A Professor’s theory for Congress to create new money

The American Scholar carried an article by Richard Striner, a professor of history at Washington College, who wrote that America is not broke and there is potential for abundance everywhere.

Striner said in the almost nine-page article that we can pre-empt the threat of inflation with the use of the great power of the Federal Reserve and in partnership with Congress. He explained that we could pay for a faster recovery and many worthy projects without higher taxes, without more national debt and without inflation. All this can be possible by simply letting Congress exercise a little-known power that is used (very quietly indeed) by the Federal Reserve: the power to create new money.

Striner made reference to the Federal Reserve Chairman, Ben S. Bernanke’s interview with 60 Minutes on March 15, 2009, where Scott Pelley asked Bernanke to state the cost to American taxpayers of the Fed’s attempts to prop up banks. Bernanke explained the banks have accounts with the Fed and when they lend to a bank, the size of the account is marked up, so it’s not tax money, it’s much more akin to printing money.

So Striner suggested that if the Federal Reserve can create new money, Congress can do the very same thing through the Legal Tender Act of 1862, in which the Republican-controlled Congress authorized creation of “United States Notes,” known as greenbacks, which were printed up and spent into use.

Striner explained his own theory in the article, “Instead of cancelling the power of banks to create new money, we could add to the expansion of our money supply with the new money that the government creates….Congress could legislate a limited creation of money to be spent through direct appropriation. The new appropriation funds would then be sent by the government through direct electronic deposit or employee or vendor accounts in commercial banks, where the funds would immediately be convertible to cash through the methods of the Fed. As these deposits augment the excess reserves of the banking system, creating some potential for inflation, the Federal Reserve would begin to raise reserve requirements in proportion to the increase in excess reserves if inflation began. As deposits increased, the banks would place more money off-limits in required reserves. The offset would prevent inflation.”

Striner said that the best way to launch such a system is to give it a low-risk test, which would be to start small. The American Scholar article by professor Striner said in light of our current economic conditions, the central point that we ought to be considering now is the nature of money as an economic thing-in-itself, because modern money is a fluid—an evolving—construction.