Putting money in the hands of people without creating more debt

People need money. That is the purpose of the Fed’s loose monetary policy. But there is no transmission mechanism that gets money into the hands of people.

Money is predominantly created in the economy through loans and credit from banks. Banks have to make loans or extend credit in order for people to have more money, more liquidity, in their hands. Banks simply have not been making enough loans to sectors of the economy where the money will end up in people’s hands.

People could have more money if their wages were increased in real terms. However, real wages are not increasing. Increasing wages is much better than extended credit for consumption demand, because extended credit is an injection into the circular flow of the economy that must be offset by a leakage. In other words, leveraged consumption will eventually be balanced by de-leveraging. Wages are not a debt, but rather a debt paid to labor for having done work. Labor is then free to consume without compromising future wages. On the other hand, extended credit for consumption eventually leads to a leakage from the circular flow because it is a debt that compromises future consumption by labor.

There are efforts to put money in the hands of people by creating local currencies and mutual credit groups. You can watch two video documentaries about this subject. 1) The Money Fix … 2) 97% owned (from Britain). These two videos contain profound truths about money.

And there is also the Basic Income movement. The idea of a basic income or insured living wage goes back to Beatrice Webb who helped found the London School of Economics. The obvious purpose of a Basic Income is to put money in the hands of people so they can survive, eat, clothe themselves and find shelter. The broader purpose of a basic income is to insure a liquidity foundation in the economy. With a stronger insured foundation for liquidity of people in general, the demand constraints in the economy that I and others write about would not be such a problem.

It is pretty clear that banks can be too big too fail and require liquidity to keep the economy alive. But is it understood that people as a group are too big to fail too? People require liquidity too. The economy is dying because people require more liquidity. I support efforts to increase money in the hands of people that do not depend upon creating debt.

 

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