I cam across this quote from Abraham Lincoln whilst researching the Joy of Tax [i]:
The monetary needs of increasing numbers of people advancing towards higher standards of living can and should be met by the government. Such needs can be met by the issue of national currency and credit through the operation of a national banking system [or designated monetary authority.] The circulation of a medium of exchange issued and backed by the government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, re-deposit and otherwise. Government has the power to regulate the currency and credit of the nation.
The interaction between money, inflation, the need to deliver economic activity for the benefit of all and the role that taxation has to play in that process has, then, long been appreciated. So too has the need for government intervention in the economy. Both have also, unfortunately, been long forgotten by some at cost to us all.
[i] Abstract of Lincoln's Monetary Policy; Library of Congress No.23, 76th Congress, 1st session, page 91; quoted at http://cpe.us.com/?article=famous-monetary-quotes The rest is worth reading as well
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
But, Richard, what has mostly been forgotten is the responsibility and duty of government to supply through its central bank the appropriate amount of debt free money that allows the economy to function and where feasible expand – physically, not monetarily! Commercial banks have been allowed to hijack that role with debt-based money and are systemically programmed for Boom & Bust!
Peter,
What you desire is a non-sequitur because it is money with NO value…
Money = is an IOU to the value of £X
‘Debt free’ money = is an IOU to the value of £0
“Imagine a cloakroom that issues “debt-free” cloakroom tokens. These look just like the tokens discussed above, but they are not debts. You can return them to the cloakroom, but you don’t get a coat.”
http://www.economonitor.com/lrwray/2014/07/01/debt-free-money-a-non-sequitur-in-search-of-a-policy/
That’s an interesting analogy
Absolute total and utter poppycock! the pound notes in your pocket are debt free issued by the BOE as Sovereign currency – are they worthless? The £375bn printed by BOE to buy back gilts is debt free new sovereign money – and the gilts will expire after the BOE has spent the remaining years of their term re-imbursing the treasury for their annual coupons. Meanwhile the £375bn that has cascaded into asset price inflation causing a bubble in the stock market is just as real and debt-free. Those banks who spent the money into the market may well be skinned when it collapses but those who sold the stocks to the banks will still be laughing! The QE money should have been directed [somehow!] into the real economy – perhaps some sort of compulsory sovereign wealth fund? You claim to be the expert! You tell us!
The answer on directing the funds is, of course, Green Infrastructure Quantitative Easing http://www.taxresearch.org.uk/Blog/2015/03/12/how-green-infrastructure-quantitative-easing-would-work/
I will deal with the debt free issue on the blog
Peter,
I’m curious. By ‘debt free’ do you mean 0% interest?
“Peter, I’m curious. By ‘debt free’ do you mean 0% interest?”
Stephen, When a sovereign state’s central bank prints new sovereign money it is an asset – not a debt – so no interest is appropriate regardless of at what rate. It is the responsibility and duty of any sovereign state to supply its economy with an appropriate volume of money as an asset. [This used to be backed by Gold but fiat money is now the norm] unfortunately we have abrogated this responsibility to the commercial banks who crate it as a debt to themselves – just one big scam!
Peter,
Thanks for replying.
To see where I’m coming from its much better to get to the very essence of what money is.
1. Money is an IOU.
2. An IOU always involves two parties: an issuer and a recipient.
3. To the recipient an IOU is an asset.
4. To the issuer an IOU is a debt.
Taking government money creation – say to pay civil servants – it is seen by recipients as very much an asset every time they see it arrive in their monthly salary slip). Just like any IOU recipient.
However that money in their pay slips only has VALUE in the first place because the party issuing the money (in this case the government) has promised to OWE the civil servant something of value(doesn’t matter what). Just like any IOU promises.
So, to the government, the sovereign money it issues to pay the civil servants is a debt. Just as it is to any IOU issuer.
How does the government settle that debt? It uses another fiat power: the power to oblige the recipients (i.e. the population and business) to hand the government back the money it issued earlier. This power is otherwise known as taxation – pure and simple genius.
Now getting back to debt-free money (or put it more simply way debt-free IOU). If the IOU issuer expressly promises that they will NOT owe the recipient something of value, then the recipient of such ‘money’ is left holding a worthless piece of paper that promises him he will get nothing!
That is why the term ‘debt free’ money is meaningless.
IOU’s don’t carry any interest, so neither does money.
Stephen I think you are confusing Debt-Free sovereign money and Fiat money issued as debt. Money issued as debt clearly does involve two parties but not sovereign money. The money created by BOE [£375bn] to repurchase bonds expanded its balance sheet with £375bn of assets. There is no debt and no creditor.
Utterly wrong
There was debt – a specially created company had to be used to permit the existence of a debtor and a creditor
You are simply wrong Peter – and always will be. Double entry requires a debit and a credit. You are asking for single entry in the books of the Bank of England – and it will never happen
The current monetary/financial system is unsustainable and if that means changing accepted accounting principles in some “grey areas” so be it! Introducing new central bank money as debt is a nonsense but double entry accounting struggles with gifts and zero-cost acquisitions; argument ranging between zero cost/zero asset later revalued as appreciation/profit; to true value asset with debt to the donor. It ought to be true value asset balanced by the appropriate rise in equity. When the Pilgrim Fathers colonised New England how did they account for their newly acquired properties? At zero value? Or as an asset? And if so was this balanced by a Debt to the Almighty God or as “Owner equity” – given their religious bent, probably the former!!!
