How is money created endogenously

Monetary Order - A Regulatory Analysis

In many countries, financial and debt crises, unstable growth, polarization and environmental problems are on the rise. “Appropriate and steady growth”, “healthy public finances”, “fair distribution” and “environmental protection” are only partially achieved. The article examines the so far hardly discussed question of the extent to which the problems mentioned are related to the monetary order.

In the following, the term monetary order refers to the rules on who and how funds are created or put into circulation, how they are redeemed and thus destroyed and how the money generated by the issuer is used. If these rules have economic effects (so money is not neutral), monetary systems can be assessed in terms of economic policy, e.g. macroeconomic with a view to inflation, stability, growth and debt, structurally related to distribution and environmental protection, as well as regulatory with regard to the distribution of monetary policy competencies. The hierarchy of objectives is partly unclear. For growth and distribution goals, for example, the growth goal could have priority ("the cake must be baked before it can be distributed"). However, severe inequality can curb the development of consumer demand. In the light of empirical happiness research - at least in affluent countries and with a view to life satisfaction - distribution goals are becoming more important than the growth goal

First, the existing “conventional” monetary order in the euro zone is assessed in the light of the criteria mentioned. Then questions of a reform of the monetary system are discussed.

Conventional monetary order

Money creation is a matter for the banking sector. "Bank money" arises when the central bank (mostly to commercial banks) or commercial banks grant loans or when banks acquire assets (e.g. foreign exchange, securities, land) and grant sight deposits in return.2 The money disappears when returned to the issuer, e.g. when redeeming Credit. The banks, as issuers of money, generate a profit from the creation of money; in the case of "credit money creation" as interest gain, in the case of money creation through the purchase of assets as the value of the assets. In this order, the decision about the creation of money and the use of the profit from the creation of money ultimately lies with the banking sector.

This “bank money order” has advantages. If money is created by banks and by credit, it arises in competition between investors requesting credit, i.e. when and to the extent that it is needed or its creation is worthwhile. Projects for which credit is granted are usually productive. In this case, the banks expect that interest and repayment can be financed from the investment income. If productive investments prevail in the competition for loans, inflation-free growth becomes possible, because real production rises after the loan has been granted.3 Another positive aspect is that monetary policy can, in principle, ensure price level stability. The European Central Bank has a clear mandate and a suitable set of instruments.

Weaknesses in the banking system

Notwithstanding these advantages, the bank monetary regime described has significant and serious weaknesses.

