I did a series of thirty seven Tweets
recently demolishing the numerous excuses given for preserving the existing
bank system under which private / commercial banks are allowed to create money.
I’ve set out those Tweets below.
A bank system where private banks are
barred from that activity has several names: “full reserve” banking, “100%
reserve” banking, “Sovereign Money” etc. I use the first of those, which is
abbreviated to “FR” below.
Each Tweet is in two sections. First,
the objection to FR is set out in what might be called the “actual Tweet” along
with details of which economists put the relevant excuse, then the answer to
the objection was set out in a JPEG attached to the Tweet, which starts with
the heading “Answer” (i.e. the answer to the latter excuse).
In some cases below I’ve added a few sentences by way of
additional clarification – sentences not in the original Tweets. Those
additional sentences are prefixed with the heading “Note”.
Silly objection to
full reserve No.1.
FR reduces bank lending.
That objection was made Jan Kregel, Frances Coppola &
others. See: section 2.1 here for details:
http://books.ksplibrary.org/978-605-2132-59-3/
Answer. Given the vast expansion in bank lending (or “financialisation” as
Grace Blakeley calls it) over the last 50 years, and the “socially useless”
nature of much bank activity (to use Adair Turner’s phrase), less lending, i.e.
less debt funded economic activity and more non-debt funded activity is
probably beneficial.
More non-debt funded activity is easily arranged simply by cutting
down on lending by private banks and making up for that by creating more base
money and spending it into the economy. That way, households and firms have
more money, and thus do not need to go so far into debt.
__________
Silly objection to
full reserve No.2.
Base money (i.e. government / central bank issued money) is
not debt free.
That “debt” objection to FR was put by Charlotte Van
Dixhoorn in her work “Full Reserve Banking” (p.21).
Answer. £10
notes (a form of base money) certainly appear
to involve a debt (owed by
the Bank of England). £10 notes say the BoE “promises to pay the bearer on
demand the sum of £10.” But that promise is a farce: the BoE won’t give you £10
worth of gold (or anything else) in exchange for your £10 notes.
The claim that CB money actually is a debt was also made by
Messers Fontana & Sawyer in their Cambridge Journal of Economics paper
“Full reserve banking: More ‘Cranks’ than’ Brave Heretics’” (p.19). They claim
that since CB money can be used to pay taxes, that money is being used “as if”
it were a debt. Well a debt is an irrevocable
obligation to pay a sum of money or similar to someone. When CBs issue
money, there is absolutely no such
obligation. The fact that, as Fontana & Sawyer say, CBs may choose
to let their money be used “as if” it were a debt is irrelevant. I can “choose”
to use a knife as a screwdriver. That does not mean a knife is a screwdriver.
Conclusion: CB money is not a debt.
__________
Silly objection to
full reserve banking No.3.
Bank capital is expensive.
That claim was made by Douglas Elliot: Brookings article,
“Higher Bank Capital Requirements…”.
Answer. Making depositors who want their money loaned
on carry relevant risks means those depositors effectively become share-holders.
And clearly they’ll want a bigger reward for doing that than depositors under
the existing bank system.
The flaw in that argument is that risks under the existing
bank system are carried by the deposit insurance system (not to mention
trillion dollar loans at a zero rate of interest given to banks in the recent
crisis). And the total reward
demanded by depositors and the DI system ought in theory to equal the reward
demanded by bank equity holders. Moreover, if investor / savers demand a
particularly high reward for
carrying risk, how come securitization is so popular?? Securitization pretty
much equals full reserve.
Note. Elliot in his article was actually
criticising increased bank capital in general, not specifically FR, which of
course involves a big increase in bank capital. But I’ve included Elliot’s
article here because his points could
be used as a criticism of FR.
__________
Silly objection to
full reserve No.4.
FR means the end of banks as we know them.
That objection was put by Frances Coppola in her article,
“Martin Wolf proposes the end of banking”, published by Pieria.
Answer. The fact of ending X, Y or Z “as we
currently know them” is not an argument against that “ending”.
Ceasing to send young boys up chimneys to clean them meant
the “end of chimney sweeping as we knew it” many years ago. I suggest the
effect of that “cessation” or “ending” was beneficial.
