2 years after writing "The Debt Deflation Theory" where he explained how the deleveraging process could lead the U.S. into the worst deflation and economic depression in its history, Irving Fisher published " 100% Money "in 1935. Currency reform political project of great magnitude, a monument to economic theory, the work convincing extension, this book from one of the greatest economists of the modern era has remained for some mysterious reason almost unknown to the vast majority of specialists. The importance of this book have greatly influenced the thinking of Nobel laureates and Maurice Allais Miton Friedman is nevertheless crucial. Fisher explains very simply how to clean the incredible monetary house of cards based on a pyramid of debt to end immutable destructive cycles of boom and depression.
The news of this book is striking. Faced with a crisis of unprecedented private debt, we find no solutions other than to spray the market with liquidity and heavily in debt our countries, merely postpone the inevitable deleveraging process. Gold in our monetary system as in the U.S. of the 30s the corollary of debt is deflation. The plan of Irving Fisher "100% money" or wilderness plan presents what may be the solution to this impasse. The following is the first French translation of my knowledge a short presentation Plan 100% Money in the introduction to this book.
A short presentation of the plan
United States and in some other countries, most of our bills are paid by check and not with money from hand to hand.
When a person signs a check, they pay with what she calls "the money I had in the bank" as indicated by its bank balance the heel of his checkbook. The sum of all balances on all the heels of the nation, that is to say all checking account deposits, or what we usually think of being "money" based bank can be used to pay by check is the primary means of payment in the United States. I propose to call it "money in checking account" to distinguish species or "money in their pockets." The money in the pockets is the most classic of these two types. It is visible and tangible as money in checking account is not. His claim to be money and exchange as if it were real money comes from the fact that he "represents" real money and can be converted to the demand for real money in "cash" a check.
However, the main difference between money on checking account and money in the pockets is that it is a money bearer, accepted by all hands, while silver on checking account requires special permission from the recipient to be transferred.
In 1926, a representative year before the Great Depression, money in checking account held by the inhabitants of the United States totaled $ 22 billion by one estimate, while outside banks and the Treasury states United, the actual money, money and physical bearer in people's pockets and into the coffers of merchants accounted for less than $ 4 billion. Overall, the means of exchange of the country in the hands of the public were $ 26 billion, $ 4 billion flowing from hand to hand and moving 22 billion check.
Many people think that money is really checking account and money is actually in the bank. This is of course far from true.
What can be so much money on this mysterious checking account that we call a misleading way our "money in the bank? is simply the promise of banks to provide money to their depositor when he is asked. To cover the 22 billion money on checking account in 1926, banks held only 3 billion of real money in their trunk. The remaining 19 billion represented assets other than money; assets such as debt and as government bonds or corporate.
In ordinary times, such as in 1926, these 3 billion was sufficient to allow banks to provide applicants blowing all the money they ask. But if all applicants had asked for money ringing at the same time, even if they could collect a certain amount of hard cash by selling other assets, banks could not have enough money to meet these requests for the simple Because there was not enough money ringing around the country to collect the 22 billion. And if all applicants had requested the gold at the same time, there would not have enough gold in the world.
Between 1926 and 1929, the amount of payment has slightly increased from approximately 26 to 27 billion, 23 silver and 4 on checking account money into the pockets.
By cons, between 1929 and 1933, the amount of money on account check fell to $ 15 billion which, with the 5 billion this real money in the coffers and pockets, representing a total of 20 billion payment means instead of 27 in 1929. The increase from 26 to 27, was inflation. The fall was from 27 to 20 of deflation.
episodes of Boom and depression since 1926 are largely identified by these three figures, 26,27 and20 for the three years 1926, 1929 et1933.
These variations in quantity of money were somehow worsened by the similar evolution of its velocity. In 1932 and 1933, for example, not only money circulating was small but its movement was slow and can even speak of widespread hoarding.
Assuming that the amount of money in circulation for 1929 and 1933 were respectively 27 and 20 billion and that each dollar has changed hands, respectively 30 and 20 times a year, the total circulation to be 1929, 27x30 = over $ 800 billion and for 1933, 20x20 = $ 400 billion.
The main changes concern the quantity of money in checking account deposits. The three figures for the checking account money as we are told 22,23, 15, for the money in the pockets of 4.4, 5. One of the essential facts of this depression was the collapse of the amount of money in checking account which rose from 23 to 15 billion, that is to say the disappearance of $ 8 billion in what is the main on payment of our nation, we all need to do business.
