The transition would involve a one-off re-definition of money units as units of pure property, not ownership of debt from banks. The rest of this chapter addresses money not created as debt, but as circulating ‘pure’ money. This kind of money is referred to by reformers as ‘sovereign money’ or ‘pure money’.
The transition, according to the realistic proposals of Joseph Huber, The Cobden Centre and Positive Money, would consist of redefining present-day bank-created money as pure money. This would coincide with reform of the laws of negotiable debt. Existing debt to banks would be re-allocated to governments.
Money-Creation under the New System
To summarize: for many centuries, reformers interested in ‘just’ distribution have suggested that money should be created in accord with definite principles:
- Not as debt.
- Value roughly constant, so as not to favour debtors or creditors.
- Not as a political act to curry favour with voters, but to establish and maintain a just supply.
It has long been recognised that justice must be kept separate from the selfish short-term interests and vagaries of political power; the same must surely be true for the money supply. For this reason, many reformers have recommended the establishment of an independent authority to command the government in how much money should be created or destroyed. The authority would be governed by a single, simple objective: to steady the value of money.
The reason for aiming at a steady value is simple. A steady value favours no one: it is even-handed and just. When the value of money alters, some win, some lose. If money goes down in value (inflation), debtors get an advantage. If money goes up in value (deflation), creditors get an advantage. The scales of justice must be balanced, not weighted to favour one side or another. The authority would be bound by this rule.
When there is a need for more money – perhaps because the economy has grown – the authority would create the appropriate amount and authorize the government to spend it into the economy – thereby reducing the need for taxation. If, on the other hand, inflation is detected, perhaps because the economy is contracting, money would be destroyed by the same authority – by the same process, but in reverse.
Like most aims, this procedure could never operate to perfection; it would involve periodical adjustments of the money supply, always aiming at a steady value of money in relation to assets and consumables.
Would a new ‘pure’ money system, in a defined area, be compatible internationally with the system of ‘fractional reserve banking’ at present dominant throughout the world?
I have been assured by economists and others that there would be no problem. If troubles do arise, however, a number of emergency techniques exist that have been developed, tried and tested in today’s chaotic financial world, such as: capital controls; price and wage controls; restrictions on currency movements, purchases and exchange; and use of an intermediate and neutral international ‘world’ currency.
[sws_blue_box box_size=”630″] These are the personal views of the author, they don’t necessarily reflect the views of Positive Money; they are intended to stir up the debate. [/sws_blue_box]
 For the Cobden Centre, see: Jesús Huerta De Soto, Money, Bank Credit and Economic Cycles (2009), Chapter 9. For Positive Money, see: Sovereign Money: An Introduction by Ben Dyson, Graham Hodgson & Frank van Lerven, Chapter 5. For Joseph Huber, see: Sovereign Money (2017) pp. 170-4.
 See Henry C. Simons, ‘Rules versus Authorities in Monetary Policy’ The Journal of Political Economy, Vol. 44, No. 1. (Feb. 1936), pp. 1-30; reprinted in Economic Policy for a Free Society (1948).
 See Lectures On Economic Principles by Dennis Robertson, Vol III Chapter 2 (1959).
 ‘The importance of rules, and of focussing democratic discussion on general principles of policy, calls for emphasis… only by adherence to wise rules of action can we escape a political opportunism which jeopardizes and destroys what we wish most to protect and to preserve.’ Henry C. Simons, Economic Policy for a Free Society (1948) p. 202.