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By Steven Baker, on 9 March 10
 This post is excerpted from Mises’ “The Causes of the Economic Crisis and Other Essays Before and After the Great Depression” which is available to buy here and download here. Both Andreas Acavalos and Toby Baxendale supported the production of this book.
Emphasis mine.
On covering government deficits by creating new money (pp 2-3):
If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down completely. The purchasing power of the monetary unit will decline more and more, until finally it disappears completely. To be sure, one could conceive of the possibility that the process of monetary depreciation could go on forever. The purchasing power of the monetary unit could become increasingly smaller without ever disappearing entirely. Prices would then rise more and more. It would still continue to be possible to exchange notes for commodities. Finally, the situation would reach such a state that people would be operating with billions and trillions and then even higher sums for small transactions. The monetary system would still continue to function. However, this prospect scarcely resembles reality.
On credit expansion by banks, its effects on the economy and the ensuing crisis (pp 113-115):
The crisis breaks out only when the banks alter their conduct to the extent that they discontinue issuing any more new fiduciary media and stop undercutting the “natural interest rate.” They may even take steps to restrict circulation credit. When they actually do this, and why, is still to be examined. First of all, however, we must ask ourselves whether it is possible for the banks to stay on the course upon which they have embarked, permitting new quantities of fiduciary media to flow into circulation continuously and proceeding always to make loans below the rate of interest which would prevail on the market in the absence of their interference with newly created fiduciary media.
If the banks could proceed in this manner, with businesses improving continually, could they then provide for lasting good times? Would they then be able to make the boom eternal?
They cannot do this. The reason they cannot is that inflationism carried on ad infinitum is not a workable policy. If the issue of fiduciary media is expanded continuously, prices rise ever higher and at the same time the positive price premium also rises. (We shall disregard the fact that consideration for (1) the continually declining monetary reserves relative to fiduciary media and (2) the banks’ operating costs must sooner or later compel them to discontinue the further expansion of circulation credit.) It is precisely because, and only because, no end to the prolonged “flood” of expanding fiduciary media is foreseen, that it leads to still sharper price increases and, finally, to a panic in which prices and the loan rate move erratically upward.
Suppose the banks still did not want to give up the race? Suppose, in order to depress the loan rate, they wanted to satisfy the continuously expanding desire for credit by issuing still more circulation credit? Then they would only hasten the end, the collapse of the entire system of fiduciary media. The inflation can continue only so long as the conviction persists that it will one day cease. Once people are persuaded that the inflation will not stop, they turn from the use of this money. They flee then to “real values,” foreign money, the precious metals, and barter.
Sooner or later, the crisis must inevitably break out as the result of a change in the conduct of the banks. The later the crack-up comes, the longer the period in which the calculation of the entrepreneurs is misguided by the issue of additional fiduciary media. The greater this additional quantity of fiduciary money, the more factors of production have been firmly committed in the form of investments which appeared profitable only because of the artificially reduced interest rate and which prove to be unprofitable now that the interest rate has again been raised.
Great losses are sustained as a result of misdirected capital investments. Many new structures remain unfinished. Others, already completed, close down operations. Still others are carried on because, after writing off losses which represent a waste of capital, operation of the existing structure pays at least something.
The crisis, with its unique characteristics, is followed by stagnation. The misguided enterprises and businesses of the boom period are already liquidated. Bankruptcy and adjustment have cleared up the situation. The banks have become cautious. They fight shy of expanding circulation credit. They are not inclined to give an ear to credit applications from schemers and promoters. Not only is the artificial stimulus to business, through the expansion of circulation credit, lacking, but even businesses which would be feasible, considering the capital goods available, are not attempted because the general feeling of discouragement makes every innovation appear doubtful. Prevailing “money interest rates” fall below the “natural interest rates.”
When the crisis breaks out, loan rates bound sharply upward because threatened enterprises offer extremely high interest rates for the funds to acquire the resources, with the help of which they hope to save themselves. Later, as the panic subsides, a situation develops, as a result of the restriction of circulation credit and attempts to dispose of large inventories, causing prices [and the “money interest rate”] to fall steadily and leading to the appearance of a negative price premium. This reduced rate of loan interest is adhered to for some time, even after the decline in prices comes to a standstill, when a negative price premium no longer corresponds to conditions. Thus, it comes about that the “money interest rate” is lower than the “natural rate.” Yet, because the unfortunate experiences of the recent crisis have made everyone uneasy, the incentive to business activity is not as strong as circumstances would otherwise warrant. Quite a time passes before capital funds, increased once again by savings accumulated in the meantime, exert sufficient pressure on the loan interest rate for an expansion of entrepreneurial activity to resume. With this development, the low point is passed and the new boom begins.
