Since the correspondance was private, I won't say who the people involved were. I'll just say that they are people whose opinions count a great deal for me.
Rather than keep them secret, I thought it would be interesting to put the exchanges here on my blog. Obviously, I would encourage any of you to chip in with your own ideas.
So, here goes with a couple of exchanges that I found particularly stimulating. The comments are in blue italics - my reactions in normal font.
First Exchange
I guess the main difference I have is that I don't think all money should come into the system from the top down through politicians. I'd have most money still come through banks as loans, and be extinguished when they got paid off. The loans should even be at interest. But the banks should be publicly owned, and the interest should be returned to the people.
[To] be fair to the commercial bank system, I would say that if we take away their monopoly on money creation, I would personally be happy to give them a monopoly on lending for interest.
Otherwise things get complicated. For me, it is enough to allow public money creation to finance projects (and jobs) that everyone wants - providing schools, hospitals, public transport, low-cost social housing etc etc. I wouldn't want any of that money going to fund individuals to buy their own houses etc. If you did, they it would be an invitation to corruption. The first thing that would happen is that you would have corrupt officials using the centrally generated funds to lend to their friends and clients.
The only other reason I can imagine for wanting to create money for lending with interest would be if that you think that we might not be able to create enough money by spending directly into the economy to keep the money supply optimal. For example, if the algorithm said that the FTT level should be 0%, then I suppose there might be an argument for having a source of additional money creation (I certainly wouldn't want to argue for a negative FTT!).
But, at least for a European like me, I simply can't believe that you could run out of things to spend public money on usefully. For example, if the money supply still wasn't large enough, you could just provide free public transport for everyone - even in rural communities. That would require a lot of money creation - and yet it would definitely pay off by allowing the economy to keep expanding - and not just in the cities.
So, do you really think that we need any additional sources of money creation?
Second Exchange
If you give interest-free loans to people, what incentive do they have to pay them back, or not take out outrageously large loans and just keep rolling them over?
That's precisely my reason for not using public created money to make loans. For me, all that new money should be spent into the economy by paying people/companies to do things that people .
It doesn't have to be public sector work. For example, you want to build a new hospital - the government calls for offers. The company with the best proposition gets the deal.
Same as happens now, actually. Except that the government doesn't borrow the money from the banks. It just creates it, debt free, and doesn't have to pay the money back.
A computerized FFT algorithm sounds a bit scary to me. We have those now, and they're not working out so well.
Well, in the end, the actually implementation of the tax is going to be a computer program - it's the software that the banks use for doing the transfer of funds from one place to another.
But the automatic changes in the FTT rate doesn't actually have to be done by a program if you don't want. But, it shouldn't be dangerous. We would be talking about tiny variations - going from 0.3% to 0.31% (for example)
Are you talking about 0% price inflation or money supply inflation?
I would like to see 0% PRICE inflation. We're told that we need inflation, but that is so that the system can pay off the interest charges to the bank.
On the other hand, I would love to see a really big increase in the money supply to get people back to work.
Third Exchange
A financial transactions tax could certainly be used to reduce aggregate demand.
I'm glad you agree! I seriously think that it would be difficult to come up with a simpler more painless way to remove the excess.
However, as with all transactions taxes, they work to reduce the number and size of transactions, particularly as they get larger.
Is that a problem? Given that visible transactions in the US are runningat around $3000 trillion a year there's probably a great deal of that which is totally pointless and could be removed with no detrimental effect whatsoever.
Even if all the $2.3 trillion in US tax revenues was abolished and replaced by government created money (debt free), the increase in the money supply would be at most $2.3 trillion. But, unless there was inflation there would be no need to remove that money with the FTT. And, even in the worst case scenario (in which all the money creation was too much) you would still only need an FTT of 0.08% of $3000 trillion to balance things.
The fact is though that given the amount of unemployment, and the number of factories that are way under full capacity, it seems highly probable that you could pump a lot of debt free public money into the system without producing inflation at all.
And in this case, I have no idea where those 'curves cross' to limit real govt. spending, though it would surely be a moving target?
Well, this is my point. The point where real government speading exceeds the optimal value for money supply could be a very long way away. Governments borrow trillions to pay for wars in Iran/Afghanistan. That's new money going into the system. Here, the amount of money would be
similar or less... and yet it would go to things that the citizens want/need, rather that the arms industry (for example).
My bet is that the US could probably create 10 times more money than the current US budget and still not produce any serious inflation - because supply (production of goods and services) would go up at the same time as demand (government contracts for public works - schools, hospitals, low-cost social housing, transport etc etc).
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