A New Look for Substance behind Sound Money

["John Gelles" <indexed-savings@xxxxxxxxxxxxx>]

If money were perfect it would be protected
against inflation and would never, on account
of its scarcity, cause deflation or retard green
growth that full employment, high technology
and innovative energy might make possible.

Some have suggested fiat money, convertible
only to itself, needed to be lent into circulation
at interest -- so that there was a connection
between money in circulation and the discounted
value of existing collateral and expected cash
inflows from loans.

        (As the discount percentage was lowered,
        such fiat money would soften to encourage
        borrowers to take greater risks. If borrowers
        created too much money, and values of assets
        and firms ballooned and bubbled, the discount
        percentage could be raised, speculative margin
        requirements could be raised, and radical losses
        by debtors to creditors and by owners in the
        paper value of holdings, might be avoided.)

With all this in mind, the suggestion is made for
national governments to spend some money into
circulation -- thus breaking the connection between
money flows and then current stocks of money and
aggregate of non-money assets.

But the suggestion has strings:

a. The money spent without debt or taxes behind it,
    when saved in deposit accounts, and so exposed
    to inflation, would be protected like Treasury
    Inflation Protected bonds (TIP's bonds).

    In effect, the holders of such savings would have
    lent, to the national government, money that they
    (the now holders) did not have at the time the
    spending occurred.

    In other words, the money would be the same as
    money from bond sales ahead of government
    spending -- except for the timing of when to spend
    it.  Spending it ahead of savings is as good as later
    -- we claim -- if harmful inflation is avoided.

    There would be a real connection between money
    in circulation after debt-free government issue
    thereof and the value of what government added to
    the wealth of the nation by spending.

    Moreover, government would be more responsible
    to prevent harmful inflation than it has ever been
    before.

b. Government would be promising to use the power
    to "coin" (create) money to promote liberty and the
    general welfare -- with zero taxation of any kind not
    enacted to discourage certain transactions in the
    national interest, including the need to allocate
    resources to ensure supplies destined for affordable
    uses that fight inflation.

c. Government would use all manner of price and
    wage controls, savings drives, and exhortation to
    work, as necessary, to fulfill its promise defined in
    the constitution, including the Preamble.

In brief-- what stands behind the fiat money we need?

        The things the economy offers for sale, new and
        previously owned, especially the extra things
        brought to market and national use by full
        employment, high technology, freedom to
        innovate, rules against restraint of trade, and,
        never running short of the money itself.

    John Gelles