Which is worse, government “printing” money or government “borrowing” money?

Posted by  $  CBJ 3 months, 3 weeks ago to Economics
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In an Objectivist society, the government under normal circumstances would neither print nor borrow money. My question is: In today’s deficit-ridden economy, is it less destructive for the government to finance that deficit by issuing unbacked currency directly or to continue its existing policy of issuing bonds? Two advantages I can see in favor of money printing are that it would not involve debt (thus no interest payments), and would not require the participation (or even the existence) of a central bank.

Milton Friedman appears to have preferred direct money creation over debt financing.
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  • Posted by  $  rbroberg 3 months, 2 weeks ago
    Printing fiat is theft. Borrowing to pay for the fiat is just the logical consequence of a government that can't afford the money it "creates".
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    • Posted by  $  MikeMarotta 3 months, 2 weeks ago
      Do you know the works of Harry Browne? He recommended the short books by E. C. Riegel who showed how everyone can create their own money. I have done it for other organizations and individuals.

      http://www.michigancoinclub.org/artic...

      BayBucks, Time Dollars, and BerkShares are just three on-going examples.
      http://www.centerforneweconomics.org/...

      .. oh, yes, and DISNEY DOLLARS, good at Disneyland and Disney World.

      A government is just another economic actor. Have you never bought a home, a car, or a refrigerator on credit?
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      • Posted by freedomforall 3 months, 2 weeks ago
        No problem with free market creating a tool to make trade easier. BUT, when government decrees that only the corrupt banksters who are approved can create legal tender it is not a free market as referred to by Harry Browne,
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        • Posted by  $  MikeMarotta 3 months, 2 weeks ago
          I got into numismatics ("coin collecting") only later in life, about 20 years ago. I knew about hard money and inflation since I was a teenager in YAF in the late 1960s. I read books from FEE just before I was introduced to Ayn Rand. All through the hard-money run up in the 1970s, I bought silver and gold coins, but never cared about "numismatics" per se. Yes, I had different kinds of British Sovereigns, French 20F, Russian 5R, etc., etc., but that was just for the novelty of them all.

          A couple of incidents and opportunities turned my head and I joined the ANA and began researching and writing. Selling articles was easy enough. One of them garnered an award nomination from a Smithsonian curator for correcting the Encyclopedia Britannica. But it has been learning experience all the way. My first interests were Mercury Dimes. I spent a lot of time (and money) on ancient Greeks. I just edited a chapter for a book about US Obsolete ("wild cat") paper money.

          My point is that I have been learning the facts of economic history from the numismatic evidence.

          Allow me to suggest that you accepted the teachings of conservative polemicists about "fiat" and "legal tender" - as did I; as do we all. Once you dive into the history, you find a different story. The truths are the same. Truth is eternal. That's what truth is. But the narratives are arguable.

          In Human Action von Mises said that advocates of the free market and advocates of socialism agree on the facts: a certain commodity had a certain price in a place and at a time. What they argue about is what it means.

          Let me offer this: Legal tender is not a government monopoly on money. Legal tender is only a government declaration that this gold coin or slip of paper is money, as opposed to being, a medal, commendation, or award, or being a description, contract, or a resolution.
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  • Posted by fosterj717 3 months, 2 weeks ago
    Either one guarantees an inflationary spiral at some point. At least printing fiat money just causes everything to spiral up with everyone paying. Borrowing by the government enforces the spiral however it has a dampening effect on private sector expansion because now the private sector must compete for whatever capital is available. Government will pay back because of the inflationary tax on the poor unsuspecting, naive taxpayer.

    This is the dirty little secret that the Central Banks have and that governments love. Welcome to the wonderful world of Keynesian philosophy......
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    • Posted by  $  blarman 3 months, 2 weeks ago
      Yes. Inflation is a tool for devaluing debt and making the taxpayer foot the bill. The problem is that it is a wheel which spins out of control once started. We've had an inflationary policy for decades now (since coming off the gold and silver standards) and all we see is rampant (and ever-increasing) inflation in every market aspect. The prices for goods have to continually go up to justify the annual raises people need to keep up with the rising prices - repeat ad nauseum.
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  • Posted by freedomforall 3 months, 3 weeks ago
    JFK and Lincoln tried printing without borrowing. Banksters don't like any regime to be out of their control. Debt has been used repeatedly by banksters to conquer recalcitrant regimes.
    I don't trust either government or bankers to create legal tender from nothing. Both have proven that their interests do not agree with mine.
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    • Posted by  $  MikeMarotta 3 months, 2 weeks ago
      Lincoln was not assassinated over the Greenbacks. John Kennedy was not killed on orders from the Federal Reserve.

