Thomas Edison on Henry Ford's proposal to fund public infrastructure with issuance of bills rather than bonds in order to avoid the economic rent that interest payments involve.
Debt-free money—of course we can rebuild our infrastructure
(h/t Paul via email)
From the MMT perspective the story is incomplete in that the interest paid is also an increase in consolidated non-government net financial assets in aggregate and the interest doesn't cost a self-funding government anything anyway. The real issue is whether this is the most appropriate way to inject funds for public purpose, based on criteria such as fairness, effectiveness and efficiency.
Since interest is not necessary operationally, as Edison and Ford point out, it is a subsidy. Who gets that subsidy and why should they get it rather than using that amount of funding for other purposes, like more infrastructure that benefits the everyone as a public good?
It might be argued that not issuing bonds is inflationary. But as Thomas Edison points out, anticipating the MMT economists on this, the interest-bearing government securities are also negotiable and are used for temporary safe storage as well as using large sums around conveniently. The MMT economists also point out that they are the best form of collateral and therefore function as near money, especially short terms bills. Therefore, issuance of government securities has little bearing on inflation.
The other argument is that a large economy needs safe assets and it is a public purpose to provide them. But, as Chris Cook points out, this could be done with consols rather than bonds, consols acting in the same fashion as stock, i.e., equity rather than debt.