Preliminary Summary
 
Newly printed money is issued daily and free to a rota of people who will spend most of it as an extra within about 2 weeks.  The money issue and its amount is conditional upon the average price level and the total inventory both being held near to constant, as shown by voluntary daily downloads of shops' computer stock control.  This routine, together with certain other changes, gives:
 
full employment, soon,
 
a very high growth rate,
 
low costs to the government and taxpayers,
and
a very high stability in the economy.
 
 

Brief comparison
 
 
Quantitative easing is unpredictable and it seems likely to be relatively slow in action.  These properties, together with the effective retention of Bank Rate as the control variable, could cause instability of the sort that we have recently experienced.

Fiscal stimuli are slow in action and are expensive to the government and to the tax payer.  Retention of the Bank Rate as control variable could again cause instability.

Both with quantitative easing and with fiscal stimuli the predicted UK financial loads have been considered by some commentators to be so large that successive UK governments may not be able to support them.

In contrast, the proposals of the present discussion should be relatively highly predictable and fast in action.  The proposals include three stimuli and a credit supply, as well as the removal of the burden of toxic assets, all at substantially zero cost to the national governments and taxpayers.  International co-operation would therefore be greatly simplified, once the system has been demonstrated.  The recession would be cured relatively rapidly.  The system would be continued after the recovery from recession, giving a very stable recovered economy and a growth rate which is both large and the greatest attainable.  The relatively rapid recovery from recession and the strong growth afterwards would keep to a minimum both the personal burdens of unemployment and the financial loads on governments - well within governments' support capacity.

The present proposals could be set up very qickly.

Summary of the present discussion  
 
Newly printed money or its equivalent is issued frequently to a rota of people who will spend it as an extra within about 2 weeks, with the amounts of money dependent on the frequent monitoring of prices and of the stocks of goods and services that are for sale, and of their rates of change, and without the money being sterilised.  When the money issue has been well established and the recession is giving way, bank credit is made subject to requiring the backing of a proportion of central bank money, with the required proportion increasing to absorb the non-circulating notes which become passed to the banks.
 
The method gives an urgent and rapid increase in the rate of purchasing, so that prices, particularly of cars, can return to pre-recession values, so that industry can return to profitablity, so that people can achieve full employment, and so that the collapse of the structure of much of the world manufacturing industry can be prevented.  The population is given enough money such that, when it is added to the money which they already receive, they are able to purchase and to keep purchasing all the stocks of goods and services that are for sale.  The pain of the recession would go.  The pains promised for after the recession would go.  Prices would be stabilised such that their average remains constant.  High growth would be established: production for the whole economy would be able to increase without limit as far as the market is concerned, and the whole production would be purchased - provided organisations can keep prices and inventories as required.  And the basic cause of the present chaos would be eliminated as variable Bank Rate would not be used as a control.

Simultaneously, in a second stimulus a joint credit issue between the government with newly created money and one or more banks would increase the availability of credit as appropriate.  And in a third stimulus created money would be used to lower stirling if necessary for a balanced total trade.  A further action removes the burden from toxic assets. 

Fundamental philosophy and justification   The most fundamental backing for money, for any money, is the existence of the goods and services which can be bought with it. The whole population by their work have created the goods and services.  Bank created credit has not contributed more than interest free government currency would have done. Consequently it is natural justice for the population to be given sufficient new money, such that, when added to the payments which the population already receive, the population in total can buy the whole of production -  without the need to borrow bank credit.
 
 

Some time back on the 28th November '08, in the Financial Times on the usual one page of 'Comment and Analysis', two very well known commentators Martin Wolf and Philip Stephens encapsulated what was then the problem of modern finance: even if we print and issue new money and put it into circulation, we must later sterilise it by selling bonds in order to take it out of circulation again. This sterilising kept us in line with the "Washington consensus" that we must at all costs avoid the horrors of printing money.
 
At the time Philip emphasised that we were trying to break out of the problem.  And indeed we were breaking out.  The Washington consensus has now been abandoned and money printing is taking its place.  However in the writer's opinion there is not an adequate programme for using the printed money.  For curing the present situation requires that
 
1. the creation of the money and it's distribution shall be very tightly controlled, both in timing and amount,
 
2. the use of the money shall be closely directed to the organisations and people who will rapidly and reliably spend it as an extra to what they would otherwise have spent, and
 
3. there is enough new money distributed for the work in hand, issued sufficiently rapidly.
 
The proposals described in the present discussion have been designed for these targets.  The proposals are well suited to the situation and are recommended for adoption.
 
The November '08 criticisms of issuing new printed money were rather general and implicit, whereas on 8th December '08 on page 18 in the FT Alistair Milne gave a very specific criticism of the process of printing money. The matter is discussed in Chapter 2.  The conclusion is reached in Chapter 2 that Alistair has pointed out a weakness of the present monetary system.  Fortunately, restructuring is simple, at least to specify.  Alistair's criticism is then avoided.  Nevertheless, the restructuring is only to avoid the government making highly excessive interest payments and so would wait until the main cure for the recession has been put into place and is successfully working.

