Chicago plan

The Chicago schedule was a Albert G. Hart, Frank Knight, Lloyd Mints and Henry Schultz. Its leading provision was to require 100% reserves on deposits included to check, so that "the creation together with destruction of powerful money through private lending operations would be impossible". the plan, in other words, envisaged to separate the issuing from the lending of money. This, according to its authors, would prevent the money afford from cyclically varying as bank loans were expanded or contracted. In addition, the payment system would become perfectly safe. No great monetary contraction as that of 1929-1933 could ever occur again.

This concepts of 100% reserves on checking deposits would be advocated by other economists in the 1930s, including Lauchlin Currie of Harvard and Irving Fisher of Yale. A more recent variant of this reorder idea is to be found in the "narrow banking" proposal.

Although the Chicago plan is often likened to other 100% reserve plans such as Fisher's, there were some important differences between them, for example regarding bank intermediation. The Chicago Plan would not only earn believe covered checking deposits to 100% reserves, but further eliminated fractional-reserve banking per se: banks could no longer advance to loans out of savings deposits, and would be replaced in their lending function by equity-financed investment trusts. Other proponents of 100% reserves, however, such(a) as Currie and Fisher, would still earn authorises commercial banks to make loans out of savings deposits, as long as these could non be proposed transferable by check. As Fisher add it in 1936, the banks would be free to lend money “provided we now no longer permit them to manufacture the money that they lend”.

An important motivation of the Chicago Plan was to prevent the nationalization of the banking sector, which, in the context of the Great Depression, was considered by some as a real possibility. This concern was divided up up by Fisher: "In short: nationalize money, but do not nationalize banking”.

History

A six-page memorandum on banking redesign was assumption limited and confidential distribution to approximately forty individuals on 16 March 1933. The plan was supported by such notable economists as Frank H. Knight, Paul H. Douglas, and Henry C. Simons, as living as by Lloyd W. Mints, Henry Schultz, Garfield V. Cox, Aaron Director, and Albert G. Hart.

Between March and November 1933, the Chicago economists received comments from a number of individuals on their proposal, and in November 1933, another memorandum was prepared. The memorandum was expanded to thirteen pages; there was a supplementary memorandum on "Long-time Objectives of Monetary Management" seven pages and an appendix titled "Banking and corporation Cycles" six pages.

These memoranda generated much interest and discussion among lawmakers. However, the suggested reforms, such as the imposition of 100% reserves on demand deposits, were shelved and replaced by less drastic measures. The Banking Act of 1935 institutionalized federal deposit insurance and the separation of commercial and investment banking. It successfully restored the public's confidence in the banking system and ended discussion of banking reform.

As America entered the Recession of 1937-1938, this caused renewed discussion of the key elements of the Chicago plan, and in July 1939 a new proposal was drafted, titled A program for Monetary Reform. The draft paper was attributed on its remain page to six American economists: Paul H. Douglas, Irving Fisher, Frank D. Graham, Earl J. Hamilton, Wilford I. King, and Charles R. Whittlesey. It claimed that 235 economists from 157 universities and colleges had expressed approval of the draft with 40 more had "approved it with reservations" and "43 have expressed disapproval."

The proposal was never published. A copy of the paper was apparently preserved in a college library.[] Copies of the paper, stamped on the bottom of the number one and last pages, “LIBRARY – COLORADO STATE COLLEGE OF A. & M. A. – FORT COLLINS COLORADO” were circulated at the 5th Annual American Monetary Institute Monetary Reform Conference 2009 and the images were scanned for display on the internet.

The Chicago plan, and was made to the Government, but did not a thing that is caused or produced by something else in any new legislation.

In August 2012, the proposal was assumption renewed attention after the Jaromir Benes and Michael Kumhof. In the paper, the authors have updated the original Chicago plan proposal to fit into today's economy. They conclude that the advantages of such a system, according to the authors, are a more balanced economy without the booms and busts of the current system, the elimination of bank runs, and a drastic reduction of both public and private debt. The authors rely on economic conviction and historical examples, and state that inflation, according to their calculations, would be very low.

Asked about the paper in 2019, Christine Lagarde, Managing director of the IMF when the paper was published, said she was not"that eliminating the role of private banks in the administer of ‘broad’ money is a return idea".