Monetary reform

Some critics^[who?] discuss the fact that governments pay interest for the use of money which the central bank creates "out of nothing".^{[17][non-primary source needed]} These critics claim that this system causes economic activity to depend on the actions of privately owned banks, which are motivated by self-interest rather than by any explicit social purpose or obligation.

International organizations and developing nations

Some monetary reformers^[

• The total amount of public and private debt in the world is now between two and three times the amount of
  to whom?] that somebody will become destitute as a consequence of the money system rather than because of their own reckless behavior.^[20][22][25]

• It is not only individual persons and businesses that go bankrupt as a consequence of the fact that there is more debt than money in circulation. Many states have gone
  national debt has led to social chaos and even war in some cases.^[21][26]

• A major part of all new credit money that is created is spent on changing the ownership of existing assets rather than creating new assets. This process inflates the prices of assets, including real estate, factories, land, and intellectual rights. This makes living unnecessarily costly for everybody. It contributes to growing inequality and it makes the economy unstable because of the creation of asset bubbles.^{[27][23][28][22]}

• The exponentially increasing debt in society can only be serviced as long as the rate of economic growth exceeds the interest rate. This creates an imperative for perpetual growth in production and consumption. This leads to
  overconsumption and overexploitation of resources.^[29] The technological progress in labor-saving technologies has not given us more leisure as we expected, because of the necessary growth in consumption.^{[26][23][28][22]}

• The unpayable debt leads to bankruptcies of homeowners and foreclosure of their homes. This allows banks to replace their virtual assets in the form of money created 'out of thin air' with physical assets in the form of real estate.^[20][26] In 1968, a court in Minnesota decided that this practice was unconstitutional because the process by which the bank had created money from nothing was fraudulent (see First National Bank of Montgomery v. Daly).

Arguments against reform

Among the arguments for keeping the current system of money creation based on the

• Switching to an untested banking system that differs from that of other countries would lead to a situation of extreme uncertainty.^[30][31]
• A reform would make it difficult for the central bank to implement a monetary policy that secures price stability.^[31]
• The creation of money free of debt would make it difficult for the central bank to later reduce the money supply.^[31]
• The central bank would quite likely be subjected to political pressures for producing more money for whatever purpose is high on the political agenda. Giving in to such pressures would lead to inflation.^[31]
• The finance sector would be weakened because its profit is reduced.^[31]
• A reform would not offer complete protection against financial crises abroad.^[31]
• A reform would lead to an unhealthy concentration of power at the central bank. Critics doubt that the central bank can determine the required money supply better than the private banks can.^[30][32]
• The central bank may have to provide credit to commercial banks and accept the accompanying risk.^[30]
• A sovereign money system would stimulate the creation of
  shadow banking and alternative means of payment.^[33]
• In the traditional banking system, the central bank controls the interest rate while the money supply is determined by the market. In a sovereign money system, the central bank controls the money supply while the market controls the interest rate. In the traditional system, the need for investments determines the amount of credit that is issued. In a sovereign money system, the amount of saving determines the investments. This change of influences will generate a new and different system with its own dynamics and possible instabilities. The interest rate may fluctuate as well as the liquidity. It is not certain that the market will find an equilibrium where the liquidity is sufficient for the needs of the real economy and full employment.^[34][35]

Alternative money systems

Government Control vs Central Bank independence

To regulate credit creation, some countries have created a currency board, or granted independence to their central bank. The Reserve Bank of New Zealand, the Reserve Bank of Australia, the Federal Reserve, and the Bank of England are examples where the central bank is explicitly given the power to set interest rates and conduct monetary policy independent of any direct political interference or direction from the central government. This may enable the setting of interest rates to be less susceptible to political interference and thereby assist in combating inflation (or debasement of the currency) by allowing the central bank to more effectively restrict the growth of M3.^[36]

However, given that these policies do not address the more fundamental issues inherent in fractional reserve banking, many suggest that only more radical monetary reform such as government directly taking over central banks such as the China or Swiss models can promote positive economic or social change. Although central banks may appear to control inflation, through periodic bank rescues and other means, they may inadvertently be forced to increase the money supply (and thereby debase the currency) to save the banking system from bankruptcy or collapse during periodic bank runs, thereby inducing moral hazard in the financial system, making the system susceptible to economic bubbles.^[37]

International monetary reform

Theorists such as

Abraham Lincoln used interest-free money created by the government to help the Union win the American Civil War. He is sometimes quoted (probably apocryphally) calling these 'Greenbacks' "the greatest blessing the people of this republic ever had."^[43]

Local barter, local currency

Some^[

.

Local Exchange Trading Systems (LETS) scheme: a formalised system of community-based economics that records members' mutual credit

in a central location.