Before considering the details of the present proposals it is appropriate to consider the generalities of the situation.
 
In total in the present discussion three different stimuli will be proposed, all based on the controlled printing of money or an equivalent.  Most of the present discussion is either general or centered on the first stimulus.  The second and third stimuli dovetail into the later part of the discussion as their need becomes apparent.  Comprehensive action is specified overall, including for the supply of credit and for the removal of the burden caused by toxic assets.  The proposed action is applicable to every economy and costs essentially nothing.

Now the fundamental backing for printed money, and for any other money (even with the gold standard), is the food and clothing and shelter and all the rest of an economy's production which we can buy with the money. All the gold in the world would lose its value if these items produced by an economy ceased to be available. On the other hand, any paper which has been issued by the government and which has been made legal tender becomes fully acceptable as money when the required items of production are all available and when each item is, on average, available at constant price. ("Production"  is here considered generalised to include services.)

The items of production forming the backing for the currency as above have been produced by the population as a result of people's past and present work. Furthermore the creative part of bank credit, as opposed to the part directly from customer savings, has added nothing to the economy more than would be added by say paper currency issued interest-free by the government.  Consequently the situation of natural justice must be that the population should in total have enough money in its pockets to be able in the ordinary course of living to buy continually, and to keep buying, appropriately, the whole of production. In no way should the population's ability to buy, appropriately, the whole, be dependent upon any one section of the population - the banks - having to create credit, especially now that the banks have on so many occasions shown their unreliabilty.

In the present downward turmoil, with the population reducing its spending, and with money circulation slowing dramatically, the need is therefore for the government as the representative of the population to authorise and to legalise newly printed money to be issued to parts of the population as a free gift. Now it is essential that the manner of issue is completely stable. Firstly, the amount has to be sufficient such that, when added to the payments which the population otherwise receives, the new money enables the population to buy and keep buying appropriately all the production. And secondly, the rate of issue must be such that on average each item of production remains at constant price.

A highly stable manner for the above issue of printed money is described - given a tiny amount of updating - in a letter from the present writer to the Financial Times of 26th February '69. The money so issued would not be sterilised. The money would be issued on a rota basis to people who would usually spend the money almost immediately, say mostly within 2 weeks, and who would spend it as an extra to their usual purchases. The amount of money issued would be controlled such that all the production would be purchased, so that prices rose back to pre-recession values, and so that subsequent prices remained substantially constant at that level. The money issue would then give a very stable economy. ((In particular, the economy would be expanded continually, provided prices are maintained slightly below their nominal target and inventories are maintained slightly above their nominal target. Moreover the economy would also be found to increase the pressure on employers to increase production, as the present drag caused by the limits of the purchasing power of the market is, for the economy as a total, eliminated: as far as the market is concerned, all production, without limit, would be purchased, provided total inventories and average prices are maintained as specified.  That also would be found to increase the bargaining power of employees.))

The above manner for issuing printed money based on the '69 FT letter is therefore found to be the perfect solution to the recession.  Detail is given in Chapters 2 to 5, together with the other required actions.  The recession should be cured relatively quickly, without the government having to borrow in order to cure it.  After the recession the economy should climb to a healthy level.  Alistair Darling's problems in the UK in curing the recession and extensive pains afterwards in paying for the recession, and similar problems in other countries, are then replaced by positive opportunity.  There would be greater reliability in the economy.  And the basic cause of the present chaos would be eliminated as variable Bank Rate would not be used as a control.

The Weimar Republic and Zimbabwe
 
A general comment is that one has the impression that quite a lot of people in influential positions are adamantly against printed money because of its previous misuse - the Weimar Republic and Zimbabwe are commonly quoted.  The reasoning seems to the writer to be rather like the situation would have been had the world refused to use aircraft for civilian transport - for airliners and for air cargo - because previously aircraft had been used for bombing.  However the potential advantages of printing money particularly in the present circumstances are so great that one may surely ask decision makers and all even slightly influential people to study the possibilities - even if that means reading the present discussion.
 
The present discussion argues that the controlled issue of printed money as based on the '69 letter maintains constant prices (and implies that it can do so better than any other method based on any principle).  Even, however, if in the present exceptional circumstances the bad state of the banks causes their credit issue to be highly volatile, and if oil and gas prices are also highly volatile, the present discussion would still provide substantially constant prices, by the monitoring that is part of the '69 method and by the supplementary responses proposed as part of the present adaptation of the '69 method.

Chapters 2 to 5

Alistair Milne's criticism and its avoidance is discussed in Chapter 2.

The fundamentals of the controlled manner for the free issue of printed money is described in Chapter 3: "The 1969 letter in the Financial Times"

A more complete description of the present proposals is given in "The Plan" of Chapter 4: "The money issue for recovery from recession- and other matters".

