Modern Money and Public Purpose: The Historical Evolution of Money and Debt

L. Randall Wray and Michael Hudson present at the Modern Money and Public Purpose seminars. L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City. Michael Hudson Distinguished Research Professor of Economics at the University of Missouri (Kansas City), and President of the Institute for the Study of Long-term Economic Trends (ISLET).

This video is an hour and three-quarters long — Wray begins, then Hudson takes over at 43:00 — so I suggest you listen to it over your Sunday morning coffee instead of NPR. (And if you’ve been taking note of all the “tally stick” jokes in the threads lately, I’m guessing this video is where that comes from…)

Here’s an interesting passage that I hope I’ve transcribed with reasonable accuracy from Michael Hudson’s talk. Of Sumer:

[HUDSON 52:10] The original money was a price schedule to enable pepole to pay in kind. And the barley, obviously people did not go around with barley in their pocket because it really doesn’t last very well. People didn’t use money, actually to pay. What they would do during the crop year, they would so essentially what somebody would do in a bar today: They’d run up a tab. And they would run up a tab with the ale women for money that would be due on the threshing floor at the seasonal harvesting time. And in fact almost all the barley debts, and we have the contracts from Mesopotamia were due on the threshing floor at barley time, the silver debts were due at another time, and this was the principal that lasted until about 1200BC.

Time passes, there is a dark age, and until 750BC we to Greece and Rome.

[HUDSON] That’s when civilization began to go down hill. It’s usually considered the start of Western civilization, but what people think is the start of Western Civilization was the falling apart of Near Eastern origins of civilization, of this economy that had been put together in a very well-organized economy, and all of a sudden instead of the public institutions, you had local chieftains occurring, and in Rome, very soon you had the aristocratic families overthrow the kings, and the functions that were in the public sector in the Near East all of a sudden were taken over by private families — let’s call them the Mafia, because that’s basically what the Roman oligarchy was.

And there was a complete change in policy from the Near Eastern Bronze Age to classical antiquity: When a new ruler would come to the throne in Mesopotamia, the first thing they would do, on their first full year on the throne, was to proclaim a clean slate. And that’s because a lot of the debts that were denominated in barley couldn’t be paid. …

And there was a general understanding that the debts tended to grow faster than the means to pay. … [Scribes] had two basic contrasts: The doubling time of debt. …You knew here’s this exponential curve of debt, very rapidly. [T]hey also had curves for the growth of herds, and output, and that was an S curve, just like economics textbooks today …

So the rulers, when they came in, would cancel the debts for a very good reason. … One of the Roman historians was given an explanation by the Egyptians for why the Phatroahs cancelled the debts: They said, if we don’t cancel the debts, then the debtors are going to fall into bondage to the creditors… and then nobody’s going to fight in the army and we’ll be defeated. …

What happened by the time of Rome in 133BC is that you had a Milton Friedman philosophy of free markets by the oligarchy. What they realized, in Rome, was exactly what President Nixon and Hnery Kissinger realized in Chile: You can’t have a free market for creditors if you don’t murder everyone who disagrees with you [laughter]. If you don’t kill everyone who wants to cancel the debts, if you don’t kill everyone one knows history, if you don’t kill the labor leaders, you can’t have a free market, oligarchy style. … So there was a 100 year social war in Rome, and the result was the by the time the empire got going, one quarter of the population was in debt bondage or outright slavery.

History does rhyme, doesn’t it?

* * *

So, this is a great series, I wish them well, and maybe I’ll be lucky enough to make my way down to Manhattan to listen to one or two of them, not least because the very concept of “Public Purpose” seems to alien to most contemporary discourse on political economy.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. R Foreman

    I always enjoy these history lessons from Dr Hudson. They add a context to our present crisis that really makes people think.

    Interest growth on money is exponential of course, and when GDP doesn’t grow for a period of time then the result is trouble. Those phantom interest accumulations will get defaulted one way or another.