Incidentally, I have plenty or respect for Frances Coppola,
but she did rather go off the rails in connection with the above “as we know”
point.
__________
Silly objection to
full reserve No.5.
Under FR, central banks will still need to lend to
commercial / private banks.
That objection was made by Charlotte Van Dixhoorn in “Full
Reserve Banking” (p.34).
Answer. That objection assumes there’s some God
given rate of interest which cannot be allowed to vary. To clarify…..
Under FR, interest rates may rise a bit because a bank
subsidy is removed. Now assuming the rate of interest that prevails under that
subsidised system can be shown to be the optimum or GDP maximising rate, then
clearly central banks ought to help private banks by lending to the latter,
possibly at a sweetheart rate of interest. But it’s widely accepted that
subsidies (of banks or anything else) are not justified, unless the subsidy
confers a clear social benefit!! Ergo, unless that benefit is demonstrated, the
optimum or GDP maximising rate of interest is the one that prevails under FR,
not under the existing bank system. Incidentally, in view of the dodgy
environmental effects of GDP increases, I ought to say “output per hour
increases” instead, in the hope that people use the additional output to work
fewer hours. But I’ll stick with “GDP” in this series even though that’s not quite
what I mean.
__________
Silly objection to
full reserve No.6.
A cut in money produced by private banks would mean less
money for investment.
That objection was put by Ann Pettifor in “Why I disagree
with Positive Money and Martin Wolf”, and Jan Kregel in “Minsky and the narrow
banking proposal”.
Answer. First, there are numerous other sources of
funds for investment: equity, bonds, retained earnings, etc. Second, that
objection is essentially the same as objection No.5 (the claim that interest
rates would rise under FR), and the answer is the same. I.e. while less would
be loaned and invested under FR, the important
question is: what’s the optimum
level of interest rates and investment? The answer is the same as given in answer
to “No.5”: i.e. the optimum is not the level that prevails under a subsidised
bank system.
Incidentally Kregel (as of 2019) has changed his mind and is
now advocating something he admits is very near to FR! See his final section
(VI) in Levy Economics Institute working paper 928.
Note. That’s about the thousandth time I’ve
come across an economist who apparently finds the concept “optimum” difficult
to grasp.
__________
Silly objection to
full reserve No.7.
Investments under FR might not be viable.
That extremely silly objection to FR
was made by Jan Kregel in “Minsky and the narrow banking proposal” (Levy
Economics Institute policy brief No 125).
Answer. The advocates of FR do not claim that
under FR the competence of investors (presumably via some sort of magic)
suddenly improves!! I.e. incompetent investments would be made under FR just as
they are at the moment.
__________
Silly objection to
full reserve No.8.
FR would not reduce pleas by failing industries to be
rescued by government.
That daft objection to FR was made by Jan Kregel in his work
“Minsky and the narrow banking proposal.”
Answer. No one ever said such “pleas” would decline under FR!!
I.e. makes no difference what bank system (or other system)
you have, one thing is certain: treasuries around the world will always be
faced with a queue of apparently worthy supplicants asking for piles of lovely
free taxpayers’ money.
__________
Silly objection to full
reserve No.9.
The cost of converting to FR would be high.
That objection to FR was made by Jeremy Warner in “Bankers
have done a good job of creating money” (Daily Telegraph) and by Charlotte Van
Dixhoorn in “Full Reserve Banking” (p.21).
Answer. First,
US Money Market Mutual Funds have converted to full reserve. I haven’t heard
stories about any horrendous costs there.
Second, assuming FR brings benefits, those benefits will
continue till the end of time or similar. So even if the upfront costs are
high, in the long run they will be worth it.
__________
Silly objection to
full reserve No.10.
Under FR, central banks won’t be politically neutral.
That objection was put by Ann Pettifor in “Why I disagree
with Martin Wolf and Positive Money”.