  1. Profit-oriented bank money creation is unstable. In a boom, i.e. when expectations are positive, banks have greater credit and money creation incentives than in the crisis. Real cycles are therefore amplified by money creation cycles.4 If banks in developed economies find loans increasingly attractive for financial investments, the risk also increases that loan money creation will trigger asset price bubbles and, subsequently, macroeconomic instability. When asset prices fall, loans that are secured by assets (e.g. real estate) become "lazy". Then the swelling is followed by the critical bursting of the bubble. If banks then generally reduce lending, the real economy becomes unstable. The central bank can try to alleviate such instabilities through a countercyclical monetary policy. But if central banks reduce key interest rates or create money by buying government bonds, the seeds for inflation or new bubbles can be laid on the financial markets and thus indirectly for the next crisis. In our monetary order, a countercyclical monetary policy is not always possible.
  2. Credit money creation is “subject to interest” and inevitably creates debt. In the case of money creation, as mentioned, the interest tends to have a growth impulse. But it also creates a pressure for growth: 5 loans must be repaid including interest, which the borrower has to earn in addition to the repayment. This requires increasing macroeconomic demand or additional purchasing power, and thus additional money. A stable supply of credit money is only possible without disruption if the amount of credit money increases. In this way, growth or even acceleration of growth is sought, although this is increasingly difficult to achieve in mature economies6 and is also less and less useful in terms of increasing life satisfaction.7 Striving for growth promotes technical and economic progress and the development of sustainable business areas (e.g. in the health sector), but also expansion unstable financial sectors and the exploitation of the environment.
  3. If the necessary additional purchasing power is created by credit, then the pressure to grow also means the pressure to borrow, whereby the debt dynamics are reinforced by the interest mechanism. The credit money economy always needs additional debtors. The problems facing public budgets are based in part on this debt constraint. Because with a government debt brake and correspondingly lower public credit demands, other actors would have to take on more debt. It is also unclear whether the debt brake works if the state assumes liability for problems in the banking sector. There is increasing doubt as to whether the credit and debt growth required in the system can be sustained in the long term, 8 and at the same time fears that indebted states will try to devalue their debts by “producing inflation”. In this respect, the economy only appears to be adequately protected from inflation if the autonomous central bank, which has a mandate to maintain stability, can assert itself against the inflationary interests of indebted states. Current developments raise doubts as to whether this will succeed. In any case, in view of the high level of public debt, monetary policy is finding it increasingly difficult to raise interest rates in order to curb monetary terms.
  4. A “debt money order” also leads to structural problems. In the debt economy, income and wealth differences increase, e.g. when interest flows to wealthy people with a low propensity to consume, but low-income people with a high propensity to consume are unable to build up wealth. Such polarization effects reduce life satisfaction, 9 even if they can be mitigated by tax and transfer systems. Profit-oriented bank money creation also has a regional and sectoral polarizing effect: credit money arises regionally primarily in economic “hot spots” with high profit opportunities, less in the periphery or sectorally only rarely for socially and ecologically justified activities. Here, too, there is a need for compensation.
  5. There are regulatory problems. As money issuers, commercial banks generate money creation profits with moderate risk (in the event of loan defaults, they can often hold off collateral without damage). In times of crisis, however, they are sometimes classified as systemically relevant and supported by the state. This privileged position is only partially compatible with the criterion of the balance of power in a social market economy. The central bank, too, has a strong position as an autonomous institution when it creates money by purchasing assets. She can choose which securities to buy (e.g. Greek bonds) and which not. This “autonomous abundance of power” is also debatable.

The result of the conventional monetary order with profit-oriented bank money creation is macroeconomically, structurally and regulatory suboptimal or characterized by problematic growth and debt constraints, unstable money supply and polarization. The central bank, while powerful, has limited countercyclical monetary policy. A fundamental debate on monetary policy is therefore necessary. Previous ideas for reorganizing the banking sector fall short. Increasing the capital requirements for banks10 reduces the risk of instability in speculative lending, but neither the growth and debt constraints nor the polarization described. The following is therefore about more fundamental reforms of the monetary order.

Reform alternatives

Reforms of the monetary order described are conceivable - as a far-reaching restructuring or as a supplement to the existing order - as follows:

  • Instead of (only) profit-oriented money from the banking sector, money can (also) be emitted by non-banks, e.g. by the state, and with the aim of economic governance.
  • Money can also arise in exchange for real services that the issuer acquires with new money (i.e. not just by credit or in exchange for assets).
  • The redemption of the money at the issuer, i.e. the destruction of the money, can be unlimited or - alternatively - limited, e.g. only in region x.
  • With regard to the creation of money, money issuers can be restricted more strongly than before by a set of rules and controlled by an independent body.

In the following, some of the “supplementary alternatives” are examined in more detail and assessed on the basis of the macroeconomic, structural and regulatory criteria mentioned.

Restriction of bank money creation through credit control rules

First of all, the addition of the conventional monetary system to include additional regulations on the creation of bank money, specifically to control and direct bank lending, should be considered. The aim can be to reduce the instability risks associated with “non-productive” loans or to achieve that credit money is created primarily for productive investments, but otherwise not to affect the market and competition. The relevant competencies can, for example, be based at the central bank.

