- Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
- Complete elimination of bank runs.
- Dramatic reduction of the (net) public debt.
- Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.
We find support for all four of Fisher’s claims."
- We therefore conclude that Fisher’s (1936) claims regarding the Chicago Plan, as listed in the abstract of this paper, are validated by our model.
- The effectiveness of countercyclical policy would be further enhanced under the Chicago Plan relative to present monetary arrangements. [B]ank runs can obviously be completely eliminated… It would lead to an instantaneous and large reduction in the levels of both government and private debt, because money creation no longer requires simultaneous debt creation…
- By validating these claims in a rigorous, microfounded model, we were able to establish that the advantages of the Chicago Plan go even beyond those identified by Fisher (1936)…
- One additional advantage is large steady state output gains due to the removal or reduction of multiple distortions, including interest rate risk spreads, distortionary taxes, and costly monitoring of macroeconomically unnecessary credit risks.
- Another advantage is the ability to drive steady state inflation to zero in an environment where liquidity traps do not exist… This ability to generate and live with zero steady state inflation is an important result, because it answers the somewhat confused claim of opponents of an exclusive government monopoly on money issuance, namely that such a monetary system would be highly inflationary. There is nothing in our theoretical framework to support this claim. And as discussed in Section II, there is very little in the monetary history of ancient societies and Western nations to support it either.