Talk:Chicago plan

Full Text

It would be great if someone could find the full text of the Chicago plan on-line and would summarize the key provisions of the plan for this article. (I'll add this to my to do list) Thanks! --Lbeaumont (talk) 22:18, 22 January 2014 (UTC)

someone has referenced it in the article with both scanned and transcript version. Though I'm confused about the dates, since it is dated of July 1939 while the article says the proposal was put forward in 1933. Which one is correct? Stanjourdan (talk) 20:02, 30 November 2020 (UTC)

For archive - summary of Chicago plan revisited

As I'm merging the page Chicago plan revisited with this pager, I'm archiving here some un-reused content which may be a useful summary of the IMF paper to be re-integrated into the present article later.

The Chicago Plan Revisited features, apart from an introduction and summary, five chapters: a historical background including a description of the original Chicago Model, an analysis of the current model, an outline of the consequences for banks, households, industry and government, a chapter on calibrations and one about the credit cycles. A few key features of the exposition are:

History

The chapter begins by questioning the standard description of the origin of money, in brief, that man first engaged in barter and then introduced money as a means of simplifying the trade and making it more efficient. On the contrary, according to the authors, anthropological and historical studies have shown that barter was practically non-existent in earlier times. The authors assert that when something resembling a monetary system was introduced, it took the form of various credit systems in which credits were denominated in livestock, tools, seeds and other items. When, only much later, a genuine monetary system was introduced, it was to satisfy state, religious and social or ceremonial needs and not for private reasons of simplifying trade. This, as the authors emphasize, is not only of academic interest, as the discussion on the origin of money leads directly to the question of the nature of money and who should be authorized to create money. More specifically, the standard description of the origin of money since Adam Smith has been used as a motive for the private issuance and control of money.

Fisher's argument

Like Irving Fisher, who was a leading proponent of the first Chicago Plan, the authors are looking upon four great advantages in state controlled issuance of money compared with the private money creating activity of the banks. The first is increased control with the fluctuations of the market so that exaggerated booms and slumps are prevented. The second advantage is increased financial stability due to the likely elimination of the risk of bank runs. The third and fourth advantages put forward by the authors are a dramatic reduction of public debt together with a great potential for minimizing private debt.

Transformation

The most important feature of the new model is that the banks would be obliged to back up deposits 100 percent with credits issued by the government. This means that they would not be allowed to create their own new credits which, in turn, are made into deposits. The transformation into this system, which would mean that the government would be in exclusive control of the aggregated credit volume and the total amount of money, would take place in two steps. In the first step, the banks would be forced to borrow from the Treasury to obtain full coverage for all deposits, meaning that all the banks' private and corporate statements of accounts would have to be equalled by a corresponding amount of available money.

This government credit, which is an asset for the government and a debt for the banks, would, from a government perspective, be used for redeeming the interest-bearing government bonds that the banks own (and which is an asset for them). In the next step, the banks would credit the government credit as well as the assets from private deposits and holdings of government bonds. In other words, the debt owed to the government would be cancelled out by assets from deposits and governments bonds. In this way, the national debt owned by the private sector would be eliminated and all deposits, which today lack backing, would be fully backed up. Proponents argue that all this would be possible with the aforementioned government credit. The process would be concluded by the banks adapting to a lower official cash demand by lowering the amount of their own capital.

Negative reactions =

Criticism of the report has emerged too, not least from commentators associated with the Austrian School. Gary North, for instance, who earlier had engaged in a furious debate with Ellen Brown and other so-called 'greenbackers', holds, to put it briefly, that proposals such as this one would not work because it would amount to the same as handing over the money fountain to the state which he believes would invariably lead to inflation or hyperinflation. According to North, it is just as bad to let the state, or the central bank in alliance with the state, 'create money out of air' as it is to let the banks do it through their fractional reserve banking. The only right thing to do would be to let the market take care of the creation of money, with a gold standard, but without fractional reserve banking. Martin Sibileau, who is also an Austrian economist, considers the idea of letting the state buy the banks' assets, in the form of deposits, a kind of confiscation. He believes that the credit can not be created unilaterally by one party, but that it requires two parties, in mutual agreement, creating it together. Moreover, depositors and shareholders, would, in the event that the reform were introduced, understand that the assets had been priced according to this 'government credit', and they would try to escape from this by selling assets, in other words the government credit, at a loss for real money, that is, cash.

References