Further reading
By Toby Baxendale, on 24 February 10
Our Corporate Affairs Director Steve Baker has posed this question to some of his fellow board members, “Would be great to nail this phenomenon on the system of money – that is to demonstrate clearly that it is credit expansion which redistributes wealth to the wealthy:
In other words, the trickle-down effect that is meant to spring from wealth accumulation has not worked as it should have. Flexible labour markets have delivered big time for bankers and shareholders, but failed to improve the lot of ordinary workers in the same way. In Britain, growth in consumption was funded not by real economic advancement, but by the fool’s paradise of ever-increasing debt.
http://www.telegraph.co.uk/finance/comment/jeremy-warner/7105004/Capitalism-has-forgotten-to-share-the-wealth.html
The essence of a credit expansion starts with the policy of the Treasury / Bank of England aka “the State”. The aim is to make money cheaper so that more money / credit is granted to borrowers, more economic activity is then meant to take place.
How is this done?
If you wanted to make jam cheaper, you would need to produce more of it for the same level of demand. The only way the jam market would clear is for the jam to sell at that demand for a lower price.
The State has the monopoly issue of money under its control. If the whole history of man was displayed in the form of a 12 hour clock, with today being the 12th hour, the State has only had this monopoly of the production of money since the end of the Gold Standard at the outbreak of the 1st World War. Attempts to get back on the Standard took place in the 20’s but were abandoned in the 30’s. Post World War II until 1971 there was a weak form of Gold Standard under the Bretton Woods system. Since that date, there has only been paper standards in different countries. So from the dawn of civilization until about the 11th hour and the 59th minute of human existence, Gold was money. It was a commodity for which all things exchanged for, it was produced by private individuals and no one person controlled the production of gold. Like language, it was a spontaneous invention of human beings to facilitate working together. It is thus one of the greatest inventions of man.
If the the State, as the monopoly issuer of paper money decided that the economy needs more liquidity (we have done this with our £200bn QE program), the bank will buy its governments outstanding debt obligations , or IOU’s, commonly called Gilts or Bonds, with newly minted money (to monetize). Thus the new money, like the new jam, or the jam over supply illustrated in the above example , enters the economy via the recipients of the new money.
Dear reader, I would like you to pause for a minute and ask yourself how comfortable would you feel about the government setting the price of jam and issuing all of its supply? Is this not what they tried to do in the Soviet Union? Absenting the price mechanism, that coordinates the choices of many millions of people, to allow suppliers of jam to know how much to produce to satisfy the demand for jam, and we have shortages for jam leaving shops empty for sometimes many months on end. Why do we trust the State to do this?
We seem to accept that the government, in its wisdom, that must be greater than that of all its citizens , can plan the production and supply of money as the old Soviet system did for a whole host of goods and services, for its subjects.
Experience will tell us, that like the Soviet production of jam, our State production of money will cause shortages and surpluses of varying degrees. Worst still, constructivist policy activism by the State via its agents at the Bank of England attempt each time they set the interest rate, to produce just enough money to keep the economy on an even keel. The evidence that they get this wrong is called “Boom and Bust.”
If you got jam production wrong, your surplus jam goes to waste or you can not feed your demand.
An over supply of money is called a “boom.” An undersupply is called “bust.” Every single boom from the Soutth Sea Bubble onwards can be traced back to some artificial expansion of money / credit not brought about by the free interplay of market forces determining the production of money. As money permeates every aspect of the economy, an over or under supply of it has far more consequences than an over or under supply of money. In this current “bust” I would submit that virtually all people in the world wide system of capitalistic production have been effected in their personal lives to some degree of negativity as they have had to adjust to the new world order.
