There is a legal case against the Bank of Canada going on right now. It seems that "we" own the BoC and can have the government direct the Bank to loan money "interest free" to finance government's activities. There are so many things wrong with this approach that I'm not exactly sure where to start. So let's just jump in and begin:
The proponents of having a central bank loan fiat money to the government "interest free" are known as Greenbackers in the United States. For the purposes of this post, I will be calling the Canadian equivalents "Loonies."
First Mistake: The Loonies assume that because the Bank of Canada is a Crown Corporation, "we" must own it. However "we" are not the government. The government is not "us." Murray Rothbard summed up this point in his excellent essay Anatomy of the State,
The useful collective term "we" has enabled an ideological camouflage to be thrown over the reality of political life. If "we are the government," then anything a government does to an individual is not only just and untyrannical but also "voluntary" on the part of the individual concerned....if the government conscripts a man, or throws him into jail for dissident opinion, then he is "doing it to himself" and, therefore, nothing untoward has occurred. Under this reasoning, any Jews murdered by the Nazi government were not murdered; instead, they must have "committed suicide," since they were the government (which was democratically chosen), and, therefore, anything the government did to them was voluntary on their part.
Proponents of "reinstating" the Bank of Canada on the basis that "we" own the Bank must, if they are intellectually honest, logically come to this conclusion. Furthermore, if it is true that "we" own the Bank and that the government is "us" then nothing is wrong here and nobody is at fault. For if the Bank is loaning money to the government at high interest, and these interest payments are going to offshore bankers, then clearly this must be what "we" want. For if a nationalized institution is already disregarding the wishes of its owners, how would further nationalization fix this problem?
Second Mistake: Interest is not exploitation; it is the difference in the valuation of present goods and future goods. It is the discount in the valuation of future goods against present goods. As Ludwig von Mises said, "There cannot be any question of abolishing interest by any institutions, laws, or devices of bank manipulation...such decrees would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty."
Loonies don't understand economics.
They believe that having the Bank issue interest-free loans to all levels of government is a proper way to fund social services, improve infrastructure and "create jobs." They don't follow Henry Hazlitt's advice of looking not just at short-term effects on one group, but the long-term effects on all groups. Printing money, which is essentially what they are proposing, is inflationary and consumes capital. They don't understand that interest, like prices, is a subjective valuation that begets an objective expression. It is not an exploitative illusionist trick of international money-lenders.
Furthermore, Loonies object to the accusation that what they advocate is inflationary. They claim that this was done in the past without inflation. They also claim that this was done to help "Canada to get out of the Great Depression, and to finance its participation in World War II." Not only are they uneducated in economics, but they have a skewed view of history as well. They also claim that this method, which helped finance war, is superior to all others.
Claims of inflation are counteracted still by referring to the amount of money the Chartered Banks print. Through fractional reserve banking, our current system is already inflationary. Therefore, according to the Loonies, "as the government through the Bank of Canada creates growing quantities of our money supply, the power of private banks to create money needs to be restrained."
Third Mistake: Not taking the moral high ground.
Probably due to their lack of economic understanding, the Loonies don't realize that money is property. By printing more of it, whether it is done by government or private banks, they are advocating theft. By calling on the government to act, they are in effect calling for violence. By advocating that we continue with a system where the government holds a monopoly on currency, they are advocating that men with guns use force to uphold a system that is immoral, corruptible and the antithesis of a free society.
Although claiming to speak for "civil society" the Loonies are just another special interest group looking to use state coercion as means to their end. In a free society, the Loonies would be free to set up their own central bank and print money "interest-free." But likewise, I would be free to disregard their experiment and use the currency of my choice.
The kind of world the Loonies advocate can only be described as a lesser of two evils. Either we have Goldman Sachs running the central bank, or the self-serving bureaucrats of government. I prefer neither.