependent variables in one equation,
which doesn’t make sense mathematically. The banking principle assumes three independent
variables (velocity, price level, and number of transactions), which makes
sense mathematically. In short, the banking principle is based on the common
sense observation under Say’s Law of Markets that the amount of production
(supply) determines demand, and demand its own supply; “money” derives from
production/income as the medium of exchange, production/income does not derive
from money.
The bottom line, however, is power. When people depend on the State or an employer for the means to carry out transactions or even their income, they become dependents of whoever gives or pays them the money. When this is implemented as a usual thing, as Douglas advocated, it imposes a condition of permanent dependency. People become “mere creatures of the State,” or economic slaves.
The bottom line, however, is power. When people depend on the State or an employer for the means to carry out transactions or even their income, they become dependents of whoever gives or pays them the money. When this is implemented as a usual thing, as Douglas advocated, it imposes a condition of permanent dependency. People become “mere creatures of the State,” or economic slaves.
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