Werner describes that, contrary to official announcements, monetary policy in Japan after the war included quantitative and structural credit control until 1991.11 The Bank of Japan provided the commercial banks with detailed credit ratios and monitored compliance with them. Over- and under-fulfillment was punished with a quota reduction. This reduced the procyclical nature of the creation of bank money, but at the same time limited the banks' competition for market share. There were also guidelines for the use of quotas. Until 1986, the quotas were to be used primarily for investment loans. After that, the quotas were increased and the banks were also encouraged to grant real estate loans. Until 1986, Japanese growth was not inflationary and was high by OECD standards. After 1986, however, monetary policy encouraged a real estate bubble, after which a deep recession followed. Since 1991 the Bank of Japan has tried repeatedly and in vain to stimulate the economy by lowering key interest rates, but has refrained from specifying credit ratios. Ultimately, it has not yet been possible to sustainably activate the Japanese economy. This description suggests two conclusions:

  1. Monetary policy through structural credit management can be economically effective. Apparently, the growth of the economy can be increased. In addition, a regular monetary growth rate, e.g. based on the long-term growth rate of real domestic product, could be "prescribed" and thus stabilize the economy. Structural steering (via credit quotas for certain uses) or regional steering (e.g. via regional credit quotas) could also be practiced.
  2. However, it is unclear to what extent or how autonomous central banks would actually use the possibilities associated with credit control. A discussion about credit control as an element of the monetary order therefore also includes the question of where appropriate control competencies should be located and to what extent the authority authorized to control should be subjected to external control.

Credit control only partially solves the problems of interest-bearing bank money creation. If credit money creation is maintained, there will continue to be growth and debt pressures as well as polarization tendencies. Thus, a “bank money order with credit control” remains suboptimal overall. Therefore, a supplement to the monetary order through the participation of the state in the creation of money is now considered.

State participation in the creation of money

Arrangements in which the state participates in money creation12 are usually viewed critically, since state failure and, as a result, inflation are conceivable. On the other hand, the provision of a generally accepted means of payment can also be interpreted as a public task, i.e. money is viewed as a good to be emitted under public control.13 Here it is argued that the risk of state failure can be greatly reduced by a cleverly designed state monetary system. Regional authorities have historically put (regional) means of payment into circulation more often - with the realization of money creation profits, "not creditworthy" and in addition to bank money. A few examples are described for this.

When there was a lack of money during the global economic crisis, the mayor of the municipality of Wörgl in Austria issued “labor vouchers” in 1932 to finance infrastructure projects. Workers and companies were paid with these notes and were in turn able to use them to pay municipal taxes, whereby the notes were redeemed. Without this “emergency money”, the projects would not have been carried out due to the lack of local currency, and unemployment would have risen. The emergency money with which the community paid was also accepted as a medium of exchange between private individuals. A regional secondary circulation of money arose, which generated additional employment. With this combination of expansive monetary and fiscal policy, Wörgl got through the crisis better than other places.14 When the initiator later presented this idea to other mayors, the Austrian central bank stepped in - probably worried about its monopoly of spending. It banned emergency money across the country. 15

There are also reports from Curitiba in Brazil about a “mayor's money”. In the early 1970s, the city administration began to reward the pre-sorting of garbage with bus tickets, among other things, due to problems with garbage disposal. Without the intention to do so, the issued bus tickets, since they could be passed on, developed into a complementary currency that was destroyed again when the bus tickets were redeemed. As a result of the money creation profits that were also implicit here, Curitiba subsequently developed better than the rest of the province16.

State money creation is also possible via transfer. The EU created potential means of exchange and purchasing power when it distributed tradable CO2 certificates to “old emitters”. These rights could - if the system were designed in a more general way, if it also included vehicle owners, for example - could also be accepted and circulated outside the energy sector as a medium of exchange. The system will be changed soon. In the future, rights will also be auctioned, so they can then be bought by interested parties.

