{"id":5791,"date":"2012-10-22T00:41:36","date_gmt":"2012-10-22T04:41:36","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=5791"},"modified":"2012-10-22T00:41:36","modified_gmt":"2012-10-22T04:41:36","slug":"the-chicago-plan-1939","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/22\/the-chicago-plan-1939\/","title":{"rendered":"The Chicago Plan (1939)"},"content":{"rendered":"

The 1939 proposal — A PROGRAM FOR MONETARY REFORM — by a group of eminent economists, including Irving Fisher, became known as the “Chicago Plan” after its chief proponent, professor Henry Simons from the University of Chicago. The core proposal is to require banks to hold 100% reserves against demand deposits1<\/sup>, ending the fractional reserve banking system and making the monetary authority (the Fed) solely responsible for creation of new money. This extract describes major features of the plan:<\/p>\n

Lending Under the 100% Reserve System<\/strong>
\nThe 100% reserve requirement would, in effect, completely separate from banking the power to issue money. The two are now disastrously interdependent. Banking would become wholly a business of lending and investing pre-existing money. The banks would no longer be concerned with creating the money they lend or invest, though they would still continue to be the chief agencies for handling and clearing checking accounts.<\/p>\n

Under the present fractional reserve system, if any actual money is deposited in a checking account, the bank has the right to lend it out as belonging to the bank and not to the depositor. The legal title to the money rests, indeed, in the bank. Under the 100% system, on the other hand, the depositor who had a checking account (i.e., a demand deposit) would own the money which he had on deposit in the bank; the bank would simply hold the money in trust for the depositor who had title to it. As regards time or savings deposits, on the other hand, the situation would, under the 100% system, remain essentially as it is today. Once a depositor had brought his money to the bank to be added to his time deposit or savings account, he could no longer use it as money. It would now belong to the bank, which could lend it out as its own money, while the depositor would hold a claim against the bank. The amount, in fact, ought no longer to be called a \u201cdeposit\u201d. Actually it would be a loan to the bank.<\/p>\n

Now let us see how, under the 100% system, the banks would be able to make loans, even though they could no longer use their customers\u2019 demand deposits for that purpose.<\/p>\n

There would be three sources of loanable funds. The first would be in the repayments to the banks of existing loans of circulating medium largely created by the banks in the past. Such repayments would release to the banks more cash than they would need to maintain 100% reserve behind demand deposits; and this \u201cfree\u201d cash they would be able to lend out again. The banks would, therefore, suffer no contraction in their present volume of loans…..<\/p>\n

The second sources of loans would be the banks own funds, capital, surplus, and undivided profits which might be increased from time to time by the sale of new bank stock.<\/p>\n

The third source of loans would be new savings \u201cdeposited\u201d in savings accounts or otherwise borrowed by the banks. That is, the banks would accept as time or savings deposits the savings of the community and lend such funds out again to those who could put them to advantageous use. In this manner, the banks might add without restraint to their savings, or time, deposits, but not to the total of their demand deposits and cash.<\/p>\n

However, there would, of course, be a continuous moving of demand deposits from one bank to another, from one depositor to another and from demand deposits into cash and vice versa. To increase the total circulating medium would, nevertheless be the function of the Monetary Authority exclusively.<\/p><\/blockquote>\n

via A Program For Monetary Reform (pdf)<\/a><\/p>\n

    \n
  1. Demand deposits are bank deposits, such as checking accounts, payable on demand. Savings or time deposits are payable on maturity. An easy way to separate demand from savings\/time deposits is to class any deposit that matures within 30 days as a demand deposit.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    The 1939 proposal — A PROGRAM FOR MONETARY REFORM — by a group of eminent economists, including Irving Fisher, became known as the “Chicago Plan” after its chief proponent, professor Henry Simons from the University of Chicago. The core proposal is to require banks to hold 100% reserves against demand deposits1, ending the fractional reserve … <\/p>\n

