AFJM Coffeehouse Study Stack
TOPIC: "Safe and Stable Banking: Lessons from U.S. History"
with Dr. Ronnie Phillips
Dr. Ronnie Phillips is renowned for his book The Chicago Plan. The Chicago Plan was designed early in the Great Depression by the laissez-faire founders of the influential Chicago school of economics. The Chicago Plan was to improve the monetary system to have a full-employment economy, reduce public and private debt, and end the steady occurrences of panics and depressions endured by the United States throughout its history.
ABOUT THE SPEAKER
Dr. Ronnie Phillips' extensive Curriculum Vitae can be found on his website.
Some Highlights of the Presentation:
- A chance meeting in 1983 with 95-year-old Professor Lloyd Mints began Dr. Phillips’ detailed exploration of the Chicago Plan. Mints was a prominent member of the Chicago school of economics. Other prominent members were Frank Knight and Henry Simons.
- His association with the renowned Hyman Minsky began at Bard College in 1992. Minsky was a student of Henry Simons at the University of Chicago in the late 1930s. Dr. Phillips was also a colleague of MMTer Randal Wray.
- He gave insights into how the system works such as the Treasury deals through the FDIC with insolvency of banks, and the Fed deals with illiquidity in the payment system.
- He reviewed the history of the American Banking system. Since banks in the 19th century issued their own banknotes, the National Banking Act (1864) ensured there was something to back the notes – government securities. The problem is that if we reduce government debt, what would back the notes? Beginning in 1935 The Fed issued notes based on that system.
- He refers to Jesse Jones’ book on the Reconstruction Finance Corporation – a model that Phillips believes we should still use when the lender of last resort process is needed to assist business activity.
- He discussed MMT and Central Bank Digital Currency.
- Dr. Phillips stated that monetary policy is fiscal policy when the Fed provides the funds directly to the Federal Government.
Some Highlights of the Discussion
- In response to the question on how the Chicago Plan relates to the aspirations of Just Money, Dr. Phillips explained that Henry Simons proposed a fiat money system (the financial good society) in which all money was issued by the government. The banks would lend from their own equity or infinite maturity bonds. Simons was a free-market economist for every industry except money. Dr. Phillips points out that several top economists were supportive, such as Redford Tugwell, Adolph Berle, and Lauchlin Currie.
- It is important to distinguish between credit and money. Money is for payment, credit is for lending. He gave the example of PayPal being a private-sector payment system that could work with the Fed.
- Dr. Phillips made the intriguing observation the under the National Banking Act commercial banks were forbidden to make real estate loans. He made the remarkable suggestion that his minimum reform would be to revoke the charters for the major banks so that they would not qualify for deposit insurance. Given they would not qualify for a bailout, their lending practices and financial instruments would be more prudent.
- During Roosevelt’s banking holiday, enough cash was printed so that banks could remain operational during bank runs. However, Roosevelt’s fireside chats reduced the public’s concerns about the banks at risk.
- He is in favor of the government investing in climate change measures.
- He comments positively about MMT if they are using treasury-based money, which led to a discussion about debt-based money vs government-issued money.
- He also said that in 2008 we should have bailed out the homeowners, not the lenders.
- Dr. Phillips revealed that the Reconstruction Bank owned half the banks by 1935.
- The Chicago Plan saw the banks as linking the borrower more directly to the lender. The payment system would have safe assets and the lending system would be from equity.
- He provided suggestions about local currencies. He used the example of a beer-backed currency. Ed Dodson, a participant, later referenced his Russian experience and the ‘Brick Standard’.
- Dr. Phillips addressed the gray area about the Fed being a private institution. He said the Fed is not really private ownership – you can’t buy shares. His response was consistent with the Fed Chair Eccles who responded to the remarkable Wright Patman on this issue.
- Lucille followed up and Ronnie agreed that the goal of the Chicago Plan was outright ownership. She followed up with a quick review of the book The End of Banking.
- He discussed with Paul the merits of Randy Wray’s MMT work, praising his thinking and analysis. He was also complimentary of Kelton. He said Wray thinks we can accomplish the same goals without as large a change. He said there are similarities to Henry Simon. MMT, Just Money, and Simons would combine the Fed and Treasury together.
- Lucille announced that Dr. Phillips has agreed to join our advisory board.