This decline 8 billion in the total amount of money in checking account of the nation opposes the increase of 1 billion (ie from 4 to 5) money in the pockets. The public withdraws billion hard cash for banks and banks to provide this additional billion had to destroy 8 billion credit.
Few people realized the loss or destruction of 8 billion cash and check this fact was rarely mentioned. That would have made the headlines if 8 miles every 23 miles of track had been destroyed. However, such a disaster would had little importance compared to the destruction of 8 billion 23 billion of our principal means of payment. This destruction of 8 billion dollars of what the public saw as their money was the great disaster that has driven the two main tragedies of the Great Depression, unemployment and bankruptcies.
People were forced to see 23 billion 8 billion of our principal means of payment sacrificed when that money would not disappear if the system 100% or wilderness was in place. And if that were the case, as we shall see Chapter VII, there would be no great depression.
This destruction of money in checking account was not something natural and inevitable, this was due to a faulty system.
Under our current system, banks create and destroy money in checking account in providing or requesting repayment of loans. When a bank gives me $ 1000 credit and added $ 1,000 in my checking account, the $ 1000 "I have money to the bank "are new. They have been newly created from scratch when the loan was granted and simply added to the heel of my checkbook and account books of the bank by a mere stroke of a pen.
As we have previously indicated, except on those writings, this "money" has no physical existence. When later, I will reimburse the bank the $ 1000, I withdraw from my checking account and an amount equivalent means of payment will be destroyed by a single stroke of pen the heel of my checkbook and books bank account. Thus, they disappear simultaneously.
Therefore, our national payment instruments are to thank you for lending transactions of the bank, and our thousands of bank deposits to checking account are in fact comparable to irresponsible issuers private money.
The problem is the fact that the bank does not lend money but simply a promise to provide money demand, money that it does not. The Banks can build from their meager reserves into cash like an inverted pyramid of "credits" that is to say money in checking account, the volume can be increased or reduced.
It is obvious that such a system, the fragile foundations and imposing summit, is dangerous. It is dangerous for applicants for banks and foremost for the millions of innocent people that form. In particular, when the quantity of money decreases, the public is deprived of a portion of its payment methods by which critical goods can be exchanged.
There is in practice little difference between allowing banks to issue money in checking account used as payment means that enable them to issue paper money as they did during episode of "Wild Cat Bank Notes." Both practices are basically as bad.
Bank deposits are the modern equivalent of bank notes. However, deposits can be created and destroyed in an invisible while the banknotes to be printed and burned. If 8 billion worth of bank notes were burned between 1929 and 1933, this event could hardly go unnoticed.
As the system checking account, money or checking account, based primarily on loans, originally confined to a few countries has now extended to the whole world all its own can not having believed. Consequently, future booms and depressions may be even worse than those of the past unless the system is changed.
The dangers and shortcomings of the current system will be discussed at length in subsequent chapters. Only a few lines suffice to outline the proposed remedy.
The proposal
Empowering the government, through a "Monetary Commission" specially created for the opportunity to transform into cash sufficient assets of each commercial bank that its reserves reached 100% of checking account deposits held. In other words, empower the government, through the Monetary Board to issue the money and buy it with bonds, debt securities or other assets held by banks or lending money to banks with assets as collateral. [1] So all the money check would be covered by real money, money in their pockets.
This new currency (Currency of the Commission or United States Notes) allow all checking accounts to have full coverage into cash in bank reserves. This issue does not increase or decrease the amount I would be total means of payment in the country. A bank that previously kept 100 million U.S. dollars on deposit checking account was legally hold reserves at least 10 million U.S. dollars of hard cash (supplemented by 90 million U.S. dollars of non-monetary assets). She would send these $ 90,000,000 non-cash assets to the commission money in exchange for 90 million U.S. dollars in hard cash, bringing to 100 million U.S. dollars into cash reserves, or 100% of deposits on checking account.
Once this was real money against non-monetary assets is complete, banks should maintain permanently reserves into cash representing 100% of their deposits to checking account. In other words, deposits in checking account deposits would actually consisting of hard cash held by the bank.
Thus, this new currency would be tied reserves of banks by the legal requirement to hold reserves of 100%.
The department managing the bank checking accounts would become a mere warehouse for the money belonging to depositors in bearer form and have an identity separate business as a bank deposit. There would then be no practical distinction between deposits on checking account and reserves. "The money I have in the bank" as described by the heel of my checkbook, would really make money and be really to the bank (or almost at hand). The deposits of the bank could increase to $ 125 000 000 sounded only if the money it has also increased to reach 125 million U.S. dollars, that is to say, seeing its depositors deposit of 25 million U.S. dollars sounding more money by removing as much money from their pockets or their cash and putting it in the bank. If the amount of deposits decreased, this would mean that depositors have withdrawn some money stored, removing it from the bank to put in their pockets or in their crates. In any case, there would be no change in the total outstanding.