      It was to finance the Civil War that Salmon P. Chase invented the National Bank system. From 1863 to 1933, to open a National Bank, you had to put at least $25,000 in gold in the US Treasury, for which you got Treasury bonds that paid interest. Against those, you could loan out up to 90% of the value. ... and banks still failed from mismanagement. That fact contradicts the hard money religion of conservatives. Gold is, indeed, a good form of money. But it is not magic.

      Most of American capitalism was created "from nothing." While there were rumors of "gold in them thar hills" of North Carolina and Georgia, the real hubs were Boston, New York, and Philadelphia, where there was no gold. Spain looted the Americas of untold tons of gold and silver. It remained poor. The Mexican silver dollar was the preferred coin for trade with China. Merchants bought tons of them. Mexico remained (and remains) poor.

      Creation is by definition "from nothing." It is not metaphysically "from nothing" (ex nihilo) but it is substantially so. I enjoyed reading The Man Who Found the Money about John Stewart Kennedy and America's railroads. They were all mostly a series of failures in constant receivership with nothing to offer but stock certificates.

      You might be opposed to the stock market. Many conservatives are. Adam Smith was. Ludwig von Mises said that investment must come from savings, not from credit. But they were wrong.
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      • Posted by  $  blarman 3 months, 2 weeks ago
        In more "objective" terms, creation is better defined as organization - taking what is already present - but in a disorganized state - and giving it order and purpose. It is taking raw materials and producing finished goods: the entire process yielding a more valuable product at the end. +1

        I do have to object to the stock market claim, however. Investment actually does have to come from savings and not credit. One can not invest what they do not already have. Much of the 1929 Stock Market fall came because of speculation - and when those speculations failed the creditors were left high and dry and went under. It is also one of the primary dangers of our current banking system for the same reason: that banks are only required to actually keep a small fraction (5-10% I think - please correct me) of their reserves - the rest they can speculate with. That's why bank runs are also so dangerous: because it becomes a first-to-withdraw panic.

        I would also point out that eventually credit runs out - even for nation-states. We are the most over-leveraged nation in the world presently between our massive government debt and our out-of-control consumer debt. That is not investment, but slavery. One is selling one's own future when speculating with credit.
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        • Posted by  $  MikeMarotta 3 months, 2 weeks ago
          It is all speculation. Even cash-in-hand is acquired as a means to buy something else, which is expected to be a better value that than which was sold. Business is all about the future.

          As for "bank runs" they are a curious phenomenon. Despite the fact that shoes were also bought on credit from manufacturers to wholesalers to retailers to consumers, I am not aware of shoe panics. Bank panics are like witch-hunts: lots of people get involved, but it is not rational.
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          • Posted by  $  blarman 3 months, 2 weeks ago
            There is a huge difference between speculating with savings (what a person actually earned) and speculating with others' savings (what one borrows). The former is the mentality of a producer, the latter of a looter.

            I would actually argue that bank runs are quite easily predicted: they are the result of the sudden loss of confidence in a financial institution. People want to recover what they entrusted to such entities. Such is IMO an entirely rational and self-interested desire. What one really has to look at is whether or not the loss of confidence in the first place is justified. That may be the irrational part.
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  • Posted by jdg 3 months, 2 weeks ago
    I understand the view that just printing money is theft. But one can equally argue that for a corporation to issue more shares is theft. In both cases, the earlier holder knew that it might happen before it did, so I'm not overly sympathetic.

    Besides, the national debt is already well above the point that anyone could honestly expect it will ever be paid back. So additional borrowing now just means more names get added to the end of a long list who may someday get an unexpected windfall, but more likely will be left holding the bag when the ability to borrow more runs out. As it must, because the expansion of the debt (and especially Social Security and Medicare which aren't included in the official debt number) makes it a pyramid scheme.