Stephen re your point on “government creating money for payment of civil servants” the government pays civil servants either with money obtained through taxation or in a deficit situation with money obtained through the issuance of gilts. To purchase gilts it is commercial banks that, directly or indirectly, create the money to buy them: dysfunctional nonsense! With 97% of the money in circulation created by banks- as opposed to 3% BOE money – it is inevitable that the money used to buy gilts is ULTIMATELY bank created debt. Banks cannot create money for themselves to spend but bank A creates money to lend to bank B at LIBOR and vice versa. They might just about as well have created it for themselves if they’re going to fiddle LIBOR anyway!
Peter
I have to admit I am getting my your continuing nonsense here : why not look at the real world and not the one you’d like to exist
Richard
Peter,
As that incoherent rant ably demonstrates, your (and PM’s) painfully obvious lack of understanding of double-entry book-keeping means that you (and PM) are all over the place (and without it always will be).
The only thing that PM get right – and this is not their insight by a long shot – is that private banks can create money ‘out of thin air’. But even then PM only see 1/2 the picture. PM completely forget that the bank can’t do that without the customer also creating credit ‘out of thin air’ that they then exchange with the bank.
On your claim that “Debt-Free sovereign money and Fiat money issued as debt” are two different things. Then I have challenge for you.
Strip away the abstraction, drop the mumbo jumbo and – as I did above – describe in ‘brass tacks’, IOU-level terms exactly:
1. What “Debt-Free sovereign money” is
2. How such an entity carries any value whatsoever
Did not Theodore Rooseveldt ( don’t know how to spell his name) stand up to the banks and have a few run in’s. Was a republican of course but greatly respected. Maybe my memory is misplaced, have not googled to check.
Richard, I know you have reservations about the “binary economics” solution proposed by Rodney Shakespeare in, for example, his book “Seven Steps to Justice”, co-authored with Peter Challen.
However, that book does refer to money creation, and in particular to Abraham Lincoln’s views on money creation, quoted by you above. In fact, money creation was used by Lincoln, in the form of the “greenbacks”, to fund the prosecution of the Civil War.
However, the book also notes that President Kennedy was of the same view, further noting that by Executive Order 11,110 of June 3rd, 1963 of President Kennedy’s, the power to create interest-free money was taken away from the Federal Reserve (which is actually a private company) and returned to the Government.
There is uncertainty as to the exact scope of President Kennedy’s Order, but given its possible effect, and given the undoubted success of the ” greenback” initiative, the question is raised in the book, though treated with some circumspection, that there might be a connection between the calling into question by both Presidents of the “holy writ” of standard views on money creation, and the fact that both Presidents were assassinated.
Conspiracy theories are liable to further unbalance the often unbalanced minds of those who support them, but it remains an interesting fact, perhaps no more than coincidence, that both these Presidents were assassinated.
(See pp 37-38 of the book. Published by New European Publications Limited, 2002. ISBN 1-8724-1027-8)
Interesting
But you are right about my scepticism on Rodney Shakespeare’s work which I thought at best an erroneous abstraction from reality
Mind you I have not thought about it for ten plus years
I doubt I still have the book
I read somewhere that 5 US presidents have tried to change the way Money is created as debt to the banks – and five have been assassinated [allegedly]
“Federal Reserve…is actually a private company”
Oh please, this itself is an example of the worst kind of internet conspiracy theory.
Far from being private, the Fed (like the BoE here in the UK) is an arm of government (despite its much trumpeted independence)…
http://neweconomicperspectives.org/2014/01/greatest-myth-propagated-fed-central-bank-independence-part-1.html
It was a private company…
Just as the BoE was
Richard has already addressed the Bank’s ‘independence’ (wrt a perticular example, but it proves the point)…
http://www.taxresearch.org.uk/Blog/2014/01/24/the-pretence-that-we-have-an-independent-bank-of-england-should-end/
“Far from being private, the Fed (like the BoE here in the UK) is an arm of government (despite its much trumpeted independence)…”
As for as I am aware, it is still a private concern. Yes, it has to rebate most of its interest earnings to the government now, but I still believe it is s private concern.
From a fairly reliable source:
http://www.factcheck.org/2008/03/federal-reserve-bank-ownership/
http://www.factcheck.org/2008/03/federal-reserve-bank-ownership/
Stevo,
Unfortunately bad news for the conspiracy theorists – the BoE is NOT private!…
“The Bank [of England] is a public sector institution wholly-owned by the government – the entire capital of the Bank is, in fact, held by the Treasury solicitor on behalf of HM Treasury”
http://www.bankofengland.co.uk/publications/Pages/foi/disc091106.aspx
Stevo,
And no the Fed isn’t a “private concern” (my emphasis)…
“The Federal Reserve…fulfills its public mission as an independent entity within government. It is not “owned” by anyone and is not a private, profit-making institution….the Federal Reserve is subject to oversight by…Congress”
http://www.federalreserve.gov/faqs/about_14986.htm
Without government intervention into the economy through borrowing, private borrowers would likely be crushed by debt. They know this.
The way that many private companies rely on government money to exist as a business shows how necessary government intervention into the economy is.
“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.”
Abraham Lincoln