Re: Fw: Keynesian, Edisonian, Fordian, Gellesian Money

[William F Hummel <wfhummel@xxxxxxxxxxx>]

Gellesian money is Debt Free and possibly Tax Free.  The idea is that
the government will issue no debt securities and that it will pay for
its purchases by issuing newly "printed" money.  Taxing is
discouraged, but allowed if inflation becomes unacceptable in some
sense.  However the purpose of taxing is not to finance government
spending but merely to control inflation.

I am aware that Gellesian money originated in Abba Lerner's functional
finance proposals, although perhaps with some significant distortions.
I have not studied Lerner's proposals in detail, and my comments are
not intended as a critique of those proposals.

Gellesian money (and now apparently Edisonian and Fordian money)
cannot be considered a serious concept for a modern day monetary
system.  In a nutshell, it is utopian.  It assumes that the private
sector will readily accept payment in government fiat money for its
goods and services merely because it has been declared legal tender.
Some may believe that is sufficient, and it may indeed work at some
level.  But for nearly the entire population, there is little to
_compel_ the private sector to seek the government's fiat money.
Enforced tax collection is the obvious solution, and as we will see, a
necessary one.

The "cost" of acquiring fiat money must be controlled if private banks
are allowed to operate and issue credit at interest.  But there is no
mechanism in the Gellesian system to adjust the supply of fiat money
to meet the demand at the short term interest rate deemed to be
optimal for the economy.  Banks lend at a markup over the cost of fiat
money.  Firms need to have a reasonably predictable cost of borrowing
to efficiently finance their production plans.

Taxes are a very crude method of controlling the net supply of fiat
money.  Tax revenues vary with the business cycle, the tax rate
schedule, and Congressional politics.  The latter implies long delays
and unpredictable burdens on different sectors of the economy.
Ideally the tax code should remain fixed long-term to enable firms and
households to plan their financing and savings for the future.  Use of
the tax code and tax rate schedule as a means of controlling inflation
is fraught with problems for the economy.  Indeed it's an ugly way to
run the monetary system.

Regarding the Edison quote that Gelles found, one can only say he was
a great inventor.  His concept of money and monetary systems was
naive.  He objected to government debt because it allows someone to
earn interest income without lifting a hand.  Apparently he thinks
share owners who receive dividends or bond interest paid by the Edison
Co. are somehow different.

He also proposes to finance government projects entirely by issuing
printed money rather than borrowed money, in order to save the
interest costs.  Apparently Edison never understood the concept of
present value in determining the cost of a project.