The effects of this over supply are so little understood, it is worth while explaining once more by looking Richard Cantillon in his Essai sur la Nature du Commerce en Général (1755). This showed us that if money supply doubled, prices do not necessarily double. Money is not neutral in terms of consumption and production. Money goes into the system when created by the government to the bond holders whose bonds are redeemed. With this new money they have the first wealth effect of this new money. Like a counterfeiter he exchanges his new bits of paper for real goods and services, bidding up the prices of these goods and services. The producers of these initial goods and services then do the same with the goods and services that they buy and so on and so forth until the prices for the last people, those who spend less in the economy, the poor, those on fixed income (pensioners, the thrifty saver) etc, spend on goods and services that now have a higher money price. Thus, the insidious effect is a transfer of wealth away from the poorest in society to the richest in society: those banksters who buy / sell the bonds and the bond holders who have received the newly minted money.
We must remember, the bankster in all of this is often the agent of the State when he sells and buys the government debt either creating over supply or under supply of money. He takes his commission right at the well spring or the fountain of this money making process. He gets the first ability to benefit from the wealth effect as he can spend his money on goods and services at the same time as the bond investor. He is a direct recipient of the first order of the wealth transferred from the poorest to the richest members of society. The bankster is on the welfare state of credit. The government is totally in control of this process yet does not seem to realize it.
This is why Jeremy Warner in his well argued Telegraph article wonders how so much wealth has been created for so few and why his the trickle down did not have a positive effect on the poorest members of our society. I hope I have demonstrated that as the production of paper money in itself does not create wealth , as if it did, world poverty could be ended tomorrow, like a counterfeiter, new money allows its first recipients to exchange nothing (bits of paper) for real things such as Mayfair town houses etc. The sad salient point, is as the “wealth effect” works its way through society bidding up prices, the poorest people pay more for their goods and services. They have what little wealth they have confiscated to the benefit of the likes of the banksters who are knee deep on the welfare state of credit. Real wealth creation happens when entrepreneurs start coming up with better methods of production to make better goods and services more efficiently then before. There has been too much of the former providing the illusion of wealth and too little of the latter.
By Toby Baxendale, on 22 February 10
I went to this event today.
“22/02/2010 – Ideas Space
Quantitative Easing: Friend or Future Foe?
The Bank of England entered unchartered territory in January last year when the Treasury authorised it to begin a radical monetary policy experiment that we now know as “Quantitative Easing”. Given the unprecedented monetary conditions resulting from the liquidity crisis, the Asset Purchase Facility has been welcomed with open arms, and now stands at almost £200bn invested in UK gilts and corporate debt. But has QE had an economic impact to match its political use? Will the cure prove as dangerous as the disease? How and when should the Bank close the lid on this potential Pandora’s Box?”
Several leading economic figures including Roger Bootle, Tim Congdon and Allister Heath, chaired by Policy Exchange’s Chief Economist, Andrew Lilico, will debate and discuss the merits of quantitative easing, the exit strategies for the Bank of England, the main challenges the UK’s economy will face as a result of the program in 2010 and beyond, and how policymakers should face them.”
These are my notes:
Tim Congdon spoke first , this basic message was that unless money supply, primarily bank deposits, is kept very tight and only moderately growing, there will be trouble ahead with boom or bust. QE has kept the economy on the road and the money supply has not fallen. He acknowledges that there were some problems in measuring this.
Roger Bootle second, he opened by accusing one of our columnist, Liam Halligan of being intellectually devoid of any understanding of economics as he viewed Liam’s world to be predicated on massive inflation and a bond strike and this would never happen. He also said that QE could happen an infinitum. I tell no lie, this is what he said. In fact he was of the view that this should go on and on for whatever amount of time until we were out of trouble. People needed to believe that this policy was going to be the policy that would sort out the economy and indeed he agreed with Krugman, that crude of all the crude Keynesians, that Japan had actually done too little to stop the ongoing deflation. The UK’s risk was never going to be inflation but deflation.
Allister Heath opened with saying he reluctantly supported QE as the key thing was to stop a monetary deflation but questioned why we were having a debate in the first place about the merits of QE and should we do more etc when we should be questioning why do we inflation targeting ? As this has given us the biggest boom and bust in living memory should we not dispense with this independent Bank of England , FSA and other so called control bodies and centralise further into one overall controlling body that controls the broad money supply?
I was utterly bemused by all this tosh spoken in the name of economics with glimmers of hope only coming from Allister Heath.
The chairman asked three questions and the audience were asked three questions with one follow up.