Chapter 5 gives a brief vew of the method used for deriving the optimum control and leads to the corresponding response of the economy.

A very specific criticism
 
In the 'Introductory discussion' of Chapter 1 the first paragraph summarized what seemed to be a fairly common view concerning printing money, but the criticisms were rather general and implicit.  However, on 8th December '08 on page 18 the Financial Times gave a very specific criticism of the process of printing money and freely distributing it:
 
Eric Lonergan of M&G Investments had proposed printing large amounts of money for free distribution to households in order to cure the recession.  In reply, Alistair Milne, a Reader in banking at Cass Business School, City University London, argued that billions of notes would end up placed in bank accounts (presumably because of the popularity of plastic and other forms of bank money for general use).  These notes would increase bank reserves with the central bank and cause the central bank to have to pay interest.  Alistair Milne said that the amounts of interest could be very large, sufficient to threaten the financial stability of the central bank and government. Consequently on Alistair Milne's argument the process of printing money for free distribution was unacceptable.
 

There is, however, a broader context.
 
 
 

 

Fundamental responsibilities
 
In an economy with only a single form of money, and with the single form of money being paper money issued as legal tender by the government, the government would have the responsibility for maintaining the health of the economy.  It would also, however, have the power to maintain the health of the economy, in so far as it could control the money issue at substantially zero cost.  For if there was a sudden lack of spending leading to a recession, the government could merely issue more money after the manner recommended in the other Chapters of this discussion.  The cost would be substantially zero and, if carefully carried out, the cure for the recession could be rapid and complete.  If the single form of money were electronic, the same situation would hold.  And in fact, provided the government was the only supplier of money, the money could be in dual form, with both paper money and electronic money, and still the same situation would hold.

When, however, the government allows the banks to be a second supplier of money, potentially problems can arise.  The government must not be so generous to the banks that the government itself becomes unable to carry out its responsibilities.  That is what has happened today.  Even though, today, it is the banks which have caused the recession, it appears to be the manner of functioning of the banks that, under Alistair Milne's criticism, is also preventing the government from freely issuing its own money.  Instead of the government being able to cure the recession rapidly and at zero cost, it has to borrow huge amounts of money and pay it back later.  Economic commentators agree that, without printing money, the borrowing is necessary and may not even be enough, yet the borrowing as intended is so great that some commentators wonder whether such borrowing and its repayment may completely overwhelm the country.  The general situation of the recession is widely agreed to be serious.  Many people, including some of the banks' own previous staff, have lost their employment.  Moreover the matter is highly urgent: industry is affected and previous experience of the present crisis is that it has become rapidly worse when it was not expected to do so.  Action is therefore required.

The solution must be that the government restructures the role of the banks in relation to the money circulation in such a way that the government is properly able to carry out its responsibilities - in such a way in fact that the government is able to cure the recession rapidly and without borrowing in order to do so.

Necessary restructuring
 
Fortunately the required restructuring changes are simple - at least in their specification.  The restructuring would require that ordinary bank credit is backed by at least a small proportion of government legal tender in order to be legal tender.  In other words ordinary bank credit would be regulated such that it requires the backing of a certain proportion of legal tender in the form of non-interest-bearing government printed notes to be held by each bank in order for its ordinary credit to be legal tender.  The initial required proportion of notes would be set to fit reasonably the averages already existing at banks.  The specified proportion would then be gradually increased when the new printed money is issued, such that the extra notes so required by the banks reasonably matches the extra that is being issued.  In that way the recession would rapidly be cured by the money that is being issued and almost immediately spent, while Alistair Milne's criticism would be being avoided.

But start curing the recession first
 
The restructuring is only to avoid the government having to make excessive interest payments and so can wait until the main cure for the recession has been put into place and is successfully working.  Time should not be lost discussing the restructuring before taking all the necessary main action and starting the main cure.
 

Chapter 3
 
The 1969 letter in the Financial Times
 Published 26th February, 1969
 

 
Engineering science and monetary policy control
 

 
Sir,-Your editorial of February 5 argues convincingly that various influences on the money supply are unpredictable. You conclude, however, that monetary policy is therefore an art rather than a science. May I describe how engineering science does in fact control the unpredictable - and how it could do so in monetary policy?

To be stable an engine must be able to operate steadily at very close to a specified speed. It must be able to do this when the load on the engine is steady; but it must also be able to do this when the load on the engine is fluctuating rapidly and unpredictably. The control system achieves stability by receiving a continuous feedback of the right data, with almost zero time lag, and then by putting in immediately a continuous adjustment to the fuel supply. The control system characteristics, which determine the adjustment to be made in the light of the information in the feedback, are determined in advance either by "physical argument" or by mathematical analysis.

