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... banknotes as money and near money pre-dates the establishment of central reserve banks to regulate credit-money and act as lender of last resort when credit-money periodically gets itself into a bind.

So the question is not whether a money can be established on a different basis, but first, whether to eliminate depository institutions as creators of debt money, and second, if so, how to do so.

In particular, the current crisis shows what happens when an important central reserve bank is captured by its industry, and instead of acting as a regulator, acts as a collaborator in expanding an asset inflationary boom.

I don't see how changing to a different monetary system solves that problem. There will still be lenders, if we still have a monetary production economy. Those lenders will still get into the binds that they get into periodically. They will still have an incentive to capture the control center of the main monetary system.

It seems like looking at a drunken teenage driver that has driven a sports car into a ditch, and saying that the solution is to give them a 4-by-4 so that if they drive into a ditch they can keep driving.

If we can recapture the regulatory function from the finance sector, we can get a functioning system that will serve an important and useful function for a generation ... a generation in which we have quite important real work to do in terms of massively restructuring our energy economy.

And if we instead devote our efforts to building a new monetary system, the three alternatives are

(1) that there are so few willing to jump on board that those efforts are marginalized or wasted;

(2) that those efforts are successful after a long fight, and a decade or more in the future we can turn our attention to addressing the challenge of reconstructing our energy economy; or

(3) that those efforts are successful after a long fight, but it turns out in practice that there is an unintended consequence of the new monetary system that is worse than the known side-effects of the system it is replacing.

In the American descendant of Rugby Union Football, Woody Hayes argued against a pass attack rather than a run attack on the basis that three things could happen ... complete, incomplete, or intercepted ... and two of them are bad. I'm not sure I see why a fight to design a novel monetary system right now is as good as that.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 23rd, 2008 at 12:12:01 PM EST

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