As this evolution towards a system of wilderness withdraw assets paid to banks and replace them with the hard cash unpaid, banks offset this loss by charging the service provided to depositors, or through other ways (as detailed in Chapter IX).
Benefits
The resulting benefits of this reform to the public include the following:
1 There would be virtually no banking panic and rush to commercial banks .
For the simple reason that all of the depositors' money would be permanently at the bank and available to their liking. In practice, less money would be withdrawn now. We all remember that applicant frightened jailer who cried at his bank " If you do not have my money, I want it. If you have it, I do not want. "
2 There would be far fewer bank failures.
For the simple reason that the major commercial bank creditors and better placed to drive him into bankruptcy are its depositors, and its depositors would be fully satisfied whatever happens.
3 The government's debt would be substantially reduced.
For good reason, the Monetary Commission, which represents the government, would hand over a large portion of government bonds in progress.
4 Our monetary system would be simplified.
For the simple reason that there would be no essential distinction between money in the pockets and money on checking account. All our means of payment in full be real money.
5 The banking would be simplified.
Today, there is confusion regarding the ownership of the money. when money is deposited in a checking account, the applicant still think that money is hers while legally is that of the bank. The applicant does not hold any money in the bank , it is simply a creditor of the bank as a private company. A bulk of the "mystery" surrounding the banking business would disappear as soon as banks are no longer allowed to lend money from their customers while at the same time these applicants use this money as their money by paying by check. "Mr. Dooley " Will the Rogers of his day, brought to light the absurdity of this double use of money when he described a banker as "a man who cares for your money by lending his friends'
In the future, there would be a clear distinction between deposits on checking account and deposits on savings account. The money in a checking account is for the applicant like any safe deposit and would be paid by any interest. The money in a savings account would have a status similar to that of today. This deposit belongs unequivocally to the bank. In exchange for this money, bank would qualify for a refund with interest but no possibility of n'octroierait payment by check. The applicant would have just bought a savings investment like a bond interest and this investment will require not reserves integrals into cash, nor any investment in bonds or in action.
minimum statutory reserves for savings accounts are not necessarily need to be changed with the arrival of the new system for deposits on account check (even if a building of these reserves is desirable).
6 The large inflations and deflation would disappear.
For the simple reason that banks would be deprived of their present power to create of money on checking account and delete it. Indeed, lending would not increase the total amount of payment and demand repayment of loans do not destroy. The volume money on checking account does would be allocated based on the growth or decline in lending. Money on checking account an integral part of the real currency of the nation and the fact whether he is loaned to someone would not affect its volume.
Even if all depositors were to withdraw all their money at the same or had to repay their loans all at the same time or should all fail in same time, the volume of money of the nation would not be affected. Money would be fair redistributed. This total would be controlled only by its issuer, the currency board (which could also be given powers regarding hoarding and velocity, if desired).
7 episodes of boom and depression would be greatly mitigated.
For good reason they are greatly due to inflations and deflations.
8 The control of industry by banks virtually cease.
For the simple reason that it is only in times of depression that industries can generally fall into the hands of bankers.
Benefits Of these 8, the first two would apply mainly to the United States, the country of bank runs and bank failures. The other 6 would apply to all countries having a filing system on checking account. Benefits 6 and 7 are by far the most important, ie the end of inflation or deflation of our means of payment and thereby mitigating the episodes of booms and depressions in general and the late episodes large booms and large depressions in particular.
Objections
course, a new concept or idea that seems new, like a system Reserves integrals should provoke howls of criticism.
issues that will most likely be the minds of those who have doubts about the system of wilderness are
1 The transition to the system 100% The acquisition of assets by the newly created money, it would increase not immediately the amount of payment outstanding within the country and did not increase it very strongly?
Not a single dollar. It would simply money in the pockets and money on checking account fully convertible by changing the existing deposits consist of imaginary currency deposits consist of pure silver.
After the transition (and after the prescribed degree of reflation was reached [2] ), the Monetary Board may increase the amount of money by buying bonds and could make it decrease in selling bonds that are restricted in each case the obligation to maintain price or value of the dollar to the prescribed level with a precision reasonable.
It is interesting to note that maintaining 100% reserve and maintaining a price level are distinct problems. So everyone can conceivable exist without the other.
