Finally I found some explanation provided in The Mystery of Banking by Murry N. Rothbard, an economist of the Austrian School and member of the Ludwig von Mises Institute.
"The Institution (of Central Banking) began in late seventeenth century in England, as a crooked deal between a near-bankrupt government an a corrupt clique of financial promoters." Rothbard describes how at the end of the 17th century the British government found itself in a position short of options. After half a century of civil war and a bad credit standing, it seemed impossible to issue new government bonds. Higher taxes were no option, as those wars had been fought over the king's attempt to extend taxing.
Because of distrust, British government had no direct access to borrowing or to printing money not backed by gold. So they chartered the Bank of England, which would 'issue new notes', used to buy government bonds. Funded by a private financial group and fueled with an aura of prestige created in the public, this institution created notes it would have to redeem in Gold. While the British Parliament did not make these notes legal tender - meaning they would have to be accepted as money by everyone - they made the new Bank holder of all government deposits in addition to the right to issue new notes to buy government debt.
So maybe we did find one answer to the questions why governments are in debt and do not print the money they need (want to spend) in excess to the revenues (taxes) they get: It would be too obvious that this would be inflationary, devaluing the money base. Everybody could and would understand that printing would make paper worthless over time. And nobody would trust governments enough to allow them to do so.
Instead, a complicated scheme was invented. Non-governmental, independent institutions are the only ones to create money. Government has to borrow as you and I do. And those institutions have the task to ensure sound money, to fight inflation and deflation, to ensure the stability of our financial system, as politicians and governments cannot be and are not trusted. But in the end the central banking system with fractional reserves is even more inflationary then the government blatantly printing money.
And once the scheme started, governments and banks become interdependent. Taking the right to create money away from the banks would let the pyramid of debt we collected crumble. We would hit the banks, depriving them from a huge source of income. But the GDP would contract and no politician could stand this pressure.
Oh boy: where is the person telling me this is not true. Please help!
Additional (supporting) sources on the topic:
Nouriel Roubini and David Backus - Lectures in Macroeconomics
Milton Freedman - A Monetary and Fiscal Framework for Economic Stability
Because of distrust, British government had no direct access to borrowing or to printing money not backed by gold. So they chartered the Bank of England, which would 'issue new notes', used to buy government bonds. Funded by a private financial group and fueled with an aura of prestige created in the public, this institution created notes it would have to redeem in Gold. While the British Parliament did not make these notes legal tender - meaning they would have to be accepted as money by everyone - they made the new Bank holder of all government deposits in addition to the right to issue new notes to buy government debt.
So maybe we did find one answer to the questions why governments are in debt and do not print the money they need (want to spend) in excess to the revenues (taxes) they get: It would be too obvious that this would be inflationary, devaluing the money base. Everybody could and would understand that printing would make paper worthless over time. And nobody would trust governments enough to allow them to do so.
Instead, a complicated scheme was invented. Non-governmental, independent institutions are the only ones to create money. Government has to borrow as you and I do. And those institutions have the task to ensure sound money, to fight inflation and deflation, to ensure the stability of our financial system, as politicians and governments cannot be and are not trusted. But in the end the central banking system with fractional reserves is even more inflationary then the government blatantly printing money.
And once the scheme started, governments and banks become interdependent. Taking the right to create money away from the banks would let the pyramid of debt we collected crumble. We would hit the banks, depriving them from a huge source of income. But the GDP would contract and no politician could stand this pressure.
Oh boy: where is the person telling me this is not true. Please help!
Additional (supporting) sources on the topic:
Nouriel Roubini and David Backus - Lectures in Macroeconomics
Milton Freedman - A Monetary and Fiscal Framework for Economic Stability
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