Your reminiscence of civil war in Spain was most interesting – chilling! It also suggests your age today being so long an eye witness to so much world history.

Perhaps you can shed some light on this bit of monetary history. I have long sought confirmation of an event I learned about in a 1950s radio program, The Passing Parade, in which John Nesbit told how Spain almost avoided the Great Depression. A banker had secured a new printing of Spanish currency from England where it was always printed for Spain. He forged the authorization and used the new money to make loans which revived the local economy and was spreading prosperity to the rest of Spain. When it was discovered that the money was not authorized it was declared counterfeit, the banker went to prison, and Spain relapsed back into the Great Depression.

Have you any information on this curious bit of monetary history?

On the present monetary crisis I have concluded that Keynes was on the right path but did not reach its destination. Deficit spending depends on a government spending borrowed money, interest paying debt. Keynes did not take the final step of recognizing that paper money need not be borrowed by governments which hold the sovereign right of seigniorage to print their own legal tender. Today there is no source from which to borrow the $100s of $trillions to redeem the outstanding innovative debt instruments Wall Street has created. Governments must abandon this myth that their legal tender must be borrowed at interest.

Governments must spend debt-free legal tender into circulation to finance the proper functions of government which sustain a civilized society and provide the legal tender to support private banking. It also eliminates the need for government to impose taxes. Taxes would be left for “inferior” governments to levy and only used to direct private business activity toward promoting the general Welfare, a basic function of government as stated in our US Constitution.

Your love of mathematics is well placed, it is the unambiguous language of science and engineering. Money created by interest paying debt, which is an asset to a bank and a liability to the debtor, must be continuously created by ever more debt in order to pay the interest on past debt. Elementary calculus shows that a quantity which increases at a rate proportional to its present quantity, increases exponentially with time! In the case of debt created money it exists only as long as interest is being paid on the debt. It vanishes when interest is no longer being paid. This is the main cause of the endless cycles of financial (economic) booms followed by busts (asset liquidation).

You understand this but our leaders, particularly academic economists, bankers, and the public don’t! Our new financial system must be based on debt free legal tender upon which well regulated Fractional Reserve Banking may continue. Today’s world wide collapse of the traditional banking, money creating system, makes possible the construction of such a new financial system. The alternative is a long, perhaps permanent, Great Depression.

Traditional bookkeeping must then be modified to account for government spending legal tender into circulation to fund its operation. This legal tender will be spent to build infrastructure both physical: rail roads, highways, schools and hospitals, and social: public health, education, security. Thus the financial books would show the legal tender spent is balanced by the number of educated, healthy citizens, produced and sustained: the number of miles of railroads, schools, and hospitals constructed and maintained. Thus government spending would be accounted as an asset with no liability.

I have long urged economists to abandon money in their work and use such physically measurable quantities in their calculations and computer models of GDP, etc.

The present California budget deficit of $42 billion in a 2009 budget of some $103 billion is literally incredible! In 1992 California finessed a temporary budget deficit by issuing warrants, IOUs. Suppose this time California not only issued warrants in payment of its expenses but also accepted, in turn, its warrants for payment of State taxes. California could encourage its citizens to use these warrants as money in commerce thus effectively printing money.

Robert W. Zimmerer, Longmont, Colorado

- from Economic Reform, March 2009