Similar principles can be applied to the economy. In the economy there are several variables to be controlled, but fortunately they may be considered one at a time. In the present discussion we are concerned with the average of retail prices, as the variable to be controlled, and the supply of money as the variable with which to control it. In this perspective the effects which you mention, that is, unpredictable government borrowing in order to finance movements in the gold reserve, and variable preference of the public to be liquid, merely represent a future unpredictable and varying load.

In order to take such effects in its stride the control system must have the following five features. 1. It must receive a feed back of data (from the economy) that is almost continuous. 2. The data feedback must have an almost zero time lag. 3. The data to be fed back must be the right choice of data. 4. The internal characteristics of the control system must be inherently stable. 5. The control output must be almost continuously adjusting the money supply.

In scientific terms the first two items in the above list would be termed "instrumentation," or "high response rate instrumentation". These are scientific subjects in their own right. Instruments have to be specially designed to give a high response rate, that is, to eliminate almost all the time lag, but for control systems the problem is usually not too difficult because a "relative" rather than an "absolute" feedback is required. The third item in the list requires some analysis of the economy as well as some understanding of the theory of control or of oscillations. If, in the economy, an "incorrect" amount of money is in circulation then the stock of goods available for purchase will begin to increase or decrease at a rate which is different from the "correct" rate. When stocks have become significantly greater or significantly less than their "correct" level, rates of production may be changed and prices may be changed. The important point here is that prices are likely to have a time lag in their response to an incorrect money supply and may not therefore be adequate as a feed back. On the other hand, the stock of goods available for purchase, minus the outstanding order for goods, will show a fast response to an incorrect money supply. In item 3, above, therefore, the right data must include both the average price level and the net stock of goods.

In order to obtain inherently stable internal characteristics for the control system, as in item 4, each change specified by the control would probably contain four contributions. The first contribution would be designed as a "spring" type mechanism always tending to bring the average price back towards the correct level, the second would be a spring type mechanism to bring net stocks back towards the correct level, the third a "damping" mechanism to dampen oscillations and reduce overshoot by opposing rates of change of price, and the fourth a damping mechanism to dampen oscillations and reduce overshoot by opposing rates of change of stocks.

Item 5 reinforces the argument for using the money supply, rather than taxation, as the short term control. The money supply can readily be adjusted each working day. The adjustment would usually be very small. With the above control system it should be practicable to keep the average price level almost rock steady.

Your conclusion that monetary control is an art rather than a science therefore seems to be a result of sharing the widespread lack of appreciation of the power of scientific and engineering control systems. Much more than just a monetary control system is required in our economy, but a monetary control system would be a very good start.


Brian Stratford.
 

 
 
Clarification of one point in the argument in the 1969 letter
 
Between paragraphs 5 and 6 of the letter, not only is it the net stocks, rather than the average price, that directly responds to the amount of money in circulation, it is also the net stocks, rather than the amount of money in circulation, that directly determines the average price.  It is that double effect which makes net stocks the key intermediate parameter.

Acknowledgement related to the 1969 letter
 
In 1975 the writer was pleased to have the assistance of Ian Slater, Ken Lewis, Mrs Jennifer Stratford, and other members, all members of the Blaegreaves Ward Labour Party, but which at that time was named the Littleover Ward Labour Party, in confirming the arguments of the above letter of 1969: in 1975 members successfully played several sessions of an economics "game" based on the letter.
 

 

 

 

At the time of the 1969 letter the writer had derived a simple solution for an economy which is operating under a monetary control as described in the letter.  The solution had been readily optimised, in order to provide suitable strengths for the control constants.  With the control as optimised, the economy appeared to be very stable.

The values so derived for the optimised control were based on judgements for certain parameters in a basic economy, but there did not appear to be any untoward sensitivity to the values used for these parameters.

The control has four terms, as in the 1969 letter:

1.  a "spring" type mechanism, always tending to bring the average price back towards the correct level: this is to be interpreted as adding money to the economy, in a manner such that it will be spent almost immediately as an extra, and adding it to the economy at a rate which is proportional to the current price deficit (analogous to the mechanical use of a spring, which always tends to bring an object's position back towards its datum),

2.  similarly a spring type mechanism to bring net stocks back towards the correct level,

3.  a "damping" mechanism to dampen rates of change of price: this is to be interpreted as similarly adding money, but adding it when the price is in process of changing (downwards) - analogous to a mechanical or hydraulic damper, which exerts a force against a speed of movement, rather than against a displacement - and

4.  similarly a damping mechanism to dampen rates of change of stocks.

Consequently the control may be expressed in the following form:

The proportional rate of increase of the money supply is to be made equal to:

a constant times the proportional excess of average price . . . . . . . . . . plus
" " " " " " " " " " " " " " " " " " " " "  excess of total retail stocks. . . . . . .  plus
" " " " " " " " " " " " " " " " " " " " "  rate of increase of av. price. . . . . . .  plus
" " " " " " " " " " " " " " " " " " " " "  rate of increase of total retail stocks.

