Last October two International Monetary Fund (IMF) economists (Jaromir Benes and Michael Kumhof), created a firestorm with their working paper The Chicago Plan Revisited. The document revives a proposal first put forward by professors Henry Simons and Irving Fisher in 1936 during the Great Depression. Fisher, like many modern economic thinkers, was extremely concerned about the extreme concentration of wealth created by credit cycles. In January Kumhof posted the following YouTube video clarifying various aspects of the proposal, as well as answering some of its critics:
The Chicago Plan would require all banks to hold sufficient capital, either in the form of deposits or “reserve credits,” for all the new loans they generate. Under this proposal, the US treasury would issue sufficient “reserve credits” to repurchase all outstanding sovereign debt held by private banks. This buyback would make up a substantial portion of the capital banks would be required to hold to generate loans. They could add to it by borrowing “reserve credits” at a low or zero interest from the US treasury.
As Kumhof explains, the aim of the proposal is to end the ability of private banks to control the monetary supply by creating money out of thin air in the form of loans. Most people have the mistaken belief that government controls the money supply by printing money. Nothing could be further from the truth. Ever since the 17th century, except for a brief period under Andrew Jackson, the money supply in all western countries has been issued and controlled by private banks.
The paper itself goes further than the video in providing historical examples in which governments, rather than private banks, controlled the money supply. Such periods are always characterized by less wealth and income inequality, greater economic stability and negligible public and private debt.
The growing movement to end debt-based money is still considered pretty radical, despite the early boost the Chicago Plan received from conservative economist Milton Friedman and his friends at the Chicago School. The fact the mainstream International Monetary Fund is promoting it suggests that the global economic crisis is far more serious and intractable than our governments and the corporate media are letting on.
The following are excellent documentaries explaining how private banks issue and control the money we all require to meet basic needs in contemporary society:
Money as Debt