2 Would there be valuable assets "cover" the new money?
The day following the adoption of the system of wilderness areas, the new money issued transferable by check would be covered by exactly the same assets, mostly government bonds, covering money in checking account the day before, but these bonds are now in the possession of the Monetary Commission.
The idea that all money must be covered or deposit securities as collateral against rampant inflation is traditional. Under the current system (we'll call it, in contrast, system 10%), once the applicant is concerned that his deposit can be furnished in cash in the pockets, the bank can (theoretically) sell Titles cons money to reimburse its customers panicked. Very good. Under the system 100%, currency would be covered by exactly the same title and it would also easy to sell these securities. But in addition, there would be the government credit USA. In conclusion, there would be more panicked depositors, fearing not to convert their deposit into cash.
3 The gold standard was abandoned?
Neither more nor less than it is today! Gold could have exactly the same position as enjoys today, the price fixed by the government and its use primarily confined to international regulations.
In addition, a return to the kind of gold standard we had before 1933 could, if one wishes be done as easily as a 100% that is today. In reality, under the system 100% it is likely that our old stallion gold, if restored, operate as it was originally intended.
4 How will they get the banks money to lend?
Just like they usually do today, namely: (1) paying their own money (their capital), (2) paying the money they receive from their client and placed on savings accounts (which can not be used to pay by check), (3) paying money paid on overdue loans.
In the long term, there would probably be a lot more money to lend, because there would created more savings and thus available to lend. But here such an expansion of loans, a natural expansion caused by an expansion of savings, would not necessarily any increase in currency in circulation. [3]
The only new bank credit rationing would be a healthy limitation . No money could be lent if there is no money available to lend. Thus, banks could do more lend on creating money from nothing to create inflation and a boom.
In addition to the three sources of loanable funds cited above (the bank's capital, Savings and Rebate) it will be possible for the commission to create monetary money and forward it to the banks by buying bonds. However, issuing new currency would be limited by the fundamental obligation to prevent price increases above a certain prescribed level, measured by a price index suitable.
5 The bankers would be penalized?
Instead,
(a) They share the overall benefits which would take the nation a stronger monetary system and prosperity restored. In particular, they would receive more deposits on savings accounts.
(b) They would be compensated (by charging their service or otherwise) for any loss of profit due to the establishment of wilderness areas.
(c) They are virtually free of the risk of future bank runs and bankruptcies.
The bankers will not soon forget what they suffered during the race to liquidity for years 1931-1933, each for himself and the latter are poor. Such a stampede would be impossible under the system 100% as liquidity is 100% guaranteed at all times by each bank separately, regardless of what the other banks.
6 This plan would be there in a nationalization of the currency and banking ?
of money, yes. Of banking, no.
In Conclusion
The proposal of a full reserve system is anything but radical. What is claimed, in principle, is a return from the extravagant and wasteful system of today of lending the same money 8-10 times in the old deposit system in safe goldsmiths Before they put themselves inappropriately to lend the money they had handed over to be put in trunk. It is this abuse of trust, having been accepted as standard practice, we gradually led to the modern system of bank deposit. From the political point of view it is an abuse. This is no longer a breach of trust, but they are the original functions of loans and deposits that are abused.
England has conducted a reform and a partial return to the system of wilderness goldsmiths when, almost a century ago, the Bank Act was passed requiring wilderness for all notes of the Bank of England issued beyond a certain limit (and also for tickets to all other issuing banks which existed at that time).
Professor Frank D. Graham of Princeton, in a statement in favor of the plan of wilderness, President Adams said he "denounced the issue of banknotes by private banks as a fraud against the public. He was supported on this developed by all the conservative forces of his time. "
In conclusion, why continue to delegate almost to the banks in exchange for nothing is the prerogative of government? This power is defined as follows by the United States Constitution (Article 1, Section 8): "The Congress shall have Power [...] to coin money and regulate the value thereof." One can almost say, or even say with certainty that all banks for deposit into checking account and hit the currency these banks, together, regulate, control or influence the value thereof.
Defenders of current monetary system can not honestly say that under the yoke of a mass of small centers private currency issue, the system worked well. If it had worked, we would not have seen the disappearance of $ 8 billion over 23 of our checking accounts.
If bankers want to continue to market the essential function of the banking industry, lending, they can perform better than the government, they must be prepared to abandon the currency issue function they can perform as well as government. If they can conceive it and for once say "yes" instead of "no" to what may seem to them a new proposal, there will probably be more significant opposition to this project.
