Why Can't the Government Create Money?

Government is force, it does not create, it only destroys, aim it wisely.

Government is necessary. It has just as much the capacity to create and develop as it has to destroy. Elect wisely.

Under a debt-free system of governance there is no force. There is only unending liberty.

Under a debt-free system of governance there is no force. There is only unending liberty.

Alas, not necessarily true. Saudi Arabia is debt free but I doubt liberty is even a word they recognise right now. By contrast, Norway is also debt free and are a model society in terms of societal benefits and lifestyle.

I want to explore the purpose of the base interest rate in its effort to tackle inflation. It seems very sketchy and counterintuitive because the only thing that can cause inflation is the creation of money by banks. If the banks were strictly financing productive activity through their lending practices, how can inflation still occur?If the supply of goods is in excess to demand then inflation can not arise.
Why would an increase in prices in one sector of the economy pose a problem? If supply is in constant excess to demand, slight price rises (due to the production of, say, valuable and scarce commodities) shouldn't need to be controlled.
The only phenomenon of inflation which makes sense is that newly created bank money that goes to on-lend to inelastic property increases its price tag over time. This appears to be the only factor that fuels inflation throughout the economy.

Yes, you summed it up perfectly there, non GDP productive loans are the direct cause of inflation and bubbles and consequent crisis.

So do you agree that inflation would effectively be a non-issue if banks were rendered incapable to inflate asset prices by means of the creation of purchasing power? Would it not mean that the government could then create and issue money for GDP-enhancing investments in the absence of budgetary constraint?

Yes and no I am not sure about the second half of your question. You are suggesting the government is the sole supplier of money and therefore can create it to finance GDP productive loans. If so then who holds consumers money, still the commercial banks? If that's the case they can still inflate whatever markets they please.

No. The commercial bank would engage in the intermediation between savers and borrowers rather than actively creating the loan ex-nihlo. The government would create money without a corresponding debt and issue it into the economy for productive purposes, such as public projects and services, to cater to the development of society. The income generated from the public creation of money would flow into an investment account at the commercial bank and be used by the bank to on-lend to borrowers. Since the loan would be decoupled from the creation of money, to inflate the property or financial markets would become an impossibility.

My question, in the given scenario, is what would be the limit on government spending if it is focused strictly on investment? Given the government would no longer have to borrow money and deal with an ever increasing interest rate on its debt, it appears to be that money would be no object. If there is a particular societal want or need, it can be funded immediately.

Interesting, so you want commercial banks to have 100% reserve and leverage ratios?

I am happy to announce that I submitted my dissertation on this subject matter last month. I hope to have it published in an academic journal for all of you to refer to.

In the meantime, if you have any questions about this new monetary system please ask.

Did you, perchance, invent fiat money which is independant of a gold/silver standard? Because that's what we've been using for the last century.

No. I'm not clear on what your point is.

Oh. Judging by your OP and the posts since then that I've read, it sounds very much like you didn't know how money works.

I am happy to announce that I submitted my dissertation on this subject matter last month. I hope to have it published in an academic journal for all of you to refer to.

In the meantime, if you have any questions about this new monetary system please ask.