Full Reserve Bank­ing

Description

Steve Keen:

"The for­mer could be done by remov­ing the capac­i­ty of the pri­vate bank­ing sys­tem to cre­ate mon­ey. This is the sub­stance of the Amer­i­can Mon­e­tary Insti­tute’s pro­pos­als, which are now embod­ied in the Nation­al Emer­gency Employ­ment Defense Act of 2011 (HR 2990), a Bill which was sub­mit­ted to Con­gress by Con­gress­man Den­nis Kucinich on Sep­tem­ber 21st 2011. This bill would remove the capac­i­ty of the bank­ing sec­tor to cre­ate mon­ey, along the lines the the 100% reserve pro­pos­als first cham­pi­oned by Irv­ing Fish­er dur­ing the Great Depres­sion (Fish­er 1936), and vest the capac­i­ty for mon­ey cre­ation in the gov­ern­ment alone.

A sim­i­lar sys­tem is pro­posed by the UK’s New Eco­nom­ic Foun­da­tion with its Pos­i­tive Mon­ey pro­pos­al.

Tech­ni­cal­ly, both these pro­pos­als would work. I won’t go into great detail on them here, oth­er than to note my reser­va­tion about them, which is that I don’t see the bank­ing sys­tem’s capac­i­ty to cre­ate mon­ey as the causa cau­sans of crises, so much as the uses to which that mon­ey is put. As Schum­peter explains so well, the endoge­nous cre­ation of mon­ey by the bank­ing sec­tor gives entre­pre­neurs spend­ing pow­er that exceeds that com­ing out of “the cir­cu­lar flow” alone. When the mon­ey cre­at­ed is put to Schum­peter­ian uses, it is an inte­gral part of the inher­ent dynam­ic of cap­i­tal­ism. The prob­lem comes when that mon­ey is cre­at­ed instead for Ponzi Finance rea­sons, and inflates asset prices rather than enabling the cre­ation of new assets.

My cau­tion with respect to full reserve bank­ing sys­tems is that this endoge­nous expan­sion of spend­ing pow­er would become the respon­si­bil­i­ty of the State alone. Here, though I am a pro­po­nent of gov­ern­ment counter-cycli­cal spend­ing, I am scep­ti­cal about the capac­i­ty of gov­ern­ment agen­cies to get the cre­ation of mon­ey right at all times.

Schum­peter­ian bank­ing also inher­ent­ly includes the capac­i­ty to make mis­takes: to fund a ven­ture that does­n’t suc­ceed, and yet to be will­ing to take that risk again in the hope of fund­ing one that suc­ceeds spec­tac­u­lar­ly. I am wary of the capac­i­ty of that mind­set to co-exist with the bureau­crat­ic one that dom­i­nates gov­ern­ment." (https://www.debtdeflation.com/blogs/manifesto/)