Tangentially or lately, I came to the realisation that the monetary system is not simply a veil,
a neutral veil behind which all these physical things happen, but is itself a very causative feature which tends,
on balance, given our current fractional reserve banking system, tends on balance to push growth.
So this has led me to be very interested in the idea of 100% reserves, Positive Money, full reserve banking,
whatever you want to call it, getting away from the system of fractional reserve banking.
It seems to me that under fractional reserve banking, as you well know, the money supply is loaned into existence at interest, most of it.
Nearly all is loaned into existence at interest.
Well what happens when these loans are repaid?
You don't make a loan unless you think you can earn a rate of return greater than the rate of interest that you are paying on the loan.
So, the expectation is growth, and as long as growth happens, then I guess that perks along.
Well, then what happens is loans are repaid. Say it's a successful loan and gets repaid, well then the money supply goes down.
So, what do you need? You need another loan to replace that to keep the money supply constant.
So, just to keep the money supply constant, you have to have a continuing stream of loans,
which is based on a continuing expectation of growth, and at least enough success in growth to keep those expectations alive.
So, I would say then that a constant money supply under fractional reserve banking is not growth neutral.
It requires, pushes growth just to keep the money supply from dwindling.
Whereas under full reserve banking, a constant money supply, I would think is pretty much growth neutral.
You don't grow what people are willing to save and invest. There's not this pushing of growth.
Whereas under the fractional reserve, what people are willing to save and invest, no that's not enough.
We've got to create new credit, push further growth, and as long as growth is the summum bonum,
I think the temptation to do that will be very very strong.
A good reason, I think, that it's likely to work or its acceptance required in some way,
the acceptance of the idea that growth has become uneconomic.
Whereas in the past you wanted to promote growth, which probably was economic and probably it did create benefits greater than costs,
even though we still didn't measure the costs very well.
Nowadays, these unmeasured costs have just soared. They've become exorbitant.
Whereas the measured benefits have increasingly become trivial.
So, growth has become uneconomic,
and a financial system which promotes growth through its fractional reserve banking and so forth, is increasingly anti-economic.
One other reason for thinking that, whereas full reserve banking failed in the past, although it was advocated by very important people,
If we recognise that growth has now become uneconomic,
that will make [full] reserve banking more appealing, because it stops pushing uneconomic growth.
Secondly, the fact that we have had such enormous financial failures and meltdowns,
on the basis of fractional reserve banking, I think, should make the public much more eager to seek some sort of reform.
And it will be good to have these policies for full reserve banking, well worked out and ready to plug into the system,
when there is a political opening for it.
And you have certainly, in great detail and specificity, laid out a very nice set of plans and institutions,
So, I really congratulate you for that.
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