[R-G] [BillTottenWeblog] Money Reform Ideas Begin to Emerge

[Bill Totten]

Alistair McConnachie examines the extent to which "quantitative
easing" is similar to our proposals and considers objections to the
idea that a central bank or "the government" should create money.

by Alistair McConnachie

Prosperity (January 2009)


Slowly, the credit crunch is allowing Money Reform ideas to emerge
into view, albeit in problematical contexts. For example, articles
have started to appear in the mainstream press concerning the idea
of "government creating money".

These articles almost always raise the two spectres of "the Weimar
Republic" and "Zimbabwe" in an effort to discredit the idea, and to
suggest that it would be inflationary. They tend also to associate
the idea with words and phrases intended to scare and to spread the
notion that it is an irresponsible policy.

For example, Edmund Conway in the Sunday Telegraph said a "central
bank printing press is a nuclear weapon, highly inflationary in the
wrong hands, as demonstrated by Weimar Germany and Zimbabwe".
Although he did go on to say that "in the right circumstances, and
in the right doses, such lethal tools can be put to good use". {1}
At least he acknowledges it's possible!

Janet Daley spoke about "a move that would be truly terrifying in
its boldness. Serious thought is being given to the Weimar
solution." {2} Clever phrase that: "the Weimar solution"! Everyone
knows that was no solution at all!

Distinguishing Our Proposal

Money Reformers propose that a democratically-accountable body (it
can be a department of the Bank of England) will create the money,
and the government will invest it into society - into the public
and private spheres of the economy - in order to generate the
wealth and savings upon which a healthy economy, and a healthy
banking system depends. The private banking system will then
compete to attract this money into its own savings accounts and
build up its capital reserves this way.

This will be done at the same time as the private banks are either
forbidden from creating money completely, or have severe credit
controls imposed on their ability so to do - which will prevent the
risk of inflation.

In this way, Money Reformers advocate putting the economic horse
before the banking cart!

This reform is quite different from what is presently being
proposed. Under the absurd term of "quantitative easing" it is
being proposed that the Bank of England will create new money out
of nothing (as is its right) but - and this is a big error - this
money will be given to the private banks!

It is proposed to swap this new money for toxic bank assets in
order to "flush the banks with cash". This is far removed from what
Money Reformers propose. It is giving the money to the banks rather
than investing the money in society.

It is just another bail-out of the banks and in that sense it is
very bad policy. Giving money to the banks in this way could also
allow the banks to use this money as a new base upon which to
multiply their lending ability - known as the fractional reserve -
and thereby it could create inflation when a lot of new private
bank-created money comes into society.

Simply put, "quantitative easing" is intended to allow the banks to
create more money in order to indebt more people; to find new ways
to keep the present debt-based system going - to keep putting the
banking cart before the economic horse.

A Window of Opportunity Opens

Nevertheless, as Money Reformers we now have one of our key
principles acknowledged as correct and possible!

We have always said that the Bank of England could, if it wanted,
create new money out of nothing - and this is now being
acknowledged by mainstream bankers, economists and commentators!
Thus, Money Reformers have a window of opportunity to change the
terms of the debate our way.

For example, we can point out that instead of asking whether it is
a good idea for the central bank to create money, we should be
asking, "If it can create money out of nothing, why does the
government have to borrow from the private banking system in the
first place - and thereby indebt us, the taxpayers, to these
private banks?"

Weimar Germany

We are not advocating "the Weimar solution" because how the
Reichsbank - a private bank - ruined the German economy has nothing
to do with how we are proposing to use the publicly-owned Bank of
England to properly manage the British economy.

The Reichsbank was a private bank which debauched the German
currency for its own private profit!

Stephen Zarlenga (Prosperity, April 08) dealt with this in his
massive work of monetary history, The Lost Science of Money (2002):


    The great German hyper-inflation of 1922-23 is one of the most
widely cited examples by those who insist that private bankers, not
governments, should control the money system. What is practically
unknown about that sordid affair is that it occurred under the
auspices of a privately owned and controlled central bank.

    Up to then the Reichsbank had a form of private ownership but
with substantial public control; the President and Directors were
officials of the German government, appointed by the Emperor for
life. There was a sharing of the revenue of the central bank
between the private shareholders and the government. But
shareholders had no power to determine policy.

    The Allies' plan for the reconstruction of Germany after World
War One came to be known as the Dawes Plan, named after General
Charles Gates Dawes, a Chicago banker. The foreign experts
delegated by the League of Nations to guide the economic recovery
of Germany wanted a more free market orientation for the German
central bank.

    Schacht relates how the Allies had insisted that the Reichsbank
be made more independent from the government:

    'On May 26 1922, the law establishing the independence of the
Reichsbank and withdrawing from the Chancellor of the Reich any
influence on the conduct of the Bank's business was promulgated'.

This granting of total private control over the German currency
became a key factor in the worst inflation of modern times. {3}

Therefore, as Zarlenga goes on to elaborate, German hyper-inflation
did not occur as a result of the German government creating money,
but rather it was a result of the complete privatisation of the
German central bank, the Reichsbank, as part of the Allies'
post-World War One free-market plans for the German economy.

The worst inflation of modern times occurred as a result of the
privately-controlled central bank manipulating the German economy
for its own private profit.

Zimbabwe

We are unsure how the Zimbabwean economy got into such a mess, but
we are presuming it has something to do with the fact that the
place is a totalitarian, lawless basket-case, run by a lunatic.

The Zimbabwean government and its considerable problems of
governance - which are manifest and manifold - cannot remotely be
compared to Britain's government!

Secondly, and as a result of its incompetent government, the
Zimbabwean economy has suffered a complete collapse in the social
credit, the social fabric, the social faith and trust which holds
all national economies together and which is the ultimate backing
for any currency!

In those circumstances, it is not fiat currencies which are to
blame or any government-created money. A gold-backed economy or
even a barter economy would fail under such dismal conditions too!

Notes:

{1} Edmund Conway, "The Bank may have to print you a pocketful of
cash to spend" The Sunday Telegraph (December 14 2008) at page 27.

{2} Janet Daley, "If you want people to spend, don't take their
cash away", The Daily Telegraph (December 15 2008) at page 20.

{3} Stephen Zarlenga, The Lost Science of Money: The Mythology of
Money - the Story of Power [Valatie, New York: American Monetary
Institute, 2002] at pages 579-580. Available to buy from Prosperity
at GBP 50. Also see www.monetary.org

http://prosperityuk.com/2009/01/money-reform-ideas-begin-to-emerge/


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