The examples show that participation of the state in money creation - similar to credit control - can enable structural control. For example, the financing of productive projects in the public interest can be given priority or the creation of money can be structured regionally. If state money is also created at a stable level or in accordance with a quantitative rule, the described instability of bank money creation can also be alleviated. In addition, if money is created by the state in exchange for services (e.g. for infrastructure goods), there is no need to grow and borrow money related to credit. Interest-related polarization effects then decrease. The creation of state money also generates a public money creation profit that can be used to lower taxes or public debt or enable public infrastructure projects without (new) debt, i.e. without increasing the interest burden. This would be particularly interesting for heavily indebted states or municipalities. Financially weak municipalities could, for example, solve the problem that they cannot contribute enough of their own money to projects with own share claims for federal or state funds and thus investments cannot be carried out. The requirement for own funds serves to subsidize only those municipal projects that are really wanted by the municipalities, but disadvantages weak municipalities.Supplementing bank money creation with state money creation seems even more promising than a bank money system with credit control.

However, these advantages are offset by a weighty problem: state failure can occur. If money is not created under market or interest rate control, but rather politically, inefficient use is conceivable. The prospect of monetary profits can make you reckless. Money would no longer (only) be created when it is needed by investors or when the issue is economically viable, but when the state makes an appropriate decision based on political criteria. Since the state is not - like private banks - in direct economic competition, it could create an excessive amount of money and finance non-productive public “prestige projects” by creating money. If public investments financed with state money creation are not directly productive (e.g. environmental protection investments), 17 there is a risk of monetary inflation if the additionally created money encounters a constant mountain of goods in further circulation and there is no automatic (later) destruction of the state-created money. If the state is in debt, inflation would even suit it.

Although inflation threatens even in a credit system with an over-indebted state, the stability mandate of the autonomous central bank stands in the way. Accordingly, monetary orders with state money creation should also contain effective control mechanisms. A participation of the state in the creation of money should only be possible on the basis of a "state money order".

Guiding principles for a state monetary system

A state monetary system sets a framework within which the state can participate in the creation and destruction of money, and contains provisions for a corresponding distribution of competencies. In a federal state, for example, it would have to be clarified to what extent individual state levels should be entitled to create money. State monetary systems can be assessed on the basis of the macroeconomic and structural policy criteria mentioned. With a view to a possible state failure, there is also a regulatory requirement that the power to create money be limited by strict rules and subject to independent control.18 A state monetary system should as a whole

  • be better than the existing monetary order in light of the macroeconomic and structural policy criteria mentioned,
  • do not (significantly) increase the transaction costs of the monetary system,
  • To be able to safely limit state failure in the creation of money, ideally through a set of rules beyond the influence of the central bank, banks and the state. In this respect, a state monetary system is a question of constitutional status. 19
  • be feasible politically and economically without insurmountable resistance. Therefore, no “major” monetary reform is being discussed here, but only supplementing the existing monetary system with limited possibilities for state money creation.
  • flexibly expandable, i.e. expandable if successful, so that complementary state money creation may initially be tried out within narrow limits and only realized on a larger scale if successful.

Elements of a state monetary system

In the following, proposals for a state money system that complement the existing system are made and discussed. The following elements are suggested:

  • Quantitative upper limits for state money creation, in regional quota distribution depending on the population and staggered according to the federal level: This would mean that the state would be "partially disempowered" in money creation, the risk of state failure would be limited and regional balance in state money creation would be ensured. The upper limit of the state money supply MS would have to be measured at a size that cannot be manipulated ex post. For example, in 2010 the state's gross fixed capital formation in Germany amounted to 39.1 billion euros or around 1.6% of GDP - a possible upper limit for the amount of state money. In 2010, 24% of this total went to federal, 19% to state and 56% to municipal investments.20 The federal breakdown of the total could be based on this. (MSFederation = αFederation * MS, MScountries = αcountries * MS, MScome over = αcome over * MS, αFederation + αcountries + αcome over = 1). When splitting the country quota MScountries on i countries according to the population proportions βi (MSLi = βi * MScountries, with Σβi = 1) and the municipal quota MScome over on j municipalities (MSKj = βj * MScome over, with Σβj = 1) there are upper limits for individual regional authorities, for municipality j e.g .: MSKj = βj * αcome over * MScome over. Municipality j would then have, for example, in period t with an actually already circulating amount of MSKjtats, t the following scope for creating money: msKjt ≤ (MSKjt - MSKjtats, t). The following also applies in this municipality: MSKjtats., T = MSKjtats., T-1 + msKjt (New issue) - return flow (e.g. on tax payment).
  • Rules for the temporal development of the upper limits: The annual increase in the total or in each case in individual regional authorities permitted amount of state money could be limited, for example, to x% (MSt + 1 ≤ (1 + x) * MSt). This would also mean that the state would be “partially disempowered” as a money issuer and the instability of bank money creation would be supplemented by a stabilizing element. In the interests of regional “fairness”, the regional quotas should also be adjusted over time to the regional population development.
  • Ban on the creation of money by the state through credit: This would reduce interest-related polarization effects as well as growth pressures and debt problems.
  • Structural emissions regulations - via a negative list (e.g. prohibition of the purchase of assets with state-created money) or, more narrowly, via a positive list (e.g. state money creation only for certain public investments). The former could, for example, prevent asset price bubbles from being generated, while the latter could facilitate the realization of certain structural goals (e.g. environmental protection) - but also lead to problematic reductions in detail. Therefore, specifying a negative list would be better.
  • Redemption Regulations: Such regulations affect the "character" of the money. If, for example, redemption is only possible for the payment of regional taxes, i.e. only possible in the issuing region, regional policy would be facilitated, since monetary impulses then have a full impact on demand in this region without infiltration outside the region; However, this at the price of a “patchwork” of regional currencies or monetary disintegration. So this rule seems too narrow. A redemption option for income tax payments would be better, i.e. a design as an income tax credit. The credits should, however, be distinguished from bank money that can be redeemed in other ways. In the case of cashless payment transactions, they should technically be treated as a separate currency, e.g. on transfer forms with an additional field on which "Euro" or "tax credit" is to be noted, with notes with a corresponding stamp. All of this increases the transaction costs of the monetary system. If there were no redemption rules at all, “state money” would be as universally usable as conventional money and an increase in transaction costs would be avoidable. Then, however, there is no "automatic reflux". Even assuming that upper limits are not exceeded, there is a risk of irregular creation of state money. If the money emitted does not flow back "by itself", a municipality, for example, could hardly create any more money after exhausting its scope for creating money. Therefore, the "income tax credit" variant is advocated here.
  • Control rules: Checking compliance with these rules is important. It could be transferred to the central bank (which has been deprived of its power in terms of the national money supply). A control of the creation and return flow of state money is possible if, for example, the creation and return flow of income tax credits run through special tax office accounts that are to be kept by the local authorities at the central bank.21 Then the central bank would have complete financial supervision. If appropriate transfer forms and "chip cards" that can be read at bank terminals are to be issued for practical payment transactions, it could be required that this may only be done in cooperation with the central bank.
  • Sanction regulations: Misconduct could be punished with formula-based reductions in the money creation quota, exceeding the above-mentioned upper limits, e.g. with proportional quota reductions, for example using appropriate correction factors γ: γ = 1 - (MSindeed - MSallowed) / MSallowedwhen MSindeed > MSallowed, γ = 1 if MSindeed ≤ MSallowed. Other misconduct (e.g. failure to observe negative or positive lists) could lead to general or percentage quota reductions.