The subsequent analysis then gives that the optimum control for a fully developed situation is that the above constants are respectively:

minus one per week;
plus a quarter per week;
minus five;
plus two.

The particular method for deriving the above optimum for the 1969 results is briefly indicated in the optimisation page linked and available as part of the web site, but is not shown in this text-only version.  Nevertheless a broad description of the physical behaviour of an optimised control system is given below under the headings: "Adaptation....." and  "Significance of critical damping and time lags".

In the above expression for the control, the phrase "The proportional rate of increase of the money supply" is to be interpreted as applying to the currency - the paper and coins - as issued, and as authorised as legal tender, by the central bank and central government.  Ordinarily it might be expected that bank credit would adequately follow suit.  In today's circumstances further precautions and further actions are recommended as discussed below.
 

Much of the remainder of this Chapter concerns further features of the controlled free payments of unsterilised government printed money to provide a stimulus based on the 1969 recommendations.
 
A simultaneous second stimulus is also recommended, also based on the 1969 recommendations, and using credit issued jointly by the government and participating banks.
 
A simultaneous third stimulus is recommended should it be necessary to lower the stirling exchange rate.
 
All the actions are aimed at curing the recession at essentially the highest possible speed, and at establishing a stable economy that has a high growth rate, the highest possible growth rate, and an essentially constant level of prices.

The summary and underlying philosophy of the total situation is given immediately preceding Chapter 1.
  
 

Adaptation of the 1969 proposals
 
 
 
Significance of critical damping and time lags

The designers and owners of most systems prefer their property to be stable when in operation.  A clothes washing machine should preferably not jump around, even when washing rather difficult loads, nor should a car when being driven along a bumpy side road.  Instead, the designer designs most items for high stability.  One concept of stability would be to rate it according to the rapidity with which any disturbance dies away.  If, for an illustrative simple example, one had a fairly heavy ball able to move vertically on a length of elastic.  Then, when moving up and down on the elastic and operating in air, the movement would last for a long time as it would continually pass through and overshoot when reaching its equilibrium position.  It would therefore count as unstable (although not to the extent of starting to oscillate of its own accord).  If, on the other hand, the ball and elastic were operating in cold treacle and if the elastic were very flexible, the overshoot would have been eliminated but the movement from an initial displacement would still last for a long time, because the treacle would prevent the ball from moving at even a moderate speed towards its equilibrium position.  So again the system would count as unstable.  If, however, the ball and elastic were operating in say a thin oil, and if for the present illustration one could vary say the temperature and so the viscosity of the oil, one could arrange for the system to be such that the drag from the oil just eliminated the overshoot.  That would be the situation where the drag from the oil just brought the speed of the ball to zero as it reached its equilibrium position.  Analysis shows that such a system recovers from its disturbance in the shortest possible time.  The system therefore has its greatest possible stability.  And if the system were an economy, it would recover from a recession in the shortest possible time.

With the ball on the elastic the oil provides damping.  When the damping is at the critical value which just prevents overshoot, the damping is called "critical damping".  Analysis is mostly straightforward for a so-called one degree of freedom system such as the ball on elastic - called "one degree of freedom" because one quantity, the height of the ball, completely determines the geometry of a given system.  Now the economy as treated in the '69 letter has two degrees of freedom, the level of prices and the amount of goods and services available for sale.  The system can still have critical damping, when there is just no overshoot.  Critical damping is then still found to give the greatest possible stability and critical damping is the optimum as targetted with the present control.  However, whereas with one degree of freedom it is found that in total there are two modes of response and the two modes automatically become identical with each other at critical damping, with the two degrees of freedom of the economy it is found that there are three modes of response and then it is found also that for our purpose a special condition has to be satisfied between the constants of the control. The special condition has to be satisfied for the condition to be attainable where all three modes of response are identical with each other, and where simultaneously the total damping is critical, and where the stability is the greatest possible.  It is that special condition, together with the more ordinary critical total damping requirement, which has principally determined the values for the optimised control as quoted above.