I asked “in business I create wealth by making my factors of production work more efficiently to produce more goods and services. I invariably have to lengthen the structure of my production by saving and investing this money in new and more efficient kit to produce more of my goods and services for better prices and service level for my customers. With those goods I can exchange them with other entrepreneurs, shop keepers etc for my basic food, rent for my roof over my head etc via the medium of money. Money is bits of paper in this country and an electronic bank deposit, so having more of the bits of paper and banks deposits to exchange for the same goods and services would only mean my purchasing power had been debased, so no wealth would have been created. I thought this question go to the heart of the matter.
The second was about bond yields – had they or had they not moved up or down.
The third as about what the panel thought about the questioner’s view that we could only get out of this mess via and export related recovery.
Peter Bottomley asked a question that I cannot remember.
The Chairman then had another round of questions.
Mine was relegated to the bottom by the Chairman. Roger Bootle thought it should be answered by Tim Congdon and in the end Allister Heath did give an answer which acknowledged that no wealth could be created by paper alone and that there was a large body of work in Mises and Hayek showing that the creation of credit causes boom and bust . He was reluctant to support QE as it at least kept money supply near static as opposed to imploding, but saw no ability for it to create wealth . I was not allowed time to debate this with Allister , but did mention afterwards that as he said to me, the Austrian School was divided between those who would support a printing of money to offset a fall in V and those who would just advocate a deflation to allow the market to clear at new lower prices. Having to go I should have added, there is a third camp based around the Cobden Centre who would advocate 100% reserves as this would fix the money supply and you can never have a run on the bank with 100% reserves in place. This is explained here http://www.cobdencentre.org/2010/02/a-day-of-reckoning/ .
Allister framed his discussion in the mainstream language of the Quantity Theory of Money, more I suspect to engage with his fellow economists rather than he having any belief in it being more than a tautology. For a refutation of the Quantity Theory see here http://www.cobdencentre.org/2009/09/qe-errors/ . I did point out at the end after the event had finished that if V went down, how could me selling a house to someone, real bricks and mortar exchanging for money and having it sold back to me for the same 10 times create any wealth? Yes we can increase the velocity of the circulation of money by doing daft things like I describe, but Allister accepted nothing like wealth creation will come of it.
The medium of exchange will not create wealth on its own. It is not wealth. If you hold these bits of paper you hold claims to wealth. The retained goods and the savings we have are wealth. The whole capital infrastructure of our companies and private balance sheets are wealth . This infrastructure drives wealth creation via the dynamic entrepreneurial spirit of men of action who mix the factors of production into the most efficient combinations to satisfy the most amounts of needs. No small matter of printing paper that facilitates exchange or adding electronic reserves to banks will make that wealth creation process any easier. The second part of this article explains how wealth is created http://www.cobdencentre.org/2009/09/can-the-manipulation-of-interest-rates-create-wealth/ .
A poor day for economics!
By Steven Baker, on 12 February 10
ECONOMISTS IN THE TRADITION OF THE AUSTRIAN SCHOOL have shown that one type of maturity mismatching can cause maladjustments and business cycles. When banks expand credit, by granting loans and creating demand deposits, they generate immediately withdrawable liabilities to finance longer-term loans. The newly created demand deposits do not represent a reduction of consumption, i.e., that characterized by real savings. As a consequence, interest rates are artificially reduced under the level they would have been in a free market reflecting real savings and time preference rates. Thus, entrepreneurs are prone to engage in more and longer projects than could be financed with the available supply of real savings. Before all projects that are financed by the credit expansion are finished, a bust occurs. An absence of real savings to sustain the factors of production in the production processes and to produce complementary and necessary capital goods becomes evident. As a result, malinvestments are liquidated and the structure of production is brought in line with consumer preferences again. This is the Austrian Business Cycle Theory (ABCT) in a nutshell.
In his paper, Philipp goes on to explain that other types of maturity mismatching can cause cycles:
At the core of the traditional Austrian business cycle there is maturity mismatching in the term structure of the assets and liabilities of the banking system. In the process that underlies the business cycle, banks use short-term liabilities with zero “maturity” (i.e., demand deposits) to finance long-term projects via longer-term loans. However, the current economic turmoil is marked not only by massive maturity mismatching in the form of fractional reserve banking, but also by maturity mismatching on the part of investment banks via structured investment vehicles (SIVs), that use short-term repurchase agreements or short-term financial papers to finance longer-term investments. Naturally, the following question comes to mind: If one kind of maturity mismatching, i.e., the use of demand deposits to finance loans, can cause the business cycle, would not other kinds of maturity mismatching have similar effects, i.e., the use of funds obtained from the issue of short-term commercial paper to finance longer-term loans.