    If we were having this conversation back in the Reagan era, it might still be possible to repay the whole debt through such means as auctioning off all the federal land in the West, which ought to be divested anyway for multiple reasons. But now, I don't believe repayment is possible at all, which leaves the choices of inflate it away, or repudiate it as Cuba did. Of those two, I'd rather inflate. That way the last lenders at least get something. (Besides which, the 14th Amendment, Section 4 appears to forbid repudiating.)
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    • Posted by  $  Dobrien 3 months, 2 weeks ago
      Hi jdg,.
      If a corporation issues more shares due to a stock split or a stock dividend ,I don't think it is theft.
      If new shares issued for a secondary offering at a price above book value it is not theft and is an equity infusion to the co.
      I do have an issue with large stock options granted to top executives who hire the compensation advisors. That is theft. My opinion
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  • Posted by ProfChuck 3 months, 2 weeks ago
    Actually, the two go hand in hand. Printing money reduces the value of the dollar and borrowing at the current dollar value and paying it back with future dollars of lesser worth is effectively an engineered discount. Only the government can get away with this kind of fraud. It's grand larceny pure and simple.
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  • Posted by DeanStriker 3 months, 2 weeks ago
    The problem with "money" stems from the Constitution which decreed that GOVERNment was given total control and decreed that any other money was "illegal'.

    Nothing new, but that doesn't make it a good idea.
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  • Posted by ChestyPuller 3 months, 2 weeks ago
    Printing money while a needed vise of gov't is one that is easily corrupted; case in point the Weimar Republic printed 'unbacked' paper causing the Depression, 'Great Depression' in America due to FDR's attempt to spend borrowed money to get out of it.

    Any unbacked money, which U.S.A. is not actually printing, is very bad for society and the economy. The U.S. has backing of its money; it is called the 'sweat equity' of its citizens and it is about used up after Obama's reign.

    What would be best is a solid asset back monetary system, such as we had pre-1972.
    But, we cannot get that with the current makeup of our gov't; Senate and Congress both are elected by the populous and this means they try to 'buy' their seats with 'pork'.

    We would need to repeal the 17th Amendment and give the power of the Senate back to the States. Then we would have to shrink the federal gov't and drastically cut fed level spending; some people will die due to it. We cannot afford to pay for those that DO NOT WANT TO WORK OR FOR THEIR FINANCIAL MISTAKES.

    We as well have to secure the borders and all entry points. Once we rein in our debt we could go back to a securely backed monetary system.

    So, in closing I am for the gov't 'printing' money; but only securely back money.
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  • Posted by  $  MikeMarotta 3 months, 2 weeks ago
    The government certainly would have the right to create its own money for its own purposes. It also would have the right to borrow money.

    It is true that the government might choose not to do either of those. In 1800 and 1802 radical Republicans in the Senate sought to close the US Mint as being an unnecessary public expense. The Spanish Dollar was plentiful and could have served as the common currency. In fact, the Spanish Dollar and then the Mexican Peso were legal tender -- as were several other foreign gold and silver coins -- until 1857.

    Businesses do not just borrow money when they are short of cash. Many large corporations borrow short-term (24 hours, for instance) to make payrolls. The reason is that their cash on hand is worth more than the cost of borrowing.

