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Towards A Programme Of Monetary Reform

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It is mightily weird that someone literally proposed to me this exact idea about the nationalisation of the banking industry today, an idea whose prospect of achievability has stirred within me an intrigue like never before.

First, I'd like to thank you for providing a succinct and clear outline of the plan. It is a good steppingstone for scrutinising the details further and indicating any subtle flaws. I have a few questions for you to clarify.

"Government can and should fund its operations by borrowing interest-free fiat money from the proposed public bank(s), just as would a private business or individual. Since it does not receive a return on its expenditure, however, it must raise the money to pay its debts by means of taxation. As in the case of private borrowing, the purpose of debt repayment is to remove excess money from circulation and avoid inflation."

1. By terming it a "public bank," are you referring to it as an institution where government has sole control over minting and printing currency?

2. Can you clarify what the "excess money" is? What mechanism would be utilised in order to determine that the amount lent out is keeping pace with inflation?

"Much of the money should be created in the form of interest-free credit, favouring socially-desirable projects. Government should be funded by this means. The money would be eliminated as it is repaid, thus avoiding inflation."

1. Can you expound on how investing in lucrative projects would fund the government, and why would the government need to be funded?

2. Who is being repaid? How would this rein in inflation? Could you just elaborate a bit more?

"Money exists to be circulated. The higher the velocity(1) of money, the more economic activity it enables. This raises the question of whether to employ a system of demurrage(2) to encourage spending."

Correct me if I'm wrong. Is demurrage a type of levy on the profits of a business who was lent the capital by the state bank?

What does demurrage contain which would stimulate spending?

Thanks.

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@ Chair Pundit

 

Thank you for your interest in my ideas on economics. These are still at an early stage, and I hope to develop them much further in due course. I'll attempt to answer your questions.

 

"1. By terming it a "public bank," are you referring to it as an institution where government has sole control over minting and printing currency?"

In modern economies most money exists only as accounting entries, usually in digital form. I envision banks as institutions of the state, which would be responsible for creating all of this money as well as printing banknotes and minting coins.

 

"2. Can you clarify what the "excess money" is? What mechanism would be utilised in order to determine that the amount lent out is keeping pace with inflation?"

By "excess money" I mean money in excess of that which is currently required to fund goods and services. If money were constantly being created by the bank without subsequently being retired, the money supply would constantly increase beyond requirements and would progressively decline in value. Under my system, money would be created as loans only as required to enable production of goods and services. It would then be repaid and eliminated in order to control the amount of money in circulation.

 

"1. Can you expound on how investing in lucrative projects would fund the government, and why would the government need to be funded?"

The government would need funds to pay for the functions of the state, such as maintaining the civil service and armed forces. I see it as being funded by loans from the state bank, which it would repay with money raised by taxation.

 

"2. Who is being repaid? How would this rein in inflation? Could you just elaborate a bit more?"

Repayment is made to the state bank, which eliminates the money as it is repaid. This controls the amount of money in circulation, thus maintaining its value.

 

"Correct me if I'm wrong. Is demurrage a type of levy on the profits of a business who was lent the capital by the state bank?
What does demurrage contain which would stimulate spending?"

Demurrage is a tax on money that is being retained by a person or business rather than being spent. It would stimulate spending by deterring the hoarding of money. People and businesses would rather exchange their money for goods and services than simply have it removed by the state.

 

I hope I have answered your questions satisfactorily.

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Under my system, money would be created as loans only as required to enable production of goods and services. It would then be repaid and eliminated in order to control the amount of money in circulation.

"1. Can you expound on how investing in lucrative projects would fund the government, and why would the government need to be funded?"

The government would need funds to pay for the functions of the state, such as maintaining the civil service and armed forces. I see it as being funded by loans from the state bank, which it would repay with money raised by taxation.

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Under my system, money would be created as loans only as required to enable production of goods and services. It would then be repaid and eliminated in order to control the amount of money in circulation.

Under the fractional reserve banking system, individual borrowers are screened to ensure that they can afford the loan (the interest). How would this work in a system where interest is eliminated and deposits are no longer loaned out?

If a loan for a mortgage was secured in this system, the borrower would only be responsible for paying the principal amount. What would be taxed in this scenario to ensure that inflation doesn't become a problem?

The government would need funds to pay for the functions of the state, such as maintaining the civil service and armed forces. I see it as being funded by loans from the state bank, which it would repay with money raised by taxation.

Would the government cease to borrow money and maintain a structural deficit?

How would the government receive enough tax money out of levying the public sector?

Repayment is made to the state bank, which eliminates the money as it is repaid. This controls the amount of money in circulation, thus maintaining its value.

Does that not assume that there will be enough wealth across the public and private sectors to tax and repay the state bank just in time to counteract inflation?

Demurrage is a tax on money that is being retained by a person or business rather than being spent. It would stimulate spending by deterring the hoarding of money. People and businesses would rather exchange their money for goods and services than simply have it removed by the state.

No one would be able to save money under your system?

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This documentary offers a very lucid explanation concerning the current problems with the debt fuelled monetary system. I'm currently halfway through, enjoying it thoroughly and have actually learned quite a lot. I wonder what solution will be proposed in the latter half of the documentary? I'm excited to know. I'll give this thread an update once I've watched it completely.

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Listened to Slavoj Zizek recently, and he said something interesting. 

 

That Westerners (particularly Americans) see apocalypse, world destruction, natural catastrophe as more plausible and imaginable than the removal of capitalism.  Look how many movies center around the former, but few if any, entertain the latter. 

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You simply don't know what you are talking about. How is the OP's proposal a removal of capitalism?

 

I didn't claim to be responding to the OP proposal.  I was just putting out something interesting I heard. 

 

Chill. 

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@ Chair Pundit

 

"Under the fractional reserve banking system, individual borrowers are screened to ensure that they can afford the loan (the interest). How would this work in a system where interest is eliminated and deposits are no longer loaned out?"

Borrowers would still be screened for ability to repay the principal of the loan.

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@ Chair Pundit

 

"If a loan for a mortgage was secured in this system, the borrower would only be responsible for paying the principal amount. What would be taxed in this scenario to ensure that inflation doesn't become a problem?"

The repayment of the principal would remove that money from circulation, thus avoiding inflation.

 

"Would the government cease to borrow money and maintain a structural deficit?
How would the government receive enough tax money out of levying the public sector?"

The government would borrow only from the state bank, and would repay the loans to avoid inflation. Borrowing would be limited to amounts that could be repaid from taxation.

 

"Does that not assume that there will be enough wealth across the public and private sectors to tax and repay the state bank just in time to counteract inflation?"

The amount of tax that would be available would have to be taken into account when deciding how much money to borrow. Borrowing, taxation and loan repayment would have to be carefully planned together.

 

"No one would be able to save money under your system?"

I mentioned demurrage in the article as something that could be considered. I'm becoming more convinced that it is in fact a good idea. People could store wealth by buying property.

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