THE STUDY STACK
Sources mentioned by Dr. Ronnie Phillips
Fisher, Irving.1936. 100% Money Mises Edition.
Jones, Jesse H. Fifty Billion Dollars: My Thirteen Years with The RFC.
Kotlikoff, Laurence J. 2010. Jimmy Stewart is Dead. Ending the World’s Ongoing Plague with Limited Purpose Banking. Hoboken, NJ: Wiley.
Kumhof, Michael & Benes, Jaromir. 2012. “The Chicago Plan Revisited.” IMF Working Papers 12/202. Washington: International Monetary Fund.
Knight, Frank & Cox, Garfield & Director, Aaron & Douglas, Paul & Hart, Albert & Mints, Lloyd & Schultz, Henry & Simons, Henry. 1933. “Memorandum on Banking Reform”, Franklin D. Roosevelt Presidential Library, President’s Personal File 431, March 1933. Also known as the first version of the Chicago Plan. Reproduced in Phillips, Ronnie. 1994. The Chicago Plan & New Deal Banking Reform. Armonk, NY: M.E. Sharpe,191–199.
Lainà, Patrizio. 2015a. “Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf”. Economic Thought, 4/2 (28 Sep 2015): 1-19.
Lainà, Patrizio. 2015b. “Money Creation under Full-reserve Banking: A Stock-flow Consistent Model”. Working Paper No. 851. Levy Economics Institute.
Lainà, Patrizio. 2018. “Full-Reserve Banking – Separating Money Creation from Bank Lending“. Dissertation, Faculty of Social Sciences, University of Helsinki.
Litan, Robert. What Should Banks Do? Brookings, 1987.
Phillips, Ashton S. 2014. “Bank-Created Money, Monetary Sovereignty, and the Federal Deficit: Toward a New Paradigm in the Government-Spending Debate“. Western New England Law Review, 36: 221-56.
Phillips, Ronnie J. 1992a. “The ‘Chicago Plan’ and New Deal Banking Reform”. The Jerome Levy Economics Institute, Working Paper No. 76, June 1992.
Phillips, Ronnie J. 1992b. “Credit Markets and Narrow Banking“. The Jerome Levy Economics Institute of Bard College, Working Paper No. 77, July 1992.
Phillips, Ronnie J. 1996. “The ‘Chicago Plan’ and New Deal Banking Reform.” In Papadimitriou, Dimitris (Ed), Stability in the Financial System, London Palgrave Macmillan. 94-114.
Phillips, Ronnie J. 2015 (1994). The Chicago Plan & New Deal Banking Reform. Oxon, UK & New York, NY: Routledge.
Simons, Henry & Cox, Garfield & Director, Aaron & Douglas, Paul & Hart, Albert & Knight, Frank & Mints, Lloyd & Schultz, Henry (1933) “Banking and Currency Reform”, Manuscript. Also known as the second version of the Chicago Plan. Reprinted in Samuels, Warren (ed.), 1990, Research in the History of Economic Thought and Methodology. Archival Supplement, Volume 4. Greenwich, CT: JAI Press.
Simons, Henry. 1948. Economics Policy For A Free Society Archive.Org edition [On page 16 her refers to the “state monopoly of currency issue.”]
Zarlenga, Stephen. 2002. The Lost Science of Money. The Mythology of Money – the Story of Power. Valatie, NY: American Monetary Institute.
Note: A related presentation by Dr. Phillips can be found here
Sources mentioned by participants
The 25th Anniversary Issue of Dr. Phillips’ book can be obtained for just $15.
The Bank of Spain has a paper on Central Bank Digital Currency linking it to the Chicago Plan.
Wright Patman was a congressman who supported the Chicago Plan. He asked many questions of the famed Fed Chair Marriner Eccles. On the ownership of the Fed, Eccles replied in a letter something very similar to Dr. Phillips' reply at the presentation.
Wright Patman proposed during the war a simple change that would have accomplished much of the Plan.
The End of Banking
Jeff Eder’s Progressive Money Canada and his video on transitioning to sovereign money.
Caveat: The views and opinions expressed in AFJM Coffeehouses are those of the presenters and participants and do not necessarily reflect the official policy or position of the Alliance of Just Money.
This Study Stack will also be available in the AFJM Archive.