Answer. As Positive Money has been explaining for
ten years, if the size of
deficits is determined by central banks under FR, that does not mean CBs need to take strictly political decisions, like what % of GDP is allocated to
public spending. Unfortunately that point seems to be too difficult for Ann
Pettifor. Incidentally, Ben Bernanke recently gave his blessing to that PM type
system, i.e. where CBs decide the size of the deficit, while politicians
continue to take strictly political
decisions. See para starting “A possible arrangement…” in “Here’s How Ben
Bernanke’s “Helicopter Money” Plan Might Work” published by Fortune.
__________
Silly objection to full reserve No.11.
The administration costs of FR would be high.
That objection was made by Paul Krugman in his article “Is a
banking ban the answer?” (see passage starting “Cochrane’s proposals call
for….”).
Answer. First, I haven’t heard anything about
excessive admin costs in the case of US money market mutual funds, which have
switched to FR. Second one of the main alternative ways of organising banks,
the Dodd-Frank regulations, runs to a good 10,000 pages, while in contrast, the
basic rules of FR can be written on the back of an envelope! Thus the idea that
the admin costs of FR would be high relative to the existing system is pure lunacy.
__________
Silly objection to
full reserve No.12.
The cost of current / checking accounts would rise under FR.
That objection was put by Charlotte Van Dixhoorn in her
“Full Reserve Banking” (p.22).
Answer. True: they would. But that’s only because
under the existing bank system, current accounts are cross subsidised. That is,
currently banks are allowed to 1, accept deposits, 2, tell depositors their
money is totally safe while lending on that money, which is blatant fraud:
reason is that loaned out money is never
totally safe, unless backed by a sugar daddy with an infinitely deep pocket,
i.e. the taxpayer. But that’s just another form of subsidy. Incidentally, the
idea that banks create money
rather than lend on deposits is only partially true: if banks don’t need
depositors’ money before lending, why have banks dished out billions to depositors by way of
interest over the years?
__________
Silly objection to
full reserve No.13.
FR is dependent on demand injections.
That objection was put by Jan Kregel in “Minsky and the
narrow banking proposal”. Search for the phrase “chronically dependent on
demand injections.”
Answer. As you should have gathered by now if you’ve
been reading this series of Tweets on FR, Jan Kregel, who put the above
objection is clueless. Anyway, if FR is dependent on demand injections, one
wonders how Kregel would describe the trillion dollar loans at a zero rate of
interest made by the Fed to private banks under the existing bank system.!! And
then there was the record amount of fiscal and monetary stimulus that had to be
implemented in the wake of the 2008 bank crisis.
__________
Silly objection to full
reserve No.14.
The effect of FR on inflation and unemployment is unclear.
That objection to FR was put by Charlotte Van Dixhoorn in
her work “Full Reserve Banking”. Look for the phrase “It would be difficult to
predict…”.
Answer. So the effect of the existing bank system on
inflation and unemployment is totally
clear?? Absolutely hilarious.
Economists failed to predict the 2008 bank crisis, which led
to a very sharp rise in unemployment. Plus once the recession hit, a significant
proportion of them had no idea what to do about it, despite Keynes having
explained what to do almost a century earlier.
__________
Silly objection to
full reserve No.15.
FR would drive business to the unregulated sector.
That objection to FR was made by Paul Krugman in “Is a
banking ban the answer?” – passage starting “If we impose 100% reserve…” – and
by the Vickers commission final report, section 4.36.
Answer. First, all forms of regulation (of
banks or anything else) tend to drive business to “unregulated sectors”.
Second, given the vast expansion
of shadow banks over the last 20 years, it looks like banksters are already evading regulations big
time!! Third, the basic rule which underpins FR is extremely simple, plus
something very close to that rule is already in force in the case of unit
trusts / mutual funds (at least in the UK) and I haven’t heard anything about
miscreant unit trusts evading that rule. The rule is that those receiving
deposits which are less than totally safe must make it very clear that such
money is not safe. Ergo that rule is easy to enforce in an effective manner,
even in the case of relatively small “unregulated” shadow banks.
----------
Silly objection to
full reserve banking No.16
The state cannot be trusted with peoples’ money.
That objection to FR was made by Charlotte Van Dixhoorn in
her “Full Reserve Banking”, section VIII, p.32.
