Some further thoughts, as this is very much a topic of deep interest for me:
“ I propose creating money as needed to supply the economy with the currency it needs to function, in the form of an income paid to individuals. It eliminates debt, therefore interest/rent, associated with supplying the economy with money as currency.”
If you create money for the purposes of buying debt issued by the government, someone has to lend what is borrowed, and that lender has to assume some risk that the loan will not be repaid. The Fed does this by assuming the risk which would otherwise be born by the banks, and by buying what other market participants might otherwise decide is not worth its face value. That is basically creating money to pay rents to the financial sector rather than creating money “to supply the economy with the currency it needs to function in the form of an income paid to individuals.”
In either case you are creating money arbitrarily rather than allowing the creation of money to naturally follow the creation of wealth. That is the very definition of economic rent; it really does not matter where the rent is going.
Let me try to address this from the point of view of the social problems you seem to be trying to solve:
Unemployment: This problem is created by fiat money, so issuing more fiat money to provide an income to individuals without reference to their economic output will not solve the problem. David Graber has a great book out titled Bullshit Jobs. Graeber is philosophically an anarchist, so I do not agree with his conclusions. But I love the book because it helps explain what fiat money really is. If you are paid money to do a “bullshit job” (one which at best adds nothing of value and at worst affirmatively furthers theft schemes), then that money must be “bullshit money.” I cannot think of a better description of fiat money.
You presume elsewhere above that lowering unemployment is a legitimate goal for monetary policy. The addition of this policy objective was a punt by the Congress in 1977. The persistent unemployment of the 70’s was a function of the emergence of fiat money to prop up spending for the Vietnam War and and war on poverty. Surely you are familiar with the theory of “guns or butter.” Fiat money was necessary to support “guns AND butter” budgets.
The government’s artificial demands on the money supply (remember that I believe true demand for money to emerge from wealth creation — which government does not do) is what causes unemployment. Adding full employment to the charter of the Fed simply allowed Congress to abdicate its responsibility to conduct fiscal policy such that the government did not make inordinate and disruptive demands on the money supply.
If we were to return to the metrics by which unemployment was measured before 1977 and follow the data through to today it would become painfully obvious that monetary policy simply does not work when addressing the matter of employment.
Debt: With a noble metal standard (gold, silver, or potentially other noble metals which do not rust), the dollar measured a claim on that metal (let’s just use gold for convenience). And so the dollar was an asset (cash) to the person holding it, and a liability (debt) in gold to the Treasury. Fiat was, first and foremost, a default on that debt (so much for the myth that we have never defaulted on our debt). But what it did was it made the dollar a unit of measure of fungible debt rather than a non-fungible commodity. Whether you issue more fiat as rent to the banking system to prop this up, or you issue that money as income to individuals, it is still rent because it does not arise from the need to exchange new forms of value emerging from the creation of wealth. The proliferation of debt follows the proliferation of fiat money as rent, whether that rent goes to banks or individuals.
Taxes: This then follows debt. Taxes are becoming more and more dedicated to debt service rather than government services. Government services at least help provide for things like infrastructure which enable exchange of value between producer and consumer. But when you start making promises of all kinds of other programs and you try to fund that with fiat, the injection of that fiat money into the economy pushes the price of providing those services up — and taxes with it.
I think the problems you are trying to solve arise from fiat money, so I cannot see how issuing fiat money in a way that is divorced from the creation of wealth will solve these problems… The addition to the money supply will subtract from its purchasing power, driving prices higher and causing more debt, requiring more fiat money… wash, rinse, repeat.
Lastly: “ One of us is flat-out wrong. Either the Fed (we’ll go ahead and make the U.S. the exemplar for the central-bank model) does routinely buy (newly issued) bonds of the federal government or it does not. If it does not, I’ll repudiate my degree in economics.”
The Treasury conducts auctions for newly created Treasury Bonds. The Federal Reserve does not bid in those auctions. The 23 primary dealers bid in those auctions and then supplies the secondary market with its inventory. The Fed’s Open Market Operations is where they get involved in buying bonds (treasuries and mortgage backed securities when they were doing QE). They buy those bonds from secondary market institutions. In a sense it may be a distinction without a difference, but it ends up adding to the rents paid into the financial sector.
Also, it is not the Treasury which creates the money. The Treasury issues bonds to fund the government. But that does not become money unless there is a lender to buy those bonds. The primary dealers bid in accordance with guidance from the Fed as to how much the Fed is willing to pay. The higher the Fed is willing to pay, the lower the coupon rate ends up being. So you basically have bidders in an auction who have a money tree in the back room. It completely wipes out any real price discovery for money.
This then encourages leveraged speculation, and every dollar which goes into leveraged speculation is not going into a factory to upgrade plant and equipment, or into an R&D effort to come up with a new product. It also encourages debt-funded stock buybacks… again, every dollar of artificial demand for a company’s stock is not going into become more competitive or productive.
So I’ll stand by my argument that the problems you are trying to solve were created by fiat money. Issuing more of it will not solve them.