Now given an economy and a control with critical total damping as just discussed, it is possible to vary the intensity of all the actions of the control and still maintain critical total damping, provided the various conditions just discussed are kept satisfied.  The stronger the control actions are made, by increasing the values of the coefficients, the more rapid will be the recovery from say recession, and the closer will be the control that is exerted by the control on the economy.  However, that rapidity and close control will be subject to there not being other limitations brought into effect by the high strength of the control.  The values that have been suggested above have therefore been based on reasonably the largest values which seemed to the writer to be reasonably likely to be attainable without difficult side effects, but the situation would need to be monitored:  a single set of numerical calculations made by hand by the writer prior to the '69 letter showed that with small time lags an initial disturbance was brought to zero to perfection without overshoot in 16 weeks.  In the calculation prices and stocks were taken to be measured twice each week and the subsequent change to the money in circulation was taken to be made with a time lag of half a week.  The result of the calculation seemed to the writer to be highly satisfactory, although greater time lags probably needed to be possible, but were not tried.  The most difficult time lag seems likely to be in the spending of the free issue of money. In Chapter 1 it was suggested that the money would be issued to a Rota of people who would be likely to spend most of the money as an extra within say 2 weeks. That could be consistent with an average time lag of under 1 week.  Now with a strong control and a short recovery time the time lags need to be correspondingly short - the time lag would need to be kept less than some small proportion of the recovery time.  In general, therefore, the strengths used in the control and the time lags achieved by the operators of the control need to be kept in balance.  In the present situation and with the limited evidence available it is suggested that the optimum strengths proposed above and the Rota proposed in Chapter 1 should both be accepted and put into operation, until experience has been gained, until the real time lags have been monitored, and preferably until the total situation has been tested in a modern computer simulation.  A close watch needs to be kept on time lags and encouragement given to keep them small, but certainly the start of the free money issue based on the above principles should not be delayed while computer simulations are attempted.

A summary of the derivation of the optimum control is available as described in Chapter 5 , please, below, "To optimise the control".

Anticipation of the effects of the control - and public dialogue

In any such control system the players in the economy may be expected to endeavour to anticipate the control.  For the present control that has the effect of increasing the speed of action and the stability of the control, and to some extent offsets the effects of the time lags just discussed.  The staff guiding the control would maintain a public dialogue and would give full explanations of plans and progress.

The programme - the fastest possible recovery from recession of any method and the greatest possible subsequent growth rate.  The secret of rapid growth 
 
The initial nominal objective would not be to obtain say a constant average price level or a specified inflation, as the recession has already caused substantial price reductions.  For example, the FT in early December '08 reports average price reductions for cars to be about 25 to 30%.  With such a capitalised and streamlined industry such price reductions could be considered sufficient to cause the collapse of even the global car industry - in a short time.  After the collapse of a single global industry much worse possibilities could occur.  The staff guiding the control would at first therefore aim to achieve suitable increases in prices, monitoring the changes across the economy, in order to return most organisations to profitability as soon as possible. 

Now the greatest financial and political load from the recession as it affects the government and taxpayers is currently, April '09, predicted to be from the reduction in tax receipts and the increase in benefits, with both effects as caused by unemployment and short time working during the recession and also during an assumed slow recovery from the recession.  Commentators consider that the load may be greater than successive governments can bear.  The load would decrease rapidly if there were a faster cure for the recession and faster growth after the recession.  Fast recovery and fast growth are therefore highly desirable.  There is a secret to rapid growth.

The control discussed above based on the '69 letter adds money into circulation and arranges for it to be spent as an extra mostly within 2 weeks, with the proportional amount of money added per week being one times the proportional amount by which the average price is below its nominal target.  Also prices will be monitored very frequently, as will be discussed below.  If, therefore, the people in the economy maintain the average price level just slightly below the nominal target, say by 0.2%, then the control would expand the working level of the money supply by 0.2% per week, or by approaching 10% per year.  Similarly, if inventory were maintained 0.8% above nominal target there would be another increase of 10% per year.  So, with prices 0.2% low, continually, and inventory 0.8% high, the working money supply would be increased by 20% continually per year. Moreover, GDP must then also increase by something like 20% per year as most of the extra money in the economy is actually spent as an extra within 2 weeks of it's issue and that extra money must then remain active in order to produce a replacement for further sale.  Such a result will only happen if the economy is capable of producing the extra production and of doing so at the required price.  If, however, the economy does do so, then the greater production will almost always bring its own economies (current Far Eastern growth is the partial exception that proves the rule).  Consequently, the staff of the control maintaining the dialogue with members of the economy would explain these arguments and produce a tension encouraging all people and organisations to expand production - in volume and in type - in the knowledge that, as an average over the whole economy, the whole of their production would be purchased, without limit, provided prices are continually maintained very slightly below nominal target and inventory slightly above nominal target.  Recovery from the recession and growth after the recession would therefore become relatively fast, and also the fastest possible.  This route is followed as soon as highly unprofitable prices have broadly recovered to a profitable level as mentioned above. 

Additional provision of credit today; a second stimulus

In order to cure the present shortage of bank credit the writer proposes that the government provides cash (newly printed money) by the side of smaller amounts of credit provided by an ordinary commercial bank.  The commercial bank would administer the lending of the total amount of the money.  There would be an agreed fixed proportion (the same for all the loans in any one contract) between the bank's contribution and the government's contribution, and the bank would take a fixed higher proportion of the net income as management fees.  The government could have such an arrangement with each of several banks.  The resulting effect could be a major contribution to the cure of the recession. It could directly assist industry.  It could also assist the financing of car purchases.  It would be controlled and monitored as part of the main control based on the '69 letter, and during the recession it would be given the same priority as the free money issue.  As the loans would give a two-way movement of money the arrangement would be ideal for dealing with any required negative increases in the money in circulation.  For the more usual situation requiring positive increases in the money in circulation the staff guiding the control would decide at any time on the most appropriate balance between the free money issue to the Rota of people and the loan issue made in conjunction with one or more banks.
 