Answer. Clearly there are some regimes, e.g. Robert
Mugabe’s, where people are wary, and rightly so, of entrusting government with
their money. But there’s always the option of using something else as money (US
dollars were popular in Zimbabwe).
But at the opposite extreme, when was the last time the
government of the UK (where I live) reneged on its debts? Frankly I haven’t the
faintest idea: it was probably a good two hundred years ago. Same goes no doubt
for several other Western countries.
__________
Silly objection to
full reserve banking No.17.
Vested interests would oppose full reserve.
That objection to full reserve was put by The Economist:
article entitled “Narrow Minded” (2014).
Answer. “Vested interests” opposed the abolition of
slavery! Presumably The Economist would have opposed the abolition of slavery!!
Hilarious, innit?
Ironically, Milton Friedman used the phrase “vested
interests” when he explained why there’s been no switch from the existing
system to FR. As he said, "The
vested political interests opposing it (i.e. the switch) are too strong…”
(That’s in his book, “A Program for Monetary Stability” Ch3.)
__________
Silly objection to
full reserve banking No.18.
FR would reduce innovation by banks.
That objection was made by John Aziz his article
“Prohibition didn’t work for liquor….” Published by The Week.
Answer. It’s
very hard to see why innovation would decline, given that there is competition
between banks under FR just as there is at present. Certainly Aziz does not
explain exactly why innovation might decline.
__________
Silly objection to
full reserve No.19.
Deposit insurance and lender of last resort solve all
problems created by the existing bank system.
That objection was put by John Aziz in “Prohibition didn’t
work for liquor….” published by The Week.
Answer. First, deposit insurance (DI) creates a big
problem which is (as the Nobel economist James Tobin explained at length) that
it encourages irresponsibility. (See Tobin’s work “The Case for Preserving
Regulatory Distinctions”). Second, DI equals preferential treatment for money
lenders (aka banks) in that banks’ liabilities are insured, but not those of
non-bank corporations. Third, the insurer (i.e. government) has artificially
large powers (i.e. it can grab money by force off taxpayers) to meet any and
all its needs.
As for lender of last resort, well it’s true that the Fed
loaned just over a trillion at a near zero rate of interest to banks in the
recent crisis, but that’s a large subsidy of banks!!
__________
Silly objection to
full reserve banking No.20.
Lenders will try to turn their unsafe liabilities into “near
monies”.
Charlotte Van Dixhoorn made that objection to FR in “Full
Reserve Banking”, p.33.
Answer. Under
FR, the only thing that counts as money is central bank issued money: anything
else which purports to be money or is used as money must be advertised as not
being entirely safe. It is thus hard to see why many households or small/medium
sized firms would want to use “unsafe money”. But clearly there is a finite
demand for unsafe money, e.g. Bitcoins which regularly lose a significant % of
their value.
But the latter concession to unsafe money does not stop FR
achieving its main objectives, namely reducing the possibility of bank failures
to near zero (in the case of normal / high street banks used by about 99% of
households and small / medium size firms), and secondly removing a bank subsidy.
__________
Silly objection to
full reserve banking No.21.
Anyone can create money, thus trying to limit money creation
is futile.
Charlotte Van Dixhoorn made that objection to FR in her work
“Full Reserve Banking”, p.34.
Answer. Clearly
anyone can write out an IOU on the back of an envelope and try to use it as
money. But with individuals
and small/medium size firms their chance of success is negligible. As for
relatively large organisations, they stand a better chance, but under FR, any
bits of paper or other units purporting to be worth $X, unless they are backed
by money at the central bank, must advertise the fact that such “home made”
money is not entirely safe. Plus it’s easy for the authorities to keep an eye
on what large organisations are doing, and hand out fines to those breaking the
rules. That very simple rule disposes of the main cause of bank failures and
disposes of one form of bank subsidy. Thus the rule achieves a lot. The fact
that a small number of people break the rules is not a flaw in such rules:
people ignore speed limits on roads. That’s not an argument against speed
limits.
__________
Silly objection to
full reserve No.22.
Advocates of FR are concerned just with retail banking.
Paul Krugman made that objection to FR in his article “Is a
banking ban the answer?”