Commodity money

Some proponents of monetary reform^[

malleability, their strong resistance to forgery, their character as stable and impervious to decay, and their inherently limited supply.^{[44][non-primary source needed}

]

means of exchange.^[45][46]

Free banking

Some monetary reformers^[who?] favour permitting competing banks to issue private banknotes whilst also eliminating the central bank's role as lender of last resort. In the absence of these factors, they believe a gold standard or silver standard would arise spontaneously out of the free market.^{[citation needed]}

See also

• List of monetary reformers
• Money creation
• Credit theory of money
• Money as Debt
• Criticisms of debt
• Criticism of fractional-reserve banking
• Full-reserve banking
• Criticism of the Federal Reserve
• Monetary reform in Britain
• Monetary reform in the United States
• Money Free movement
• Swiss sovereign-money initiative, 2018
• Modern Monetary Theory
• Seignorage
• Money as Debt three-film series
• Universal basic income

References

1. ^ Sound Money Archived 23 April 2009 at the Wayback Machine, Lew Rockwell
2. ^ Our Money Madness, Lew Rockwell
3. ^ The Case for a Gold Dollar, Murray Rothbard
4. ^ What has Government done to our money?, Murray Rothbard
5. ^ The Case for a 100% Gold Dollar, Murray Rothbard
6. ^ Free Banking and the Free Bankers, Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)
7. ^ "Sovereign Money". Retrieved 13 September 2018.
8. ^
   ISBN 978-0-9795608-0-4
   . Retrieved 15 December 2007.
9. ^ "Stephen A. Zarlenga, The Lost Science of Money AMI (2002)". Archived from the original on 28 August 2018. Retrieved 22 September 2008.
10. ^ As an example of such groups, see Douglas Social Credit and the Social Credit School of Studies
11. ^
    ISBN 978-1-897766-40-8
    .
12. doi:10.33774/coe-2022-1sl9n
    .
13. ^ Rahman, Abdurrahman Arum (13 December 2021). Initiating a True International Currency. Global Currency Initiative.
14. ^
    ISBN 0-7167-5237-9
    .
15. ISBN 0-7167-5237-9
    .
16. ^ Murray Rothbard, The Mystery of Banking
17. ^ For an example of the public criticism of the current monetary system, see the speech of the Earl of Caithness in the British House of Lords on 5 March 1997 ["The Economy - Wednesday 5 March 1997 - UK Parliament". Hansard. 5 March 1997. Retrieved 20 April 2021.]
18. ^ As an example of groups critical of the World Bank, see the Whirled Bank website.
19. ^
    hdl:2086/17270
    .
20. ^ ^{a b c d} Benes, Jaromir and Michael Kumhof (2012). "The Chicago Plan Revisited". IMF Working Paper, no. 202.
21. ^
    ISBN 1-930748-03-5
    .
22. ^
    ISBN 978-1-138-64600-1
    .
23. ^ ^{a b c} Jackson, A. and Dyson, B. (2012). Modernising Money: Why our Monetary System is Broken and how it can be Fixed. London: Positive Money.
24. ^ Data sources: CIA. "The World Factbook". Central Intelligence Agency. Archived from the original on 1 June 2007. Retrieved 6 September 2018.. Desjardins, Jeff. "All of the World's Money and Markets in One Visualization". The Money Project. Retrieved 6 September 2018.
25. ^
    ISBN 978-0983330851
    .
26. ^
    ISBN 978-1-58394-397-7
    .
27. ^ Bezemer, Dirk, and Michael Hudson (2016) "Finance Is Not the Economy: Reviving the Conceptual Distinction." Journal of Economic Issues, vol. 50 (3), pp. 745–768.
28. ^ ^{a b} Korten, David C. (2010). Agenda for a New Economy: From Phantom Wealth to Real Wealth. Berrett-Koehler Publishers.
29. ^ Mellor, Mary (2010). The Future of Money: From Financial Crisis to Public Resource. London.
30. ^ ^{a b c} Thomas Jordan, "How money is created by the central bank and the banking system", Swiss National Bank, 16 January 2018
31. ^ ^{a b c d e f} Schneider-Ammann, Johann N.; Thurnherr, Walter (2016). Botschaft zur Volksinitiative "Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank! (Vollgeld-Initiative)" (PDF). Schweizerischer Bundesrat.
32. ^ Birchler, Urs (1 November 2017). Vollgeld-Leitfaden (PDF). Institut für Banking und Finance, Universität Zürich. Retrieved 11 September 2018.
33. doi:10.1093/cje/bex058
    .
34. ^ Margeirsson, Olafur (2014). Financial Instability and Foreign Direct Investment (PDF). Doctoral dissertation, University of Exeter. pp. 251–264.
35. doi:10.1016/j.ecolecon.2014.11.006
    .
36. ^ Manipulating the Interest Rate: a Recipe for Disaster, by Thorsten Polliet, December 2007
37. ^ Moral Hazard Effects of Central Bank Intervention Archived 24 March 2008 at the Wayback Machine, by Nouriel Roubini
38. ^ Uses and Abuses of Gresham's Law, by Robert Mundell
39. ^ The Role of Money, James Robertson
40. ^ The Road to Hyperinflation Archived 29 June 2012 at archive.today, Henry C.K. Liu
41. ^ Gertrude Coogan's Bluff, Greenback Populism as Conservative Economics
42. ^ America Created its Own Money in 1750, by Congressman Charles G. Binderup
43. ^ Carr, William R. (2 December 2000). "Lincoln, Money, Greenback, JFK, Kennedy, Edmund D. Taylor and C". Heritech.com Index Page. Retrieved 20 April 2021.
44. ^ Theory of Money and Credit, Ludwig von Mises 1953
45. ^ Not Losing Your Head Archived 16 April 2009 at the Wayback Machine, Speech by Lew Rockwell
46. F.A. Hayek

Further reading

• The Mystery of Banking, Murray Rothbard
• The Ethics of Money Production, Jörg Guido Hülsmann (2008), Ludwig von Mises Institute
• "100% Money and the Public Debt", Irving Fisher (public domain)

External links

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