William F Hummel

>
>----- Original Message -----
>From: "John Gelles" <indexed-savings@xxxxxxxxxxxxx>
>To: "Proceedings of PKT Forum" <pkt@xxxxxxxxxxxxxxxx>
>Sent: Thursday, July 24, 2003 11:45 AM
>Subject: Keynesian, Edisonian, Fordian, Gellesian Money
>
>
>In recent days much progress has been made in this
>very small PKT forum in thinking about:
>
>      "Where will the MONEY come from to pay
>        for a progressive agenda  (whether you are
>        a Democrat, Republican, Green or Indepen-
>        dent) ?"
>
>Gelles suggests it should come from radical reform
>of money creation, and radical reform of financing
>government payment for national needs, to reduce
>taxes to where counter-productive effects of taxation
>are avoided as much as possible.
>
>Thomas Edison wrote on this subject -- it is worth
>re-reading his thoughts.  Of course the history of
>such reform efforts goes back to the beginning of
>money and credit -- in pre-biblical times, and it is
>nicely identified with Abraham Lincoln in modern
>times.
>
>===================================
>
>Edison speaks in the New York Times in 1921:
>
>
>Thomas Edison made it plain in the following excerpt
>from The New York Times, December 6, 1921 issue
>("Ford Sees Wealth In Muscle Shoals").
>
>Here, the reporter is quoting Edison:
>
>"That is to say, under the old way any time we wish to
>add to the national wealth we are compelled to add to
>the national debt.
>
>"Now, that is what Henry Ford wants to prevent.
>He thinks it is stupid, and so do I, that for the loan
>of $30,000,000 of their own money the people
>of the United States should be compelled to
>pay $66,000,000 -- that is what it amounts to, with
>interest.
>
>"People who will not turn a shovelful of dirt nor
>contribute a pound of material will collect more
>money from the United States than will the people
>who supply the material and do the work. That is
>the terrible thing about interest. In all our great
>bond issues the interest is always greater than the
>principal. All of the great public works cost more
>than twice the actual cost, on that account.
>
>"Under the present system of doing business we
>simply add 120 to 150 per cent, to the stated cost.
>
>"But here is the point:
>
>            If our nation can issue a dollar bond,
>            it can issue a dollar bill.
>
>    The element that makes the bond good makes the
>    bill good. The difference between the bond and
>    the bill is that the bond lets the money brokers
>    collect twice the amount of the bond and an
>    additional 20 per cent, whereas the currency pays
>    nobody but those who directly contribute to
>    Muscle Shoals in some useful way.
>
>" ... if the Government issues currency, it provides
>itself with enough money to increase the national
>wealth at Muscles Shoals without disturbing the
>business of the rest of the country. And in doing
>this it increases its income without adding a penny
>to its debt.
>
>"It is absurd to say that our country can issue
>    $30,000,000 in bonds and not $30,000,000
>    in currency.
>
>    Both are promises to pay; but one promise
>    fattens the usurer, and the other helps the
>    people.
>
>"If the currency issued by the Government were no
>good, then the bonds issued would be no good either.
>It is a terrible situation when the Government, to
>increase the national wealth, must go into debt and
>submit to ruinous interest charges at the hands of
>men who control the fictitious values of gold.
>
>"Look at it another way. If the Government issues
>bonds, the brokers will sell them. The bonds will be
>negotiable; they will be considered as gilt edged
>paper.
>        Why? Because the government is behind them,
>        but who is behind the Government? The people.
>        Therefore it is the people who constitute the basis
>        of Government credit.
>
>"Why then cannot the people have the benefit of their
>own gilt-edged credit by receiving non-interest bearing
>currency on Muscle Shoals, instead of the bankers
>receiving the benefit of the people's credit in interest-
>bearing bonds?"
>------------------------------------------------------
>    The above NY Times article is from:
>    PROSPERITY: Freedom from Debt Slavery
>    A 4 page journal which examines these issues
>    every month. PROSPERITY is edited and
>    published by Alistair McConnachie
>    admcc@xxxxxxxxxxxxxxxxxxxxx
>    www.ProsperityUK.com
>
>=======  End Edison =================
>
>Now Gelles knows there is a line between money
>crankery and legitimate reform of political economy.
>
>But scholars must be careful.  Bill Mitchell pursues
>price coordinate patterns to create modern models
>to simulate and predict simulated scenarios and
>future outcomes. Yet he knows prices do not reflect
>reliable measures of physical logistical facts. He
>knows the risk of garbage in and garbage out when
>we want to put real food on real tables everywhere.
>
>I do not dismiss econometrics. Neither do I dismiss
>capitalists in 1921 who made electricity and built
>cars using vast organizations and thousands of
>working minds and hands. They and Lincoln were
>on to something when they imagined (and acted
>in Lincoln's case) that nations desperate for money
>could do as Ben Bernanke says we can do today:
>
>        use zero-interest or low-interest money to
>        prevent deflation and, by implication, fight
>        terrorism, fascism, want, unemployment,
>        and all things we must and can fight with
>        money for as long as money works.
>
>The issue is will money work when there are
>more jobs than people to fill them? Will people
>work with mind and body as hard as they do today
>without the stick of poverty to drive them?
>
>If we assume the worst -- that people will loaf
>and we will have no more doctors or police --
>that still will not mean Edison is wrong.
>
>        It will only mean that AFTER WE  add
>        debt-free money to a mix of  commercial
>        banknotes and  debt-free Government Issue
>        (GI) money, we will have to add carrots,
>        like honors, and sticks, like shaming,
>        to change loafers into players.
>
>In time the workaholic inventors will create so
>many robots and automated systems that work will
>become a privilege, not a burden, as it is to me in
>retirement.
>
>In looking at other potential errors in these matters
>I refer to William Hummel's recent post:
>
>========= Hummel follows below =========
>
>In trying to understand John's views on a debt-free
>money system, the closest example I can think of is
>one in which money consists only of full-bodied coin.
>
>That means the purchasing power of the metal itself
>equals the face value of the coin, in which case the
>coin is an asset for the holder and a liability for no
>one - pure Gellesian money.
>
>       [INTERJECT: Coin carries no promise, implied
>        or direct, to hold its value in things that money
>        can buy.  DFTF money is indexed for inflation
>        and carries the promise of government to manage
>        the money system to work all the time. The
>        promise is as good as the Bill of Rights. Not
>        absolutely perfect -- but good enough for the
>        likes of we ordinary people.]
>...
>
>There is simply no way that fiat money can be made
>"debt free."  When someone accepts intrinsically
>worthless fiat money in exchange for goods and
>services, he willy-nilly becomes a creditor.
>
>The issuer of the fiat money is the debtor.  That
>raises the question of why anyone would accept
>intrinsically worthless fiat money.
>
>The answer of course is that the public needs that
>money for some reason, and that points directly at
>the power of government to levy taxes in its own
>fiat money.
>
>       [INTERJECT:  Ben Franklin's TF money in the
>        colony of Pennsylvania before the Revolution
>        worked perfectly as IOU's.   Moreover, my
>        DFTF money reserves the power to tax
>        whenever necessary -- which will be from
>        time to time.   While taxes are not necessary,
>        it will facilitate growth like we've had in
>        high tech industries, agriculture and medicine.]
>
>Credit and its counterpart, debt, is the lifeblood of
>a modern day economy.  The amount and quality of
>credit market debt is a measure of the size and vitality
>of a nation's economy.
>
>All credit rests like an inverted pyramid on a small
>foundation of fiat money known as the monetary
>base.  The implicit assumption is that credit market
>debt is convertible at maturity into base money.
>However base money is only the foundation, and
>not what the private sector economy runs on.
>
>       [INTERJECT:  My DFTF money would only
>         add to said base -- bank credit would not
>         change, nor would it be restricted. Banks
>         would still use a partial reserve system and
>         would still create Central Bank controlled
>         money out of nothing.  DFTF money would
>         be used only by government when it ended the
>         national debt, perhaps slowly, and ended tax
>         collection fast.
>
>        The model for DFTF money is more or
>        less the same as Edison describes and as
>        is used in the Channel Islands (albeit they
>        most likely use a controller of the currency
>        instead of a central bank to monitor
>        commercial banks and their license to
>        create more money.)]
>
>William F Hummel