The full paper is recommended for the technical reader. Available here.
By Anita Acavalos, on 8 February 10
Guest contributor Anita Acavalos, daughter of Advisory Board member Andreas Acavalos, explains the political and economic predicament in Greece.
In recent years, Greece has found itself at the centre of international news and public debate, albeit for reasons that are hardly worth bragging about. Soaring budget deficits coupled with the unreliable statistics provided by the government mean there is no financial newspaper out there without at least one piece on Greece’s fiscal profligacy.
Although at first glance the situation Greece faces may seem as simply the result of gross incompetence on behalf of the government, a closer assessment of the country’s social structure and people’s deep rooted political beliefs will show that this outcome could not have been avoided even if more skill was involved in the country’s economic and financial management
The population has a deep rooted suspicion of and disrespect for business and private initiative and there is a widespread belief that “big money” is earned by exploitation of the poor or underhand dealings and reflects no display of virtue or merit. Thus people feel that they are entitled to manipulate the system in a way that enables them to use the wealth of others as it is a widely held belief that there is nothing immoral with milking the rich because they are commonly perceived to be everything that is wrong with Greek society. In fact, the money the rich seem to have access to, is the cause of much discontent among people of all social backgrounds for example farmers and students. The reason for this is that the government for decades has run continuous campaigns promising people that it has not only the will but also the ABILITY to solve their problems and has established a system of patronages and hand-outs to this end.
Anything can be done in Greece provided someone has political connections, from securing a job to navigating the complexities of the Greek bureaucracy. The government routinely promises handouts to farmers after harsh winters and free education to all; every time there is a display of discontent they rush to appease the people by offering them more “solutions.” What they neglect to say is that these solutions cost money. Now that the money has run out, nobody can reason with an angry mob. Continue reading “I predict a riot”
By Toby Baxendale, on 4 February 10
Drawing on the work of Nobel Laureates in economics from three traditions, plus numerous other distinguished scholars, Cobden Centre Chairman, economist and successful entrepreneur Toby Baxendale presents an informal introduction to our proposal for honest money and the benefits consequent on the reform. See also our precis of Irving Fisher’s 100% Money.
Fact
- The average overhang of credit to money of all banks in the United Kingdom is 34 x to its reserves i.e. its actual money base.
- If more than one person in 34 walks into all banks simultaneously to withdraw their deposits, there will be a system wide bank run and a mass liquidity event with systematic default and insolvency.
- We saw the start of this with Northern Rock in the summer of 2007.
- We attempt to paper over the cracks and restore confidence in the banking system still today – with little success.
 Sterling Liquid Assets (BoE FSR, Jun 2009) A practical, politically-acceptable proposal
Our proposal is, as Irving Fisher wrote, “The opposite of radical”:
- Require 100% cash reserves to be held against all demand deposits; there can never be a crisis if a bank always holds 100% cash against all its demand deposits.
- Parliament can do this with one Act.
A similar Act took place in 1844. The Bank Charter Act or “Peel’s Act” established a 100% reserve requirement for bank notes that were issued claiming to be redeemable in gold. The reality was that there were 23 notes in issue for every one unit of gold at the time, creating instability, “panic” and general economic chaos. Not a too dissimilar situation from today where we have 34 claims on money to one unit of money. Politicians in the 19th century did not see the creation of unbacked credit through accounting entries as a problem, since it was only done on a very small scale. The problem then was rampant note issue (claims to real money) well over and above the monetary base, as this was the preferred method the bankers used at the time.
It is often forgotten but when you place £1m in a savings account (in cash) in say the Royal Bank of Scotland, which has no legal reserve requirement, they then lend £970k (in credit) , keeping on average 3% of cash back in reserves, to an entrepreneur in say HSBC, who then deposits that money in HSBC. We now have one claim to the original £1m and one claim to the £970k. The money supply has moved from £1m to £1.97m – just like magic! This is credit expansion.
