James Robertson responds…
In the introduction to Creating New Money, co-authored by Joseph Huber and James Robertson, (free download at www.jamesrobertson.com) the (then) Executive Director of the New Economics Foundation Ed Mayo, wrote, “We look forward to monetary reform moving to the centre stage of public and policy debate in the way that eco-taxes, stakeholding and debt cancellation have done.”
Here James Robertson presents a short summary of answers to frequently asked questions on the reform proposed in his book.
1. What exactly is debt free money?
Debt-free money is exactly what it says. It is not an interest-free debt. It does not have to be paid back. It is money created and issued as a gift.
2. How is debt-free money to be issued?
The amount of debt-free money to be created and put into circulation at intervals, in order to increase the money supply, should be decided by an agency of the state and given to the government to be spent into circulation. In the present situation, this agency will be the central bank, in a further stage in its continuing historical evolution as a central monetary authority. As it already does in the UK, it will make its decisions on a professional basis, independently of elected politicians but in accordance with objectives published by them.
3. If the new money is deposited in banks, what’s to stop them issuing more credit on the back of it?
It will be made illegal for anyone other than the central bank to create new non-cash money (traditionally known as “credit”), just as it already is illegal to counterfeit and forge new notes and coins. Banks and all others who lend money will have to lend money that exists already. It will either be theirs already or they will have borrowed it from elsewhere. In Creating New Money we spell out what this will mean.
4. How will the new money be repayable?
Non-cash money issued in the new way will not have to be repaid. It will remain in circulation. On any occasion when it becomes necessary to reduce the money supply, the central bank will require the government to pay the required sum to it out of tax revenues and will then destroy it, by returning it whence it originally came — that is, by wiping it off the books and turning it back into thin air.
5. Will it cut the cost of government investment?
It could do, yes. The government could use this money for investment. But alternatively it could use it to cut taxes, or to cut the existing level of government debt, or to increase spending on public services like education, health, etc. So there probably won’t be enough of this money to cover all the government’s investment needs, and some government borrowing will still be necessary. But the commercial banks will no longer be allowed to create money out of thin air in order to lend it to the government at interest.
6. Why isn’t it inflationary?
Controlling the growth of the money supply by having a professional agency of the state deciding directly how much it should be increased, rather than indirectly, as at present, by regulating the price at which borrowers borrow from banks and banks lend to borrowers, will give better control of inflation — and bring other important economic and social benefits as well.