    The same applies to the government, of course.
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    • Posted by  $  3 months, 2 weeks ago
      The question then becomes whether it is better for a government to “print” unbacked money or “borrow” money by issuing interest-paying bonds . For example, would the U.S. have been better off directly covering all of its deficits by paying them with unbacked currency? This would have had the upsides of no $20 trillion national debt and no need for a central bank. Are there any corresponding downsides, and if so what are they?
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  • Posted by craigerb 3 months, 2 weeks ago
    In printing money, the government devalues money in proportion to each person's wealth. In borrowing, the government devalues each person's wealth in proportion to the taxes they pay.
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  • Posted by dbhalling 3 months, 2 weeks ago
    I am not sure that under an Objectivist government it would never borrow money. An O government could not print money, as legal tender laws are not consistent with Objectivism.
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    • Posted by  $  3 months, 2 weeks ago
      True, an Objectivist government could borrow money under extraordinary circumstances, such as defending itself and its citizens against an attack that threatened its (and their) very survival. It could do so by issuing bonds denominated in any free-market currency in use at the time. Such borrowing could occur without having a central bank or legal tender laws in place.
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      • Posted by  $  MikeMarotta 3 months, 2 weeks ago
        The choice of which free market currency to use would be a case of the government "picking winners." We might imaging an open bid of some kind, as for buying pencils or aircraft carriers. Here in Texas, the government is mandated to make the "best purchase" as opposed to being forced to accept the lowest bid. But the historical evidence is that when Andrew Jackson "killed the monster bank" he put all that federal money (gold) into "pet banks" whose directors where favorable to the Democrat Party.

        The government can certainly issue its own money, just as Disney does.
        https://en.wikipedia.org/wiki/Disney_...
        Why not?
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        • Posted by  $  3 months, 2 weeks ago
          The government “picks winners” every time it buys, sells, borrows or leases anything, monetary or otherwise. The main consideration should be whether the process of doing so is transparent and fair, according to Objectivist standards.

          Disney is a private corporation, and “Disney Dollars” are an obligation for Disney to provide goods or services to the bearer. By contrast, “money” issued by a government is an obligation for that government to provide . . . what?
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      • Posted by dbhalling 3 months, 2 weeks ago
        Agreed. ignoring an O government, both borrowing and printing take resource from the private sector, so in that sense they seem similar. However, empirical evidence seems to show borrowing (especially honest borrowing) is less damaging.
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    • Posted by  $  MikeMarotta 3 months, 2 weeks ago
      Dale, please cite a legislative definition of "legal tender." You seem not to know what it means. You seem to think that it is a government monopoly on money. It is not. In point of fact, an "Objectivist" government would, indeed, need to define "legal tender."
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      • Posted by dbhalling 3 months, 2 weeks ago
        Here is the exact statute.

        "Today the legal tender law in the US is 35 USC § 5103 which states:

        United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.


        Why legal tender laws do not require government monopolies on money absolutely, they are almost always used for that eventually. You just wrong that any Legal Tender law is consistent with Objectivism..
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        • Posted by craigerb 3 months, 2 weeks ago
          "Legal tender" just means you have to accept it in discharging a debt UNLESS you have contracted otherwise. Objectivists can just contract otherwise.
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          • Posted by dbhalling 3 months, 2 weeks ago
            Nope. You cannot contract out of legal tender that is the very definition of legal tender.

            "money that is legally valid for the payment of debts and that must be accepted for that purpose when offered" https://www.merriam-webster.com/dicti...
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            • Posted by  $  3 months, 2 weeks ago
              According to the Treasury Department, “This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.”
              https://www.treasury.gov/resource-cen...

              This doesn’t really address the issue of debts denominated in something other than U.S. dollars, such as foreign currencies or gold. If I take out a mortgage in Euros, can I pay it off in dollars at the current exchange rate? Of course I could convert dollars to Euros and pay it off that way, but am I legally obliged to?
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            • Posted by  $  MikeMarotta 3 months, 2 weeks ago
              I promise to deliver to you 1000 widgets at $2.95 each. My factory burns down. I want to pay you $2950 and you refuse to accept that, demanding instead the 1000 widgets which do not exist and which now may never exist. I think that you are throwing a temper tantrum and the courts will agree.

              Also, you have conflated "objective" with "Objectivist." Ayn Rand said in her interview with Henry Mark Holzer that Ancient Rome was an example of objective government because the laws were publicly posted and inflexible. She allowed that the laws were not primary concerned with individual rights or even mostly so, but they were nonetheless objective. That is different from the subjective laws of a totalitarian bureaucracy.
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        • Posted by  $  MikeMarotta 3 months, 2 weeks ago
          It is not a definition of "legal tender." It assumes a definition. What is that? What is legal tender? I know what it is. This law does, of course, rest on that. But that is the question here. The question is not whether or not FRNs are "legal tender" but what "legal tender" is.