    Continue reading “The Chicago Plan (1939)”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31],"tags":[656,994,2343,3421],"class_list":["post-5791","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","tag-chicago-plan","tag-demand-deposits","tag-monetary-creation","tag-time-deposits"],"yoast_head":"\nThe Chicago Plan (1939) - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Chicago Plan (1939) - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The 1939 proposal — A PROGRAM FOR MONETARY REFORM — by a group of eminent economists, including Irving Fisher, became known as the “Chicago Plan” after its chief proponent, professor Henry Simons from the University of Chicago. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-1vp","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":5785,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/21\/the-chicago-plan-revisited-imf-working-paper\/","url_meta":{"origin":5791,"position":0},"title":"The Chicago Plan Revisited | IMF Working Paper","author":"Colin Twiggs","date":"October 21, 2012","format":false,"excerpt":"There is growing interest in this IMF Working Paper by Jaromir Benes and Michael Kumhof which discusses removing the role of monetary creation from fractional-reserve banks and assigning it to Treasury. Here is a brief abstract: At the height of the Great Depression a number of leading U.S. economists advanced\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5828,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/24\/the-chicago-plan-criticism-by-marshall-auerback\/","url_meta":{"origin":5791,"position":1},"title":"'The Chicago Plan' criticism by Marshall Auerback","author":"Colin Twiggs","date":"October 24, 2012","format":false,"excerpt":"Marshall Auerback wrote a short piece criticizing the recent IMF study of the \"Chicago Plan\" first put forward by professors Henry Simons and Irving Fisher in 1936. \"Now there are some good things about\u00a0a 100% reserve backed banking system.\u00a0 To the extent that we\u00a0require all institutions to hold liquid reserves\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9738,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/04\/26\/fractional-reserve-banking-the-chief-loose-screw-house-of-debt\/","url_meta":{"origin":5791,"position":2},"title":"Fractional reserve banking: ‘the chief loose screw’ | House of Debt","author":"ColinTwiggs","date":"April 26, 2014","format":false,"excerpt":"By Atif Mian and Amir Sufi quote from The Chicago Plan (1933-1939) of which Irving Fisher was a strong supporter: \u201cA chief loose screw in our present American money and banking system is the requirement of only fractional reserves behind demand deposits. Fractional reserves give our thousands of commercial banks\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10833,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/09\/07\/a-prominent-financial-columnist-is-calling-for-radical-reforms-to-the-global-economy-business-insider\/","url_meta":{"origin":5791,"position":3},"title":"A Prominent Financial Columnist Is Calling For Radical Reforms To The Global Economy | Business Insider","author":"ColinTwiggs","date":"September 7, 2014","format":false,"excerpt":"From The Economist review of Martin Wolf's new book \u201cThe Shifts and the Shocks: What We\u2019ve Learned\u2013and Have Still to Learn\u2013from the Financial Crisis\u201d: To make finance safer, Mr Wolf suggests replacing a fractional reserve banking system, which takes in deposits and lends most of them out in longer-term loans,\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7326,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/27\/forget-too-big-to-fail-kill-the-fractional-reserve-banking-system\/","url_meta":{"origin":5791,"position":4},"title":"Forget too-big-to-fail: Kill the fractional reserve banking system","author":"ColinTwiggs","date":"March 27, 2013","format":false,"excerpt":"Interesting discussion on Bloomberg about currency-backed deposits and equity-funded loans. The fractional reserve banking system is the primary cause of instability and asset bubbles in the global economy, allowing banks to create money out of thin air. Credit expansion above the rate of real GDP growth has only two possible\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1375,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/10\/17\/feds-kocherlakota-on-why-balance-sheet-expansion-need-not-be-inflationary-real-time-economics-wsj\/","url_meta":{"origin":5791,"position":5},"title":"Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary – Real Time Economics – WSJ","author":"ColinTwiggs","date":"October 17, 2011","format":false,"excerpt":"I\u2019ve mentioned how the Federal Reserve has bought over $2 trillion of government securities. It has funded that purchase by tripling the amount of deposits held by banks with the Fed \u2014 what are called bank reserves. ....... Banks have few good lending opportunities, and so they\u2019re not trying to\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/5791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=5791"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/5791\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=5791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=5791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=5791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}