  2. Marco Craveiro

    With regards to Wray’s presentation, one thing I don’t quite follow – from him or from the new variety of keynesianism that seems to be in vogue – is how they manage to ignore the role of confidence in the backing of the currency. All of the “self-imposed” constraints were actually imposed, over time, by all the failed experiences in money issuance; they became requirements by the citizens to allow them to believe in the currency. In reality, we still do not know how the process of loss of confidence works, to any significant degree of precision, even though we have see in in action countless times.

    So would it not be fair to say that the most important consideration, on any currency system which is solely backed by the power of the sovereign, is to avoid actions that have caused loss of confidence to other currency systems in the past – such as the printing of money with no direction, other than to “make things better”? Would this not be the weapon of last resort when you have stopped all “optional” spending on things like wars and the like – to be used with the utmost care? When you have restructured and reformed all of those institutions who caused the problems in the first place, and have done so to a degree that satisfies the “plebes” (as our MPs seem to like calling their citizens)?

    1. jake chase

      Self imposed constraints? You mean like the ones limiting the Fed’s printing of $20 billion to enrich the bankers who caused the crisis, or the ones limiting private lending to anyone with a pulse that drove housing prices into bubble land in 2007(and stock prices into bubble land in 1999? You have a choice between an engine of private debt creation which produces asset bubbles, crashes, debt deflation, verses public spending which of course has its own hazards, principally waste and cronyism, but please don’t try to sell the idea that debt money is somehow a more responsible alternative. That doesn’t wash.

        1. Yves Smith


          Although you’ve been an active commentor, you seem to be ignoring my explanations of comment policy. Continuing to complain in the face of past explanations is a way to accumulate troll points.

          1. If you got a moderation notice, no one made a choice to put that comment in moderation. You hit one of the moderation tripwires

          2. I’ve also said we get around to reviewing comments when we get around to it. I’m supposed to be off entirely today, I’m traveling to a logistically challenged conference where I am full on when I get there. So no, I’m not going to reorder my priorities to go look at your comment.

    2. joebhed

      MMT never proposes limitless use of the money-creation powers of the government. It always ends where inflation begins. And it is in maintaining the purchasing power of the currency from which the confidence of the users of the money system is derived.
      It is clear that just such an outcome is not only feasible, but proven, in this work by IMF researchers Benes and Kumhof in their work on The Chicago Plan Revisited.

      Using classical economic methods and the IMF’s macro-economic modeling tool, they conclude that economic and financial stability are the result of a the 1930’s proposal for fully-reserved, managed money-issuance by the government.
      So, I keep asking – what is the better alternative?

      For the Money System Common

      1. Susan the other

        It is only fitting that to survive, we must give up our grandiose expense of military domination. Our paranoia today is a result of the existential realization that somebody else might take up the torch.

    3. JR

      This comment deserves more attention. Fiat currency is the King’s clothes, and we have all had that terrifying moment when we realized that the currency in our hand was just a sheet of fancy paper. The idea is easy enough to put out of mind when you can exchange the fancy paper for something you want just up the block. But as the writer comments and as is the fodder for many a neoliberal critic, the unwatchful treasury can quickly undo the facade with overprinting, inflation etc. I too would be interested to learn more about the impact of manufacturing consumer confidence in lieu of other, harder economic indicators, and in bringing the topic into the foreground.

      1. Heron

        “Over-printing” is entirely a political problem, not a market one; that is to say it isn’t caused by an over-production of currency but rather by a negative change in the fortunes of a government. A government can only “over-print” in the sense that potential creditors (i.e. members of the economy using that currency) begin to doubt its ability/willingness to accept the currency back as payment for taxes. The economy has nothing to do with that; the continued survival of a polity has everything to do with that. If a government seems shaky or criminal, its currency loses value. If a government appears to be on the short end of a war, its currency loses value. If a government is at the mercy of other, stronger governments that can be reliably expected to force it to prioritize debt payments to them over service and product payments to the citizenry(Weimar Germany, and to a certain extent present-day Greece and Spain), then their currency/debt(those are two words for the same thing) loses value.