          Your reply assumes the hypothesis.
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      • Posted by  $  3 months, 2 weeks ago
        Why does defining "legal tender" become necessary for an Objectivist government to fulfill its primary function of protecting individual rights?
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        • Posted by  $  MikeMarotta 3 months, 2 weeks ago
          Government courts need to have an objective definition of "money" of "legal tender" in order to know whether a debt has been discharged according to law. Congress created and creates all manner of gold and silver objects which never were intended as money or legal tender.
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  • Posted by Jstork 3 months, 2 weeks ago
    I am still learning about government debt and finance relative to economies. I have learned that we should have a productivity based economy and not a debt based economy and that a fiat economy is not good. The amount of currency in days gone by were based on gold reserves which in effect would be a productivity based system. The money that should be printed ought to be based on the amount of resources produced and in the economy. Printing money based on the country's GDP seems to make sense.
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    • Posted by  $  MikeMarotta 3 months, 2 weeks ago
      Debt is the seed of civilization.
      http://necessaryfacts.blogspot.com/20...

      Business is all about the future. Business is speculation, by definition. The common claims here about gold and silver and hard money are examples of what I identify as the Physiocratic Fallacy." In the days of mercantilism, a nation's wealth was the measured as the coins in the king's treasure chest. Adam Smith exposed that fallacy in The Wealth of Nations.
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      • Posted by  $  3 months, 2 weeks ago
        Business is about the present also. If a business is open today it’s because that business expects to sell goods and services today. Business is speculation only in the sense that crossing a street is speculation (that you won’t be knocked down by a careless motorist). It’s not in the same category as, say, investing in a penny stock.

        If debt is the seed of civilization, investment is its soil. Once a seed matures into a plant, it is no longer a seed and has different requirements for its long-term survival. An environment suitable for a seed may no longer be suitable for a plant. Today the world is suffering from too many seeds (debts) and too little civilization.
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  • Posted by OneCitizenOfTheRepublic 3 months, 2 weeks ago
    Inflation == the hidden tax that affects everyone, especially those on fixed income... Printing money (without adding any value) creates inflation. Paying off debt with or without interest considered reduces funds for other needs, Health and welfare, military/defense, infrastructure, etc. Which is worse (printing money or borrowing money)? They are both unacceptable. "The problem isn't that we don't have enough money. The problem is that government spends too much." Ronald Reagan. Our solution for the day: stop spending more than you take in. Period.
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  • Posted by scojohnson 3 months, 2 weeks ago
    Neither is desirable, but borrowing is probably preferential to printing because market forces will somewhat auto-correct governmental spending - at some point the cost of borrowing exceeds the government's ability to pay and presumably some sanity would return.

    During a major calamity, such as 2008, that may not be an option, there may be no one willing to lend. In the case of the US, we can print money and people will still value the currency highly because of its status as the de facto reserve currency for the world. Other nations don't really have that option with skyrocketing their inflation, so results may vary.

    Ultimately in the US, we tend to not go to far down one path or the other over time. If you look at the long horizon of US history, we generally vacillate between the left and the right. We over-corrected with the democrats in the last cycle and Trump was elected. My gut feeling is that he will ultimately be a fiscally conservative person with some moderate leanings on social issues and we may find a sweet spot there for a while.

    I'm backing up that statement by the left's absolute beyond-belief reaction to his election. They are scared shitless (I think) that the economy will get back on track, people will go back to work, taxes are going to go way down, and revenues will go way up by getting dependent masses of people off the government's monthly liabilities list. The country longs for the Reagan years, Trump may be the first one to have come along since Reagan that doesn't owe favors to everyone under the moon.

    If the left sincerely thought he would fail in cataclysmic fashion, they would just be setting up people on the bench for a 2020 run. Instead, Hillary is eyeballing the New York City Mayor's race, Kane has disappeared to the Island of Misfit Toys he was on before she plucked him out of it, and Lurch (John Kerry) gives a completely incomprehensibly stupid narrative of the Obama years miscategorizing and misrepresenting the "good" parts of the Obama years and completely omitting the failures, and Holder appears to be now in the political consulting & whoring business. I don't think they will even mount a defense in 2020 and they know it.
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