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This one is brief but gets quite technical. Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created. If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in
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This one is brief but gets quite technical.This one is brief but gets quite technical. Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created. If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in
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Mike Norman considers the following as important:
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Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created.
If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in interest rates, while government gets £4bn that it doesn’t have to pay back.
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