Economics 101

Re: Liberals see windfall, Liberals spend windfall, John Ivison, Oct. 20

The opening line of John Ivison’s column misinterprets The Economist Magazine’s Next Recession five-part report which proves that there is an enormous flaw in the money system. This has been noted by great minds for the past 300 years, notably — a 23-year-old Benjamin Franklin in 1729, Abraham Lincoln in the Civil War, Thomas Edison and Henry Ford in a 1921 two-part New York Times interview, and Nobel Prizewinner Milton Friedman, who summarized in 1948 how to fix the flaw: that government expenditures should “be financed entirely by either tax revenues or the creation of money. … not ... interest-bearing securities to the public.”

The system we have clung to expands the money supply and the economy with bank-issued money through expanding loans. Edison complained that, “Any time we wish to add to the national wealth we are compelled to add to the national debt.” The expansion should come from government issuing more money and spending it into the economy, which we do intermittently when the inferior system breaks down as in 2007.

Mr. Ivison’s approach is a classic Economics 101 error, the “householder fallacy” or the “Fallacy of Composition.” That error leads to a second basic error, “The Paradox of Thrift,” which results in governments increasing unemployment by attempting to balance the budget. Joseph Polito, Toronto