The reality is that across all the banks in the United Kingdom licensed by the Bank of England, we have for every £1 of money (in cash), £34 in claims to money (credit)!
Peel’s problem was the over issue of notes to gold: our problem is the over issue of credit to money.
Continue reading “A day of reckoning: how to end the banking crisis now”
By Steven Baker, on 1 February 10
Over at Moneyweek, Bill Bonner argues in a subscriber-only article that ersatz money is a flop.
Bonner describes John Law’s disastrous paper money scheme and the origins of ‘our current experiment with paper’. He identifies the features of the long credit boom, which has come to an end, with reserves of dollars worlwide, over consumption and over production. Bonner argues that Japan blew up first and that the planet-wide bubble burst in 2007. He says we are now all following Law’s example.
Bonner quotes — as emphasised below — Mises in Human Action:
The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
I recommend the article, which can be read by taking a free trial.
By Steven Baker, on 22 January 10
Today, we publish our brief guide to money and banking.
The Guide comprises:
- Four charts showing how Baxendale and Evans’ measure of the money supply correlates to economic activity whereas the Bank of England’s measures do not,
- How wealth is created,
- What is and is not money,
- What is wrong with the mechanistic Quantity Theory of Money,
- The role of the interest rate in the business cycle,
- How banking has become socialised through legal privilege and taxpayer guarantee,
- The shape of the debate on money and banking.
By James, on 20 January 10
A speech by James Tyler to the Adam Smith Institute Next Generation Group, 6th October 2009. This speech is also available on hedgehedge.com.
I have spent the best part of the last two decades picking my wits against the market. It’s an unforgiving game: I’ve seen ups and downs, and many of my rivals buried under an avalanche of hubris, passion, illogical thought and unchecked emotion.
I have witnessed the sheer folly of the ERM crisis, the Asian crisis, the failure of the Gods at Long Term Capital Management and the insanity of the tech boom.
I have enjoyed the ‘NICE’ decade (None Inflationary Constant Expansion), and scared myself silly during the credit crisis.
I am a trader.
I risk my own money and live or die by my decisions, and face the threat of personal bankruptcy every time I switch my screens on. I get no salary – indeed I turn up at the start of the month with a large office overhead – a ‘negative’ salary. I have no fancy company pension scheme, no lucrative monopoly or franchise.
I eat what I kill.
Mistakes cost me my livelihood, so, above all, my decisions have to be rooted in practical and logical decision making.
Some have called my kind parasitic, but I would have said that I bring order, efficiency, predictability, stability and deep liquidity to crucial process: a process that makes the whole world keep ticking.
I make money work.
I make the market in interest rate derivatives: a market born out of the neo classical revolution in finance fostered in Chicago during the 1970s. I am a child of Freidman, Fisher Black, Myron Scholes and the modern international financial system.
My analysis was steeped in the neo-classical, efficient markets paradigm.
Friedman’s ideal was working. Enlightened central bankers guided the free market with gentle nudges and short term liquidity infusions, free floating currencies gently adjusted themselves to the constant flow of new information and efficient and rational markets took all in their stride.
Credit flowed, people got wealthier, economies developed and all was well.
And then the crisis struck.
Continue reading “My Journey to Austrianism via the City”
By Steven Baker, on 12 January 10
Irving Fisher’s “100% Money” is remarkable in the context of our present credit crunch. While The Cobden Centre pursues copyright permission to scan and distribute this book, we offer this summary of the preface, foreword and first chapter, which outline Fisher’s proposal.
100% Money
Designed to keep checking banks 100% liquid; to prevent inflation and deflation; largely to cure or prevent depressions; and to wipe out much of the National Debt.
By
Irving Fisher, LL.D.
Professor Emeritus of Economics
Yale University
Irving Fisher (1867-1947) was an important American neoclassical economist who found his “debt-deflation” analysis of the Great Depression was overlooked in favour of Keynesianism. His theories have made a comeback since the 1980s and several important concepts are named after him. He laid the foundations of monetarism.
Fisher’s “100% Money” proposal was to raise reserve requirements against checking deposits to 100%. That is, to keep money on deposit at the bank safe and ready for withdrawal. This was startling in 1935 but, then as now, it represented a return to ancient principle.
Continue reading “Irving Fisher, 100% Money, 1935″
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