Philosophical Economics — Free Banking on a Bitcoin Standard–The State Prepares its Death Blow

Commerce depends on a reliable (stable) but elastic money supply. How can Bitcoin provide it?

Philosophical Economics
Free Banking on a Bitcoin Standard–The State Prepares its Death Blow

Ann Pettifor — The power to create money 'out of thin air'

Happy New Year to all PRIME readers, and welcome to my latest PRIME publication, The power to create money out of thin air. At first sight, this is a long-delayed review of Geoffrey Ingham’s book, Capitalism (Polity Press, first published 2008). However like all the best reviews, it has become a hook on which to hang discussion of the author’s contemporary pet themes. Here, these include primarily, capitalism’s ‘elastic production of money’. However, I also take the opportunity of explaining why misunderstanding about the creation of money out of thin air is so widespread, and why orthodox economists are mainly responsible for the confusion.

Out of this discussion arises a further one about ‘fractional reserve banking’ – currently at the heart of debate surrounding an IMF Working Paper by Kumhof and Benes. Then I take a pop at the theory and policy frameworks that prevent (or claim to prevent) co-ordination between monetary and fiscal authorities.
The review challenges, too, the widespread assumption (long promulgated by the enemies of labour, but also held by others) that wage claims by trade unionists caused, or led to, the inflation of the 1970s.

But Ingham’s book raises important issues which are and will be at the heart of politics and economics in 2013: with a deeper understanding of capitalism’s ability to create ever expanding amounts of credit-money, how does a democratic society once again rein in, regulate and subordinate the private finance sector to the wider public interest? How does society regain control over the public good that is credit and a sound banking system, and use both for financing society’s most important needs – including the need to tackle the threat of climate change?

And finally, how can public goods (including liquidity) avoid being confiscated by the finance economy? And how can they be restored to public accountability?

PRIME — Policy Research in Macroeconomics
The power to create money 'out of thin air'
Ann Pettifor | Director of Policy Research in Macroeconomics (PRIME) and a fellow of the New Economics Foundation, London

Note: Geoffrey Ingham is also the author of The Nature of Money.

From the comments there:

Andi
: So is PRIME advocating MMT?


Ann Pettifor: 
Andi, thanks for your query. First, this analysis is mine, and does not represent the views of all the network of economists linked to PRIME. Indeed we disagree on some points. Second, as a network we have many good friends in the MMT community, have great respect for their work, and many of our approaches are aligned. But cannot say that PRIME as a network of economists is ‘advocating MMT’. But we sure are closer to them than to the orthodox community…


Lord Keynes — A Simple Question for Opponents of Fractional Reserve Banking

For Ralph Musgrave.

Social Democracy for the 21st Century
A Simple Question for Opponents of Fractional Reserve Banking
by Lord Keynes

Ralph Musgrave — Full reserve and the Kotlikoff / Werner system

Summary. Assume a pure fractional reserve banking system [assumes less than 100% financing of loans with deposits]. Also assume the simplest and most extreme case of banking collapse: all banks go bust. In this scenario the money supply vanishes: not too clever.
In contrast, under FULL RESERVE [assumes 100% financing of loans with deposits], where deposits are taxpayer guaranteed that encourages the misuse of depositors’ money. Plus when all banks go bust, and assuming government reimburses all depositors, the money supply initially doubles which is liable to be inflationary, until that supply is withdrawn via tax. Also not too clever.
The best system is full reserve plus the “Kotlikoff / Werner” condition that where depositors let their bank use their money in a commercial fashion, and it all goes belly up, depositors lose their money. [How clever is this?]

Read it at Ralphonomics
Full reserve and the Kotlikoff / Werner system
by Ralph Musgrave

Ralph Musgrave makes a case for full reserve banking

In making his case for full reserve banking, Ralph puts forward five principles.

Read it at Ralphonomics

The principles on which banking should be based

by Ralph Musgrave

"Lord Keynes" — “Funny Money”: A Loaded Phrase

The use of the expression “funny money” by Austrians to refer to bank money created by fractional reserve banking is a nothing but a loaded term, a semantic trick with dishonest rhetoric using the appeal to emotion fallacy.

The term “funny money” implies that fractional reserve (FR) credit money/bank money is somehow illegal or fraudulent. This is nonsense. Modern FR banking is fully legal in Western nations and their offshoots, and historically has been conducted under the framework of themutuum loan contract (loan for consumption) under European civil/common law systems influenced by Roman law. FR banking goes right back to the ancient Roman Republic.

Read it at Social Democracy for the 21st Century
“Funny Money”: A Loaded Phrase

by "Lord Keynes"