More Money System Theory
The Theory of Dominant Money (part I)
The hierarchy of monies and tidal changes in the composition of the money supply
This paper outlines a theory of dominant money, i.e. the means of payment that determines the money system and monetary policy during a certain epoch. In modern times, there have been three tidal changes in the composition of the money supply with a new type of money on the rise: unregulated paper money since the 1660s, the rise of central-bank legal tender notes towards the mid-1800s, and the rise of bankmoney from around 1900.
The taxonomic analysis of the present dominance of bankmoney shows a three- to four-level hierarchy of monies and the present bankmoney regime on the brink of ungovernability. A new tide change is now dawning – as discussed in part II of the paper – with sovereign digital currency issued by the central banks being set to becoming the next dominant type of money.
Read part I > The hierarchy of monies and tidal changes in the composition of the money supply
Download the entire paper (parts I and II) as a PDF
Go to part II > The upcoming rise of sovereign digital currency
MONEY CREATION AND BANKING
Michael Kumhof
Michael Kumhof and Zoltan Jakab explain why
Banks are not intermediaries of loanable funds - facts, theory and evidence, Bank of England Staff Working Paper No.761, Oct 2018.
Monetary Puzzlement. Why central banks perform worse than they could
Central banks are nowadays portrayed as the most mighty and powerful institutions, controlling the banking industry and exerting tremendous influence on financial markets and the economy beyond. Central banks themselves are keen to leave no doubt about their being in control of the situation. In actual fact, the decisive monetary power is with the banks. Here is an article that tries to sketch out what central banks actually can do and what they cannot.
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Circuitism - its monetary theory and model of circulation
Circuitism is a French-Italian offspring of Marxism, Keynesianism and Postkeynesianism from the 1960–2000. The name is derived from a specific model of the money circuit. Circuitism represents one of the most advanced theories of money, while at the same it time reproduces some typical shortcomings of monetary teachings of Keynesian descent. The Circuitist model of circulation (banks crediting firms, firms paying workers, workers buying the firms' output, which enables the firms to pay back to the banks) reflects financial banking capitalism of old. It neglects the realities of a sphere of non-GDP financial circulation, has an incomplete view of chartalism, and reveals a lack of understanding for the dysfunctions of fractional reserve banking. Thus, behind its criticism of 'the power of banks', it nonetheless reproduces another real bills doctrine in the tradition of the Banking School rather than opening up the horizon towards an up-to-date sovereign currency system.
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Currency and Banking Teachings
Currency versus banking teachings represent a frame of reference of lasting relevance to modern money systems.
The expression New Currency Theory (NCT), or just Currency Theory (CT), makes reference to the historical Currency School of the first half of the 19th century. It was opposed by the Banking School of the time.
Most economists seem to have forgotten about this controversy. At the same time, most monetary reform initiatives today in fact stand for new currency teachings - as far as sovereign fiat money is concerned, not however including the gold standard nor any other commodity standard. The following paper and a related synopsis on
Currency versus Banking Teachings,
Arguments and Counter-Arguments
are available here as PDF files only:
The synopsis >
The paper >
Neo-Austrians between Gold Standard, 100% Reserve, and Free Banking
The Neo-Austrian School and New Currency Theory share a similar criticism of fractional reserve banking. Strangely enough, Neo-Austrians blame the problem on government and central banks rather than the banking industry.
The Neo-Austrian idea of money and banking reform then is free banking, i.e. a system without legal-tender laws and central banks, in some cases including a return to a 100% gold reserve. This appears to be quixotic, but is a revelation to others.
Here are > Notes on the occasion of reading Huerta de Soto, a main proponent of the Neo-Austrian School.
Download as a PDF >
A summary by Barbara Panvel > Thomas Attwood - a 'country banker' - would have been affected by the 1844 Act, 4 Sep 2013.
On Modern Money Theory
See menu:
Money Theory/Modern Money and Sovereign Currency >
Real and financial economy, or
The two hemispheres of finance: GDP and non-GDP finance
The monetary system largely determines the possibilities and limits of the financial system. One sphere of the financial economy serves to finance real-economic activities, while the other, self-referentially, serves to manage and increase financial assets. This latter sphere of non-GDP finance has expanded hypertrophically with the unfolding of the present bankmoney regime, with problematic consequences for the economy, income and wealth distribution.
Continue >
Seigniorage: The banks' privilege of creating the bankmoney on which they operate
Researchers from the New Economics Foundation (NEF), London, and the Copenhagen Business School (CBS) have developed a new approach to determine the banks' extra profits from primary credit and bankmoney creation. In an empirical case study including the UK, Denmark, Switzerland and Iceland they also have specified the numbers: up to three quarters of banks' profits. About time to do away with that neo-feudal privilege …
Executive summary >
NEF and CBS full report >
CBS academic version openarchive >
CBS academic version directly >
The Debt and Credit Trap
Steve Keen Professor of Economics, Kingston University London Professor Steve Keen was one of the handful of economists to realize that a serious economic crisis was imminent, and to publicly warn of it from as early as December 2005.
Prof R. Werner
While many orthodox scholars still struggle to catch up with advanced money system theory, other scholars at the frontline of new developments, however, are overshooting the mark. One example is a typology by R. Werner. He distinguishes three models or theories of banking: the loanable funds model, the theory of reserve circulation, and credit creation out of nothing. Here is the article by Richard Werner on > Can banks individually create money out of nothing? The theories and the empirical evidence of how banks create money.
I could not prevent from making a few
> Critical Remarks on R. Werner's Typology of Three Banking Theories - including an explanation why bankmoney is separate, but not independent from central-bank money.
The paper as a PDF >
Another criticism has been made by Michael Schemmann, professor of accountancy
Critique of Werner's Article on Bank Credit Creation >