Constitutional rules

A state monetary system could or should be poured into a law with constitutional status. The implementation of the above recommendations could be formulated as follows, for example:

  • §1 Local authorities are entitled, depending on their population and their federal status, to issue tradable income tax credits that can circulate as a means of payment according to their value in euros.
  • §2 The credits expire if they are used for income tax payments.
  • §3 The tax offices keep special accounts with regard to income tax credits. The European System of Central Banks oversees the keeping of these accounts.
  • §4 The upper limits for the issuance of tax credits are to be determined according to the formulas set out in Appendix 1 to this law. The statistical offices provide the information required to calculate the upper limits (e.g. on public investments and population figures).
  • §5 The credits may not be issued by credit. The provisions of Appendix 2 also apply to the issue of credits (e.g. negative lists).
  • §6 The European System of Central Banks monitors compliance with §§ 4 and 5.
  • Section 7 If a regional authority disregards the provisions of Sections 4 and 5, the corresponding upper limits for the permitted issuance of tax credits are to be reduced in accordance with the calculation rules explained in Appendix 3 of this Act.

Overall, a state monetary system seems to be designed in such a way that the existing bank monetary system is improved on balance and, at the same time, government failure in money creation is largely avoided by means of strict rules (especially with regard to the permitted amount of government money). Such a framework would of course have to be introduced through a constitutional amendment. To what extent this can succeed is unclear. It is true that the state would gain political power by introducing a possibility to create money, e.g. in regional, structural and social policy. But politicians might be cautious in view of the reservations among economists about state participation in money creation. Furthermore, the required introduction of strict rules as a regulatory element is not very attractive for political decision-makers. Therefore, it cannot be ruled out that suboptimal state money systems might be adopted. In order to be able to assess the extent to which improvements are actually achieved, the creation of state money should therefore first be tried out in regional experiments. For example, in the spring of 2012, the municipalities could be allowed to create an amount of x euros per capita by issuing income tax credits once to remove potholes on municipal roads, or an amount of y euros per capita for a defined period of x years in this way Environmental protection purposes (e.g. decentralized energy systems).

Final remark

The freehand creation of money has something of alchemy or magic.22 This article examined the criteria according to which a decision should be made as to who is allowed to create money according to which rules. Concrete proposals were made to reform the monetary system. The rules for taming the power inherent in the creation of money decide to what extent monetary policy can also be geared towards social goals - e.g. it can also be operated "socially" or "green". If money creation is left to the banking sector alone (or a central bank that has system-related limits in terms of monetary policy), then unrestrained growth and debt pressures, instability, polarization and other structural problems can be expected.

