Tuesday, 2 October 2012
Amazingly unoriginal new theory: “Endogenous Money”.
Thanks to Philip Pilkington for explaining how our monetary system works: in particular the fact that private banks create money. However he rather suggests the latter idea is new.
Advocates of full reserve banking actually worked out long ago that private banks create and destroy money. For example Irving Fisher (an advocate of full reserve) said in the 1930s in his booklet “100% Money and the Public Debt” that, “At present our nation’s chief money is at the mercy of the mob rule of 15,000 banks. These are tantamount to 15,000 private mints independently creating and destroying the nation’s money every day, while the Government looks on helplessly at this usurpation of its prerogative.”
And the London goldsmiths who in the 1700s issued receipts for non-existent gold doubtless realised they were creating money, as did their customers.
However there are plenty of economics text books that have not cottoned on to what is going on here, and Philip Pilkington is right to point to the deficiencies of those text books.