The arrangement could be particularly valuable where the borrower has say an important position in production, but the recession has lowered his credit rating - as the printed money component of the loan need not carry interest.  The arrangement would very gradually be withdrawn after the recovery from the recession.

Retail stocks and inventories

The use of the phrases and words "retail stocks" and "inventories" requires interpretation.
 
The 1969 analysis was for the maintenance of a stabilised situation.  Consequently the variations from complete constancy were small.  Also, computer stock control would not have been general practice.  When, therefore, say a small decrease occurred in purchasing, and before the highly stabilised and fast reaction national control had corrected the purchasing, the purchasing decrease would have caused a small increase in the stocks for sale in at least a modest proportion of shops.  Consequently the level of the retail stocks for sale would have been a good parameter.  In today's situation, however, the parameter needs to be broadened to include inventories earlier in the supply chain, short time working at the manufacturers, and - a different requirement - the situation in "services".  In services the inventories equivalent are in a sense negative, in the sense of spaces in order books.  All these effects introduce uncertainties.  Fortunately, however, the greatest uncertainties in the interpretation of the monitoring are early in the treatment of the recession.  At that stage the main requirement is for a substantial increase in purchasing, rather than for great accuracy.  The accuracy will more readily be homed-in on later in the treatment.
 
The actual carrying out of the monitoring is discussed in the next section, immediately below.
 

Monitoring of prices and inventory

Initially a frequency of monitoring of once per week is probably suitable, increasing later to several times per week.  Co-operation would be requested from all commercial organisations operating computer inventory control.  Each organisation would send by email to the control's computer a daily print-out for each branch, showing prices, inventory and inventory relative to judged optimum, the corresponding changes, the typical throughput, and a multiplication product related to change and throughput, all for each item.  The multiplication product quantity would be in order to avoid difficulties from small differences of large quantities.  These arrangements would allow changes in average price level and total inventory to be produced automatically each day.  The commercial organisations would not disagree with control staff making spot checks, and would be rewarded by public reference to the co-operating organisations.  The resulting data would be crude, but, given some data cleansing and correction, it would be adequate for the initial operations and would form a good base for the final system.  A start on the money issue could be made using even cruder data, in order to get moving rapidly.  So far the present crisis has repeatedly become worse when things were thought to be better.  Action is therefore suggested on a much more rapid time scale than appears to be planned at present. 
 

Imports and exports - and a third stimulus
 

With the system as advocated in the present discussion the extra purchasing may buy more imports than home produced products.  That is a fortunate situation because, in 2008 and, so far, early 2009, we have involuntarily caused a drop in our imports, to the extent of causing problems for our trading partners.   Consequently we need to be broad-minded and accept that some of the effect of our stimulus will be helping to re-establish those imports and so assisting our partners. 
 
In the long term it seems to the writer that we should pay our way in the world with a properly balanced trade, that is, no deficit, when services are included.  However our trading partners may prefer us to spread the transition to a balanced trade over a period of say another two to three years.  During the transition period, in order gradually to achieve a full balance we should reduce our government borrowing and we should also avoid the situation where low Bank Rates cause inappropriate borrowing on mortgages.  Once a specific target profile of a reducing trade deficit has been agreed with our trading partners any remaining difficulty in achieving the deficit profile could if appropropriate be met by carefully asking our partners if they could please pursue the same or equivalent cures for their recession as we were using, and then, after full discussion, it may be found necessary to lower our exchange rates.  Should that be the situation, then, after continued discussion with our partners, we would apply a third stimulus by using our newly printed money to buy the currencies of those countries that are exporting too much to us, with our issue subject to the controls based on the '69 letter.  There should be no problem concerning protectionism as we would be trying to move towards a balance of trade, rather than gain unfair advantage by increasing already excessive exports.

The effects of the increase in imports could be beneficial to the workings of our own stimulus: in return for our taking more of their exports our trading partners would buy more exports from us and such purchases could reach parts of our economy which would otherwise be more out-of-reach to our own stimulus.  However, the situation would need to be monitored rather carefully to check that the return trade does in fact occur.  Also, there would be a considerable time lag, which would need to be taken into account by the staff running the system.
 
At present, January 22nd, 2009, the sterling exchange rate could be considered embarrassing for the opposite reason to that discussed above.  It is now maybe unnecessarily low for encouraging exports and could contribute disproportionately to inflation.  In order to raise the exchange rate to more optimum levels that could be considered reasonably consistent with balanced external trade, the policies advocated in the present discussion should be pursued actively in order to cure the recession, especially those aspects which would lead to strong domestic production and strong exports.  Encouragement should then also be given to keep prices slightly low, but still allowing positive sales margins, and stocks slightly high, in order that the main control can justifiably increase the money in circulation and expand production to the highest healthy level possible.  The resulting healthy production and good export performance should then be able to dispel the causes of the excessively low exchange rate - if it is excessively low.

