Fischer presents an interesting thought experiment in this section of the book, specifically, a world without money. This needs a little definition. There would still be capital, and credit that could be spent with checks or credit cards, but there would be no "quantity of money" as Fischer says. A person would have no currency, but a single bank account that is either positive or negative.
Banks would administer these accounts, and make money off of interest charged on transactions and loans, which are negative accounts. There would be nothing to stop an account from transferring from positive to negative, or negative to positive. What would change would be whether the account is getting charged interest or credited interest. There would be a limit on the amount of loans an account could have. This limit would have reference to what the bank thought that the person or business could pay off. As long as they didn't get near or exceed this limit, the bank has little to worry about, because the average person or business would not spend themselves into bankruptcy.
One effects that this would have is that the majority of business financing would happen through the banks, there would be no debt securities. There would be common stock that could be used to retire loans and loans could be used to retire common stock.
So far nothing has been said of how a worker would convert his labor into deposits in the bank. What type of ratio would there be to labor and deposits? I guess it would come from a business transferring some of its deposits/loans into the worker's account, which seems to address my concern.
Braley - did you read the right book? Is my book different from yours?
ReplyDeleteThis section should be about how Jack Treynor and Fischer Black were similar and different.