To enable private banks to create and lend out money, households must first be driven into debt.

Musgrave, Ralph S. (2017): To enable private banks to create and lend out money, households must first be driven into debt.

Abstract

There are two main forms of money: state issued money (so called “base money”) and money created by private banks. It is perfectly feasible to have either type of money predominate and in most economies nowadays, private money predominates.

Introducing private money to an economy which uses only base money increases demand. To counter that extra demand, it is necessary to confiscate base money from households, which drives some people into debt. Conversely, if in 2017 real world economies private money were banned (as advocated by several Nobel laureate economists), that would be deflationary, which in turn would require government to create and distribute significant amounts of base money to households which would reduce their need to borrow.

• Item Type: MPRA Paper
• Language: English
• Keywords: debt; base money; privately created money.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers

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