(Week 2 - Tuesday Aug. 5)
Yesterday I put forth the idea that the natural way to finance essential public works is to create and issue the necessary funds directly out of the U.S. Treasury. This would limit the cost of the project to payment for actual work done, and avoid multiplying the "cost" by, typically, a factor of two or three due to "interest" charges attached to the money. I have often been met with looks of incredulity when I have proposed such a thing. If this is such an obvious method, some say, why is it not talked about all the time in the debates about how to finance public works?
This is a fair question, but it is not possible to do it justice within the limitations of this short missive. I suggest that a fuller answer will unfold over the course of this dialogue. For now suffice it to say that such matters have indeed been debated as part of the great economic heritage of this nation, but we have as a people have virtually forgotten our heritage. It would be easy to invoke a veritable chorus of voices from our past to buttress this argument, but for now the subject is public financing of public works, so permit me to offer the following as a case in point.
During the 1920's Henry Ford and Thomas Edison teamed up in an article in the December 6, 1921 edition of the New York Times to express their views on the monetary system, and to propose that the Federal government issue currency, rather than bonds, to finance the huge Muscle Shoals nitrate plant in the Tennessee River Valley.
"The function of money is not to make money but to move goods."
"The youth who can solve the money question will do more for the world than all the professional soldiers of history."
"It is well that the people of the Nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Thomas Edison added:
"If our nation can issue dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good, also. The difference between the bond and the bill is that the bond lets the money broker collect . . . whereas the currency pays nobody but those who contribute . . . in some useful way."
"If the Government issues a bond, it simply induces the money brokers to draw $30,000,000 out of the other channels of trade . . . if the Government issues currency, it provides itself with enough money to increase the national wealth . . . without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt."
". . . it is the people who constitute the basis of government credit. Why then cannot the people have the benefit of their own guilt-edged credit by receiving non-interest-bearing currency . . . instead of bankers receiving the benefit of the people's credit in interest-bearing bonds?"
"If the United States Government will adopt this policy of increasing its national wealth without contributing to the interest collector – for the whole national debt is made up of interest charges – then you will see an era of progress and prosperity in this country such as would never have come otherwise."
"And it is the control of money that constitutes the money question. It is the control of money that is the root of all evil."
"There is a complete set of misleading slogans kept on hand for just such outbreaks of common sense among the people. The people are so ignorant of what they think are the intricacies of the money system that they are easily impressed by big words. There would be new shrieks of 'fiat money,' and 'paper money,' and 'greenbackism,' and all the rest of it – the same old cries with which the people have been shouted down from the beginning."
"Ford's idea is flawless. They won't like it. They will fight it, but the people of this country ought to take it up and think about it. I believe it points to many reforms and achievements which cannot come under the old system."
In fact, there is a group of citizens who have taken up the idea and are trying to create an initiative to make public financing of public works a reality. I will pick up on that thread in tomorrow's column.
The complete set of columns from this series is posted at the following websites.