<html><body><div style="color:#000; background-color:#fff; font-family:times new roman, new york, times, serif;font-size:12pt"><div><span></span></div><div><br></div> <div style="font-family: times new roman, new york, times, serif; font-size: 12pt;"> <div style="font-family: times new roman, new york, times, serif; font-size: 12pt;"> <div dir="ltr"> <font size="2" face="Arial"> ----- Forwarded Message -----<br> <b><span style="font-weight: bold;">From:</span></b> Gunnar Tómasson <gunnar.tomasson@verizon.net><br> <b><span style="font-weight: bold;">To:</span></b> gang8@yahoogroups.com <br> <b><span style="font-weight: bold;">Sent:</span></b> Sunday, 16 September 2012, 23:57<br> <b><span style="font-weight: bold;">Subject:</span></b> Re: Re: Re: [gang8] Must money be debt? - "The Chicago Plan Revisited"<br> </font> </div> <wbr><div id="yiv1042667158">
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<div>Dirk.</div>
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<div>As I recall it, the objective of the Volcker experiment was to keep the growth rate of some monetary aggregate within pre-determined bounds.</div>
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<div>There was no targeting of interest rates.</div>
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<div>Also, at the time the experiment was seen as an empirical test of Friedmanite monetary policy prescriptions.</div>
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<div>I see no a priori grounds for supposing that the impact of a given rate of growth of some monetary aggregate on the economy and market interest rates should vary with the institutional framework within which monetary growth is injected into the economy.</div>
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<div>Gunnar<wbr><wbr><wbr>Sep 16, 2012 03:34:42 PM, gang8@yahoogroups.com wrote:<wbr></div>
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<div>1. The 'Volcker Shock' was a bid to stop inflation by raising interest rates WITHIN the existing system of private money issuing. That makes it incomparable to the Chicago Plan. Also, the monetarist eperiment targeted money, not credit, and so never really controlled credit growth. In sum, the Volcker experiment cannot be used to discredit or recommend the Chiacago Plan, I would think. They are too different.</div>
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<div>2. Yes, deciding on which rate of monetary growth is the right rate will be a political decision, but that goes for all monetary decisions, including the interest rate setting and bond buying as we see now. This will always be the case and is a separate issue from the choice of government/private money issuance. </div>
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<div>The principal problems I see with the Chicago Plan is that it is hard for bureacrats to know the 'right' money growth rate (the same issue Hayek and Oskar Lange argued about). Also, the public will invent its own money if it needs, so true control is illusionary. But the system may be a great deal better than what we have now, where bonus seeking bankers and loan officers decide most that matters. </div>
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<div>Dirk </div>
<div> </div><span>On 15-09-12, <b class="yiv1042667158name">Gunnar Tómasson </b> wrote:</span>
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<div>Dirk, and all,</div>
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<div>I read the paper a few days ago.</div>
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<div>The concept of a steady growth of money (however defined, Mx or My) as guiding principle for monetary policy was put into practice by Paul Volker at the US Fed in October 1979. As a result, interest rates rose to levels rarely, if ever, seen before in the U.S. By the end of 1983 the experiment had been quietly ended.</div>
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<div>In principle, also, a steady money/credit growth rate must entail deflationary/inflationary pressures depending on whether the GDP growth rate is above/below the concurrent rate of money/credit growth.</div>
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<div>In a country such as Iceland, where effective monetary policy has never been applied, there is the additional problem that decisions on the level of the money growth rate and the channels through which such growth is put into circulation will inevitably reflect political as much as purely economic considerations.</div>
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<div>These were the main problems that occurred to me on reading the paper by the IMF staffers.</div>
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<div>Gunnar</div>
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<div><wbr><wbr><wbr>Sep 15, 2012 10:40:57 AM, gang8@yahoogroups.com wrote:<wbr></div>
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<div>Gunnar, and all,
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<div>You should read the thoughtful paper "The Chicago Plan Revisited" by Jaromir Benes and Michael Kumhof. It is an IMF working paper ( WP/12/202) and can be found at </div></div>
<div> <font color="#388222">www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf</font> </div>
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<div>The paper is a model analysis of the proposal to let the government issue debt-free money, as proposed by several scholars (among them Fischer) in the 1930s. Richard and others made a similar proposal recently (100% reserve money). </div>
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<div>The model can be ignored for the moment, the first 10 or 15 pages are a very careful discussion of the issues and the technicalities of money issuing without debt growth.</div>
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<div>I am still reading this and reserving judgment until I am done. Given the level of the discussion and of institutional realism, and given the fact that it comes form the IMF, this paper merits our attention and discussion.</div>
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<div>Either the IMF is coming round to creditary principles, or Benes and Kumhof (who already did, apparently) will soon leave. </div>
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<div>Dirk </div>
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<div> </div><span>On 15-09-12, <b class="yiv1042667158name">Gunnar Tómasson </b>wrote:</span>
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<div>Stephen A. Zarlenga, author of The Lost Science of Money and founder of the American Monetary Institute, sought an answer to this question "by examining the results evident in historical examples” in the first 23 chapters of his book. On the basis of that examination, Zarlenga challenges the view of A. Mitchell Innes that "money must be debt".<br><br>Must money be debt?<br><br>In the context of modern entrepreneurial market economies, money derives from and encapsulates a creditary relationship between entrepreneurs and owners/suppliers of factor inputs. This relationship arises at Alpha and concludes at Omega of the production process, with intrinsically worthless IOUs/money received as Factor Income at Alpha being redeemed in Final Output at Omega.<br><br>In other words, money is a token of debt by entrepreneurs to suppliers of factor inputs - of credit extended in the form of factor inputs for later redemption in final output.
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