Global rather than national

If the present proposals were adopted globally rather than nationally the effect would seem likely to be a large speeding up of the total recovery.  The home government first interested in applying the method may therefore wish to encourage other countries to do so also.  However, even though the global approach would be a large advantage, it does not seem essential, so that the home government would best work by example and take action and apply the method, rather than using up time on mere discussion. 

An example in the car market

In the discussion above comment is made on the large discounts current on cars, in the region of 25 to 30 %.  Now it is to be noticed that with such large current price reductions, the average price increase for cars when the market recovers will be about 40%.  If, then, such an increase occurred when the global market were applying the present type of stimulus in a synchronised manner, then the 40% increase could occur within a few weeks of the start of the money issue when subsequent evidence showed favourable stirrings of the economy.  Consequently, as soon as people realised the favourable stirrings are real, they would start buying cars again in order to do so before the prices rise 40%.  That could give a sudden dramatic change to the pattern of car purchases and to the total situation.  And that effect could hold even though the printed money issue of the main part of the present discussion goes, not primarily to potential car purchasers, but to the people who will spend the money within about 2 weeks, as an extra.  So there could be a considerable incentive to achieve global action.  Even just Europe in a joint action would probably give quite a large effect.

An example of a straight monetary issue

If the staff running the presently proposed system decided on the basis of the factors and techniques discussed above that the initial rate of issue, following their preliminary trials, needed to be about £1bn per lunar month of 20 working days, they could previously have created a Rota of say 2 million people in the UK and could aim to issue money to each person on the Rota once during the 20 days.  That would become an issue of £500 to each of 100,000 people on each day.  Fresh evidence would come in from the monitors every day so that the daily issue would vary from day to day.  However, the issue per person would stay constant in the cycle through the Rota at the amount decided at the beginning of that cycle.  Consequently the number of people receiving each day would vary and the time to work through the Rota would vary accordingly.

In order to broaden the stimulus on the market ....and give greater fairness
 
From the above discussion it may be noticed that the stimulus from the Rota issue would tend to be confined in the first instance to only a part of the market.  There are several effects which will spread the benefit to the rest of the economy, but these would all take time.  Now the second and third stimuli discussed above will help, but the cure for the recession would be made more rapid if the initial effects from the first stimulus were made broader.  Two methods are suggested.  The first would be to make the Rota as large as possible, putting emphasis in the public dialogue mentioned above on the interest of the situation and on the desirability of the recipients making their purchases both as an extra and within a short time such as 2 weeks. The work involved in an issue to a large Rota of people need not be excessive. If people specify their bank branch or Post Office branch the money would be sent out in bulk with lists of the recipients accordingly, and with merely a notification to each person when their position in the Rota has been activated. The second method is to offer people the choice of a chance, but not a certainty, of receiving a larger amount of money. For example, people could be offered a chance of more than the straight amount by a factor of 2, 5, 10, 30, or 100. If, then, the staff running the system chose the straight amount to be say the £500 as discussed above, and someone chose a factor of 30, then that person would have a 1 in 30 chance of receiving £15,000. Overall that could cause say one car to be purchased for every say 50 white goods that would have been purchased otherwise, within that part of the free issue system.
 
In 1969 the amounts of money issued would have been small, so that considerations of fairness would scarcely have arisen.  Today, however, fairness needs to be considered.  The first month of operation needs to be as discussed above for simplicity, but during that time consideration should be given to the practicality of improving the fairness.  The broadening of the number of people on the Rota as just discussed would help.  It may then perhaps be possible to have two or three different bands within the Rota, with larger monetary issues to the more appropriate people.  If the numbers were suitable one junction between the bands could be at the wealth level where income tax payment is just zero.  The higher band or bands would be particularly suited to the one in 30 or one in 100 probability type of issue just discussed.

Management remuneration
 

The government would make an advisory recommendation that the shareholders of each public company should decide on management remuneration. In particular the shareholders should appoint a jury, chosen as for legal jurors from standard juror lists, for each Annual Meeting.  The jury would have been asked to decide and report in an advisory capacity to the shareholders at the Annual Meeting on the jury's opinion of the appropriateness of the proposed current remuneration of management, both with respect to the proposed bonuses for the previous twelve months and with respect to the proposed basic salaries for the following twelve months.
 
If profits and remuneration at banks persist at high levels untypical of the rest of the economy, the government would investigate whether its bank licensing system is producing monopolies.
 
Also, consultancies using private internal knowledge of firms would not be allowed to be co-owned with organisations either dealing in shares or advising on dealing in shares.

If excessive profits and remuneration still persisted at banks, the required backing of legal tender for bank credit would be increased and the free issue to the Rota would be correspondingly increased.