tag:blogger.com,1999:blog-2277215496195926573.post4814126614237497501..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Governments deprive people of money so that people then have to borrow from private banks.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2277215496195926573.post-3037945542056148412018-06-19T03:54:04.533-07:002018-06-19T03:54:04.533-07:00Jerry, That’s a very insightful comment – even tho...Jerry, That’s a very insightful comment – even though I disagree with it! I’ll take your points in turn.<br /><br />First, re your claim that lending decisions should be decentralised, no one claims otherwise far as I know. Certainly the advocates of Vollgeld (aka full reserve banking) argue for decentralisation, and Vollgeld involves having just one form of money: state issued money.<br /><br />Re your claim that lending might not happen at the “desirable pace” under Vollgeld (if that’s what you’re saying), I agree that there’d be less lending under Vollgeld: interest rates would rise. But then rates are currently a record lows, plus everyone is worried stiff about the allegedly excessive amount of debt which has been caused at least partially by if not primarily by record low interest rates. Thus it is not clear that less lending would do any harm.<br /><br />The solution to the latter conundrum is surely to determine what constitutes a genuine free market in lending and borrowing: the normal assumption in economics is that GDP is maximised where the price of everything, including the price of borrowed money, is at its free market level, absent any good reason for thinking it should be at some other level. And I’d argue that letting private banks create money is a subsidy of those banks for reasons given by Joseph Huber on p.31 (2nd para) of his work “Creating New Money”. Subsidies (for no good reason) are not allowed in free markets.<br /><br />Re your claim that banks can still go bust under Vollgeld because they still have short term liabilities, my answer is “no they don’t”. Under Vollgeld, banks or “lending entities” are funded just by equity or in Positive Money’s version of Vollgeld, by a mixture of equity and long term deposits.<br /><br />Re your last para, and your claim that more borrowing and spending requires the state to confiscate money from the private sector even under the existing system, I’d argue that that confiscation is justified because that’s a case of a commercially viable loan outbidding others for access to funds. In contrast, where a private bank funds loans by simply printing money (to put it graphically), that’s subsidised lending, for reasons given by Huber.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-77593940940489619402018-06-19T03:24:14.543-07:002018-06-19T03:24:14.543-07:00True, but how do you actually get people to spend ...True, but how do you actually get people to spend their money faster? It's not easy. The best way, strikes me, is to simply give them more of the stuff. Then they'll try to get rid of it: sometimes known as the "hot potato effect".Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-75135018626698167562018-06-17T13:24:35.333-07:002018-06-17T13:24:35.333-07:00"And issuing enough of that money to induce t..."And issuing enough of that money to induce the population to spend at a rate that brought full employment, while not exacerbating inflation..."<br /><br />The money equation is:<br /><br />M * V = P * Q<br /><br />Given a fixed stock of money, the desire by the public to spend more can be satisfied by having the same stock of money turn over faster, i.e., an increase in velocity, generating inflation in the process.<br /><br />Ahmed Fareshttps://www.blogger.com/profile/07105255828394485657noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-49511919931151523172018-06-17T09:47:17.320-07:002018-06-17T09:47:17.320-07:00That seems like one way to look at it, probably a ...That seems like one way to look at it, probably a pretty good way. But you could take a more positive view of banking also. As long as large private investment and large consumer purchases require borrowing in order to occur, banks allow for a decentralized underwriting process which is arguably better (when it doesn't blow up) than having the government choose what is credit worthy and what isn't in all cases. I guess it is possible that banks could actually be restricted to being true intermediaries between savers and borrowers and therefore a private underwriting process would still occur, but that might not occur at a desirable pace for private investment. Nor does it eliminate the risks involved with bank runs if the bank liabilities are short term while its loans (assets) are long term in duration. <br /><br />Anyways, the government has to tax whether banks can create money or not. At least according to MMT it gives the fiat currency value to those who accept it. So the title statement that "Governments deprive people of money so that people then have to borrow from private banks" is somewhat of an exaggeration even if it is correct that taxes may need to be increased at the mystical full employment scenario because of bank money creation. Any decrease in the desire to save or any private lending from savers to borrowers at full employment would also have that effect at full employment wouldn't it?Jerry Brownnoreply@blogger.com