THE BLOG
of John Gelles
June 13, 2010

This BLOG is written directly to the PUBLIC DOMAIN. Whoever reads it owns it--for talking and writing about it--including re-writing it better if they can.

It can never be claimed by anyone as private intellectual property. It is useful public property--as much as is spoken English.

Its substance was glimpsed by me in the early hours before dawn after years of thought and a night of unconsciously received help.

I had asserted last night on an Amazon Economics forum that government could spend newly created money forever.

I was bothered by the fact that private debt to a licensed bank also created money--and it was new money that was and had to be destroyed by repayment of the debt.

Did money created by government have to be destroyed by taxes or other transaction? I had said it did not.

The only thing that had to happen, I said, was government had to promise to index savings accounts (to protect them from inflation) and people and the system under such government had to work hard enough for supply to catch up with demand at affordable prices for the necessities of life.

Price control for necessities and government production of them would be necessary. But private production would be encouraged and prices, as well as subsidies, would allow high enough profits to sustain very high production.

I said that such savings would replace private consumer debt and would become very large. They could eventually be spent on items government sold at a very high profit. Such profits would be the same as taxes.

But when I fell asleep I was uneasy about the growth of private savings: would spending do the job that repayment of private debt did for money created by individuals for investment in profit-making business?

To repeat, if government did the above, would taxes be unnecessary?
The answer, of course, is yes.

THE GENERAL THEORY OF MONEY AND
SAVING, SPENDING AND NECESSARY PRODUCTION
An Addendum to the Ideas of Functional Finance
As advanced by Abba Lerner in the 20th Century

Money in the modern world is created by law for the payment of debt. Debt results from purchase ahead of payment for any wanted item.

Our law requires newly created money borrowed from a bank to be extinguished by repayment of the matching debt. But government owns the bank and has the choice to leave money in private hands--or not.

It has since we left the gold standard extinguished new money by taxation. This has made it the enemy of the people. What should it do instead?

• Index savings to protect them from inflation.
• Establish an Economic Security Agency to plan necessary production--relying more on prize juries than auction markets to guide pricing.
• Provide free education for the production of necessities.
• Subsidize private production of necessities.
• Control wages and prices for production of necessities.
• Prohibit transactions that prevent affordable prices.
• Allow high profits on luxuries to replace taxes.

By means such as above, taxation can be ended. Unemployment and poverty can be ended where resources are plentiful and population is planned not to exceed resources.

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