Answer. Even
if they are, then FR would confer big benefits in that banks which are wholly
or partly retail and which went bust in the recent crisis (e.g. Northern Rock
and RBS), and which cost the taxpayer a fortune to rescue would not have
failed.
Note. Also firms and corporations which deal with
non-retail banks, e.g. investment banks, will be astute enough to know what
they are doing about 95% of the time. If the latter firms are taken for a ride
by some bank, why should taxpayers come to the rescue?
__________
Silly objection to
full reserve No.23.
Government & central bank (CB) will not be better than
the market at regulating the amount of money.
See J.Warner - “Bankers have made a good job of creating
money” and Frances Coppola - “Full Reserve Banking: the Biggest Bank
Bailout...”
Answer. The glaringly obvious flaw in that objection
is that even under the existing bank
system, governments and central banks (CBs) play a large role in
determining the size of the money supply. E.g. CBs cut interest rates
periodically, and that’s done inter alia by the CB creating money and buying
government debt, which increases the money supply. Plus the interest rate cut
induces private banks to create and lend out more money. Plus QE (implemented
by CBs) has given us an astronomic
increase in the money supply!!!
Moreover, one of the main purposes of that govt money
creation is to counteract the obviously irresponsible money creation of
private banks, e.g. creating and lending out money like there’s no tomorrow
during a house price bubble.
“Good job of creating money”? I think not.
__________
Silly objection to
full reserve No.24.
It wasn’t just banks that failed in 2008: also households
became over indebted.
Paul Krugman made that objection to FR in his article
entitled “Is a banking ban the answer?”
Answer. Er – who were households indebted to??? Think
very hard for two seconds . . . it was B-A-N-K-S!!
Or are we to believe that when irresponsible loans are made, that’s entirely
the fault of borrowers and not lenders?? The above objection is just a joke. Moreover,
the reaction of the authorities in numerous countries to the 2008 has been to
adjust bank regulations
rather than implement a large program of “borrowing lessons” for those seeking
mortgages and other loans, thus it seems those authorities are agreed that the
fault lies mainly with banks.
__________
Silly objection to
full reserve banking No.25.
FR cuts down on the amount of money / liquidity creation.
Douglas Diamond made that objection to FR in “Banking
Theory, Deposit Insurance and Bank Regulation”, Journal of Business
Answer. Any fall in the amount of money created as a
result of FR is easily made good by expanding the amount of money created by
central banks (CBs)!! Plus it costs nothing to have CBs create money, whereas
money creation by private banks involves significant real costs (e.g. checking
up on the credit worthiness of borrowers, checking on the value of collateral
deposited, etc etc). As a result, private banks charge for creating money,
while there is no charge to money users in the case of CB money. What’s not to
like?
__________
Silly objection to
full reserve No.26.
Funding via commercial paper would be more difficult under
FR.
Douglas Diamond made that objection in “Banking Theory,
Deposit Insurance and Bank Regulation”, Journal of Business.
Answer. Probably true, but that’s just part of the
overall effect of switching to FR, namely that total debts decline, while the
supply of “debt free” money (i.e. central bank created money) rises.
Incidentally, as you’ve probably noticed, the people who witter on about
excessive debts are often the same people who object to FR, which (to repeat)
tends to cut total debts!!
Indeed, Vince Cable, former UK Secretary of State for
Business, Innovation and Skills, often complains about high levels of debt,
while in the next breath, complaining about tighter regulation of the debt creators, i.e. banks!!!
__________
Silly objection to
full reserve banking No.27.
FR equals monetarism.
Ann Pettifor made that objection in “Why I disagree with Martin
Wolf and Positive Money” and Messers Sawyer & Fontana in “Full Reserve
Banking: More ‘Cranks’ Than ‘Brave Heretics’” (Cambridge Journal of Economics.)
Answer. First, the existing system has similarities to monetarism: e.g.
stimulus is imparted under the existing system by cutting interest rates and
QE, both of which increase the money supply! Second, money financed deficits
(supported by Positive Money & many MMTers) works not just because the money supply increases, but also via
what might be called the “fiscal effect”. I.e. if base money is created and
spent on education, the immediate / fiscal effect is more jobs for teachers,
while the “money supply increase” effect comes more slowly.* Third, are we
really supposed to think the quantity of money has no effect at all? Doubtless
Friedman over-did reliance on simply adjusting the money supply, but the
opposite claim, namely that the quantity of money has no effect at all is
equally silly.
