The separation of money creation and government spending

The history of monetary systems is characterized by constant struggle for control over the money supply. Rulers were always faced with the temptation to increase their own wealth by making coins or by printing glows. This conflict between state enthusiasm for spending and the need for stable currencies to date determines the economic policydebates. An independent monetary authority often has to act as an unloved guest when limiting the amount of money to prevent the economy from overheating.

The incentive conflict of the power of state

The core problem of uncontrolled increase in money is the combination of different powers in the same hand. On the one hand, the prince enjoys the income from the pre-profit. On the other hand, he has the sole right to bring new money into circulation. This constellation creates such a conflict of objectives, which inevitably leads to an excessive expansion of the money supplyleads.

The institutional separation of powers

The logical consequence of this dilemma requires the strict separation of these functions. It is necessary to have an independent institution whose exclusive purpose is to maintain monetary stability. These currency watchdogs produce the physical means of payment and protect it from political arbitrariness. Opposite them are the government, which the financial resources for statetasks required.

The role of independent currency guardians

The currency watchdogs make the material money and keep it away from direct state access. They deliberately do not act as a modern central bank, which creates uncovered paper money as they wish. Her focus is on preserving the traditional princely allowance and its stability. This strict orientation prevents the state from unnoticed by the pressfinanced.

The government’s financial limits

Under these strict conditions, the government only remains the way of explicit fundraising. She must disclose her financial needs and collect taxes or take out debts for this purpose. The hidden path about the exploitation of the pre-profit is blocked by the independent guardians. The ruler must have the money provided by the currency guardians just like any ordinary citizenuse.

The privilege of tax collection

The state is the only special power to levy taxes. He may collect money from the citizens without paying immediate consideration. He can theoretically use this income for productive purposes and the common good. However, there is no guarantee that the funds will actually serve the well-being of the taxpayers.

The danger of favoritism

Rulers could also abuse the taxpayers’ money for their own luxury consumption. The promotion of loyal followers often serves to strengthen one’s own position of power. Such forms of nepotism weaken social cohesion and economic performance. The temptation for self-enrichment remains a constant threat in every political system.

The dilemma of growing money needs

This separation constructs natural limits when using physical metal money. Whenever the currency guardians issue new coins, they generate significant pre-wins. Even in a dormant economy, new production of money is necessary, as coins are lost or wear out. In a growing economy, the money supply must be increased to increase pricesprevent.

The accumulation of wealth among the guardians

If you don’t distribute this new money directly to the entire population as a gift, the profits accumulate among the currency watchdogs. The independent institution would accumulate huge real values over generations. Such a development would not be acceptable by the citizens and the prince in the long run. The guardians of the money would actually become a powerfulgrow in the shadow state.

The historical impermanence of such models

Such a separation of powers can hardly be maintained permanently within the framework of physical metal money. The historical review shows that pure princely currencies never operated with such an independent central bank. The state’s temptation to secure the pre-profits directly was always too great. Only modern credit systems open up completely new possibilities for themonetary control.