Money Creation and the State : A Critical Assessment of Chartalism

Abstract

The article discusses various issues related to money creation and the state. Chartalists believe that attempts at separating the central bank's and the treasury's functions is merely confused discussion. Indeed, as economist L. Wray clearly states in response to previous critiques, it should be obvious, but it usually does not appear to be so that central bank liabilities do not differ in any significant degree from treasury liabilities; in other words, they can treat both as essentially high powered money or liabilities of the state. In this sense, Wray proposes to simply consolidate the central bank and the treasury, calling the conglomerate the State, and combine treasury and central bank liabilities into a high-powered money or fiat money. This is precisely the crucial point that we have chosen to question here with reference to bookkeeping and central bank practices. In many countries law from directly financing state deficits has prohibited the central bank. Treasuries have to sell bonds to commercial banks, which in their turn may sell them to the central bank to obtain high-powered money.