* Note. Thus the
alleged “monetarist” element both in FR and in the existing system is not in
fact purely monetarist: i.e., and to repeat, a significant proportion of the
allegedly monetarist effect is in fact fiscal. Indeed, that point even applies
to Milton Friedman’s version of monetarism!
__________
Silly objection to
full reserve banking No.28.
There’d be no demand for safe / warehouse accounts or banks.
Lawrence White made that objection in “Accounting for
Fractional-Reserve Banknotes and Deposits…” publisher: Independent Review.
Answer. This
objection is a joke in that there is a flatly contradictory objection often raised
to FR namely that there’d be a stampede
to safe accounts (see No.29 in this series).
Anyway, in that there hasn’t been much demand for safe / low
interest yielding accounts in the past, that is for the simple reason that
there have for a long time been subsidised
accounts where risks are carried by taxpayers. Why put your money into a zero
interest yielding account when you can put it into one that does yield
interest, with the risks involved in having your money loaned out being backed
by taxpayers?? There’s no point!! FR abolishes that “taxpayer” subsidy and that
would clearly raise the demand for safe / warehouse accounts.
__________
Silly objection to
full reserve banking No.29.
There’d be a stampede to safe accounts.
Kevin Dowd made that objection in “Let’s not ban private
money.” Publisher: Free Banking.
Answer. First, to repeat the point made under
objection No.28, Dowd’s objection flatly contradicts the popular objection to
FR, namely that there’d be no demand
for safe accounts.
Second, if there is a stampede, so what? That is simply part
of the process of removing a subsidy, and there’s nothing wrong with removing
subsidies unless there’s a good social reason for a subsidy. If taxpayers
guaranteed roulette players against loss and that guarantee / subsidy was
removed, doubtless there be a “stampede” away from roulette tables and towards
other forms of entertainment. What of it?
__________
Silly objection to
full reserve No.30.
FR will not stop boom and bust.
Adair Turner made that objection in “What do Banks Do” in
“The Future of Finance” (LSE). See passage starting “..investors would be”.
Answer. FR
advocates never claimed FR would
eliminate boom and bust. But they do claim it puts an end to bank
failures, which at least helps a bit. Moreover, the “help” could be significant
in that as Mervy King said, the pernicious effects of a rash of bank failures,
even when banks are rescued by taxpayers, seem to be worse than simple stock
market set-backs. See King’s “Banking: From Bagehot to Basel, and Back Again”,
3rd para.
__________
Silly objection to
full reserve No.31.
Bank shareholders will demand a high return to reflect their
uncertainty about what a bank actually does.
Douglas Elliot made that objection in “Higher Bank Capital
Requirements Would Come at a Price.” (Brookings).
Answer. First, are shareholders any more in the dark
as to what banks do than non-bank corporations?
Second, there would actually be far more clarity as to what is being done with investors’ /
savers’ money under FR than under the existing system. Reason is that under
most versions of FR, investors have a choice
as to what is done with their money: they might for example be able to put
their money into a fund that grants risky 100% mortgages. Alternatively, they
might be able to go for a fund that grants mortgages only to those with some
minimum equity stake in their house (though under most versions of FR, the exact nature of different funds
is left to individual banks to decide.
__________
Silly objection to full
reserve No.32.
Government couldn’t produce enough money under FR.
Randall Wray made that objection in “Modern Monetary Theory:
the Basics”. Publisher: Naked Capitalism. See passage starting, “While our
governments are large…”.
Answer. It’s strange that Wray, a leading light of
MMT, was unaware that the central bank of a country that issues its own
currency can simply press buttons on a keyboard and produce however many
billions of dollars it wants. Certainly the Fed produced over a trillion
dollars at the drop of a hat by pressing buttons on a keyboard to lend to banks
during the recent recession. If the Fed had wanted to press different buttons
and produce two or three trillion, it could have. Hopefully Wray has now caught
up with the latter point.
