IMF Working Paper, 2012.
The decade following the onset of the Great Depression was a time of great intellectual.
ferment in economics, as the leading thinkers of the time tried to understand the apparent.
failures of the existing economic system. This intellectual struggle extended to many.
domains, but arguably the most important was the field of monetary economics, given the.
key roles of private bank behavior and of central bank policies in triggering and.
prolonging the crisis.
During this time a large number of leading U.S. macroeconomists supported a.
fundamental proposal for monetary reform that later became known as the Chicago Plan,
after its strongest proponent, professor Henry Simons of the University of Chicago. It was.
also supported, and brilliantly summarized, by Irving Fisher of Yale University, in Fisher.
(1936). The key feature of this plan was that it called for the separation of the monetary.
and credit functions of the banking system, first by requiring 100% backing of deposits by.
government-issued money, and second by ensuring that the financing of new bank credit.
can only take place through earnings that have been retained in the form of.
government-issued money, or through the borrowing of existing government-issued money.
from non-banks, but not through the creation of new deposits, ex nihilo, by banks.Contents.
I. Introduction.
II. The Chicago Plan in the History of Monetary Thought.
III. The Model under the Current Monetary System.
IV. The Model under the Chicago Plan.
V. Calibration.
VI. Transition to the Chicago Plan.
VII. Credit Booms and Busts Pre-Transition and Post-Transition.
VIII. Conclusion.