  • 1 See R. Wilkinson, K. Pickett: Equality is happiness. Why just societies are better for everyone, Berlin 2010; see K. Ruckriegel: Glücksforschung - Wissens und Konsequenzen, in: WiSt, 39th year (2010), pp. 1140-1147. The study commission “Growth, Prosperity, Quality of Life” is supposed to determine the importance of growth in the economy and society and develop a holistic prosperity and progress indicator.
  • 2 Cf. Deutsche Bundesbank (Ed.): Geld und Geldpolitik, 2009 edition, in: www.bundesbank.de/download/bildung/geld_sec2/geld2_sum.pdf; see R. Werner: New Economic Policy, Munich 2007, p. 224 ff.
  • 3 If money arises from consumer credit, the new money is not covered by new production; there is a threat of inflation. If new money flows into assets (e.g. real estate), only asset prices may rise.
  • 4 Cf. J. Huber: Monetary Modernization - On the Future of the Monetary Order, Marburg 2010, pp. 75 ff.
  • 5 Cf. H. C. Binswanger: The Growth Spiral, Marburg 2006; H. C. Binswanger: Money and Growth Force, in: H. C. Binswanger, P. von Flotow (Ed.): Money and Growth: for Philosophy and Practice of Money, Stuttgart et al. 1994, pp. 81-124.
  • 6 Cf. J. Walter: Endogenes Kreditgeld und economic theory, in: WiSt, vol. 38 (2009), p. 35.
  • 7 Cf. M. Miegel: Exit, prosperity without growth, Berlin 2010; R. Wilkinson, K. Pickett, op. Cit., 17 ff.
  • 8 Increasingly, financial investors believe that the credit-financed system of modern capitalism is unsustainable and that states are dragged into excessive debt. Titles like “National bankruptcy is coming. The last years of the euro ”(M. Grandt) or“ Financial crash: comprehensive crisis prevention ”(G. Spannbauer) became bestsellers, see Zeit Magazin, No. 9 of February 24, 2011, pp. 12-22.
  • 9 See R. Wilkinson, K. Pickett, loc. Cit., P. 32 ff.
  • 10 Cf. e.g. H.-W. Sinn: Casino Capitalism, Munich 2009, chap. 11, p. 284 ff.
  • 11 Cf. R. Werner, op. Cit., P. 348 ff.
  • 12 Companies can also draw (complementary) purchasing power if they surrender tradable claims against themselves. If, for example, bonus miles from an airline are accepted in retail in addition to euros and can also be used to pay for telephone calls, taxis and hotels, this creates a private currency that can be obtained without having flown. See G. Rösl: Regional currencies in Germany, in: Wirtschaftsdienst, 85th year (2005), no. 3, pp. 185 ff .; M. Kennedy, B. Lietaer: Regionalcurrencies, Munich 2004, p. 70. These aspects are not considered here.
  • 13 The US Constitution grants the government the right to create money, see R. Werner, op. Cit., P. 332 ff.
  • 14 See e.g. R. Wirth: Market economy without capitalism, Bern et al. 2003, p. 96 ff.
  • 15 The Wörgl example also fell into disrepute because the notes were designed as Schwundgeld, i.e. were devalued monthly in order to force money to circulate more quickly. In order to compensate for the loss in value, a monthly stamp that could be bought from the municipality was to be stuck on the banknotes. We do not need to go into that here. State complementary money does not have to be Schwundgeld.
  • 16 Cf. M. Kennedy, B. Lietaer, loc. Cit., P. 46 ff.
  • 17 The regional economic literature discusses diverging empirical findings on how effective government investments are for growth, see e.g. D. A. Aschauer: Do states optimize? Public capital and economic growth, in: The Annals of Regional Science, 34th vol. (2000), No. 3, pp. 343-363; S. P. A. Brown, K. J. Hayes, L. L. Taylor: State and Local Policy, Factor Markets, and Regional Growth, in: The Review of Regional Studies, 33rd vol. (2003), pp. 40-60; J.-M. Gonzales-Paramo, D. Martinez: Convergence Across Spanish Regions: New Evidence on the Effect of Public Investment, in: The Review of Regional Studies, 33rd vol. (2003), pp. 184-205.
  • 18 Control of the issuer of money without a strict set of rules, on the other hand, should be viewed critically. This applies both to Friedman's demand to abolish the autonomy of the central bank and to run the central bank as a department or under the supervision of the Ministry of Finance (M. Friedman: Monetary policy, theory and practice, in: Journal of Money, Credit and Banking, 14th vol . (1982), No. 1, pp. 98-118) as well as for Werner's proposal to subject the central bank to parliamentary-political control (R.Werner, op. Cit., P. 389 ff.).
  • 19 Cf. J. Huber, J. Robertson: Money creation in public hand, Kiel 2008, p. 38; J. Huber: Monetary Modernization ..., loc. Cit., P. 87 f.
  • 20 Federal Statistical Office: National Accounts, Supplement Investments, Wiesbaden 2011, p. 42.
  • 21 The proposal that only an autonomous central bank creates the money and makes it available to the government with interest and free of charge or as government revenue and credits it to accounts that it maintains for the government, and the government then uses the new money through public spending in Circulation (cf. J. Huber, J. Robertson, loc. Cit.) Differs from the order discussed here. In particular, the rule bindings proposed here for the permitted amount of state money are missing. Furthermore, a complementary order is proposed here and not a total replacement of the existing order.
  • 22 Cf. H. C. Binswanger: Geld und Magie, Hamburg 2005. An economic interpretation of Goethe's Faust (first published in 1985).