__________
Silly objection to
full reserve banking No.33.
FR would raise unemployment.
That objection was made by Ann Pettifor in “Why I disagree
with Positive Money and Martin Wolf.”
Answer. FR certainly cuts down on debt based economic
activity, i.e. activity based on loans from banks, but it’s easy to compensate
for that by having the state create and spend money into the economy, which
raises the amount of “non-debt-based” economic activity. I.e. under FR someone
buying a house would have more money with which to buy it, and would thus need
to borrow less.
__________
Silly objection to
full reserve banking No.34.
FR advocates ignore “established theoretical literatures”.
That objection was made by Messers Sawyer & Fontana
(S&F) in their paper “Full Reserve Banking: More ‘Cranks’ Than ‘Brave
Heretics’” (Cambridge Journal of Economics.)
Answer. Well now, a book advocating full reserve by
B.Dyson and A.Jackson (D&J) and entitled “Modernising Money”, which is the
main target of S&F’s criticisms contains 160 items in its references
section, whereas S&F’s own paper contains less than half that number. Moreover, S&F are apparently unaware of
the collection of Noble economists who have advocated full reserve: certainly those
Nobels are not mentioned by S&F. I
conclude that if anyone has ignored “established theoretical literatures” it’s
S&F rather than D&J. The words “pot”, “kettle” and “black” spring to
mind. For details on numerous other errors made by S&F, see my work,
“Malcolm Sawyer Claims Advocates of Full Reserve Banking are “Cranks”,
(Advances in Social Sciences Research Journal).
__________
Silly objection to
full reserve banking No.35.
The economy shouldn’t be controlled by a committee of
economists.
See Ann Pettifor’s article: “Why I disagree with Positive
Money and Martin Wolf.”
Answer. See the sub-heading of her article and her
paras starting “This debate exposes…” and “Wolf’s proposal…”. And the answer to that objection is that the
economy ALREADY IS controlled by committees, shock horror! E.g. in the UK
there’s the Bank of England Monetary Policy Committee and the Office for Budget
Responsibility. Moreover (further shock horror), those committees ALREADY
exercise their control to a large extent by adjusting the money supply: e.g. QE
raises the money supply, plus an interest rate cut induces commercial banks to
create and lend out more money. Thus if Pettifor objects to committees which
control stimulus or influence or control
the money supply, she’s up against much more than the advocates of FR.
__________
Silly objection to
full reserve banking No.36.
FR would prevent all lending.
That objection was made by H. De Anglo & R. Stulz in
“Liquid-Claim Production, Risk Management, and Bank Capital Structure”, and B.
Bossone: “Should Banks be Narrowed.”
Answer. De Angelo
and Stulz clearly don’t have the faintest idea as to what FR actually consists
of. Under FR, banks can perfectly well lend: it’s just that depositors who want
their money to be loaned out have to carry relevant risks, rather than being
protected from risk by a sugar daddy who can lay his hands on near infinitely
large amounts of money, i.e. taxpayers’ money, in the event of trouble.
__________
Silly objection to
full reserve banking No.37.
FR equals a huge bank bailout.
Frances Coppola (FC) made that objection in her article
“Full Reserve Banking: The Largest Bank Bailout in History.”
Answer. First, to accuse FR of involving a bailout
is rich given the billions of public money used recently to bail out banks
under the EXISTING bank system.
Second, FC’s bailout theory is based on the point that to
implement FR, a huge amount of base money has to be credited to private banks’
accounts in the books of the central bank, which is a large gift to private
banks. Well Positive Money (PM), one of the main butts of FC’s criticisms,
actually spotted that problem (big surprise): in the PM “bible”, i.e. Dyson
& Jackson’s book Modernising Money (“Step 3”, Ch8, p.228) the authors
explain that to match the latter “gift”, an equal amount of money (obtained
from repayment of loans made by banks) is eventually paid by private banks to
the central bank. Ergo FC’s alleged gift is a myth. Incidentally, since
Modernising Money is currently out of print, I’ve reproduced the relevant
passage from MM here – article title: “Positive Money’s “Conversion Liability”.
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