    4. Heron

      You don’t understand his argument; confidence is one of the main pillars of MM theory. Why does money created by the Union have value, and money created by you does not? For two reasons; because potential creditors are confident that the US government will honor those ious, and because potential creditors are confident that the US government will be around to honor those ious. Niether applies to you. You can die, you can default, you can refuse to pay without disrupting the businesses of others because no one really relies on your debt for their livelihood. The Union cannot die, it cannot default, if it refuses to accept its ious then it ends up hurting itself and every constituency it represents. That is why creditors have confidence in US debt, and that is why US money has value.

  3. Ms G

    Very instructive. Easy to grasp. Nodding in agreement re “not least because the very concept of “Public Purpose” seems to alien to most contemporary discourse on political economy.” Thank you Lambert.

    1. Aquifer

      Why, Ms G, didn’t you know there is no such thing as “the public”, much less one that has any “purpose”? We are all a bunch of atomized individuals jostling for survival in this short, nasty, brutish existence we call “life” and our economic system should be (as it is) modeled on this “truth” …

        1. Aquifer

          Hmmm, shucks, it’s unfortunate, IMO, that lots of people “know” this …. I didn’t, was just being sarcastic ….

          1. Aquifer

            Now that i read this “in place” i realize it could be interpreted as aiming sarcasm at your remark, which was not intended, instead of at a predominant political paradigm, which was…

            (The more i do this, the more i see the pitfalls of this mode of “communication”, sigh …. maybe i should just stick to “squirrel” comments …)

      1. Stephen Nightingale

        Aquifer: Except to the extent that we are bound together by a complex set of interlocking subcultures that constitute ‘society’.

      2. Aquifer

        I must confess that i am a bit confused as to the responses i got from my comment – I happen to believe just the opposite, what i wrote represents a POV that i think is FO@*%, so i am not quite sure what to make of the replies ….

        Oh well, better luck next time ….

  4. joebhed

    Dr. Hudson’s unique perspective is always enlightening.

    However, Dr. Wray’s presentation in the video on so-called “money creation BY the government” lacks both causality and logic.

    Dr. Wray observes at about 16:50 that “The state spends its money into existence” – without foundation.
    He later explains at about 17:30 how government makes payments by electronic funds transfers, and claims from that electronic act that the state is creating money when it spends.
    In REALITY, the government cannot spend any money, electronically or otherwise, unless there is a credit in ITS OWN ACCOUNT prior to making the payment.
    It is that government account (Treasury’s TGA) that is debited when the government spends.
    The result should be obvious to the casual observer. Logic and causality lead to the fact that government does NOT ‘create’ or ‘issue’ money when it spends, as the money is already in its account prior to spending.
    This may seem like small potatoes, but MMT is based on certain “stylized” constructs of how things “are”.
    If they are not that way, if the government does NOT create money when it spends, nor create any money except coins as far as our normal understanding of what is money, then we need a new paradigm for reform.

    1. kjr63

      ‘Dr. Wray observes at about 16:50 that “The state spends its money into existence” – without foundation.’

      Actually, i believe that is a pure fact. Not “theory”, not “assumption”, a pure empirical fact. The least controversial issue of the whole lecture.

      1. joebhed

        One cannot challenge a system of beliefs.
        When we look for the empirical evidence for the fact, we are confronted with the reality that the Treasury does not create the nation’s money.
        MMT’s basic denial is that the government i s the user and not the issuer of the nation’s money.
        In reality all money – as know the term and count in national aggregates of same – is created by the private banks.
        All the money cannot be created in two places.
        Only one can be true.
        The Treasury’s functions (check their sites) is to use the money system for government purposes, using taxation and debt as the source for same.
        The proceeds for tax and debt revenues are the private bank credit that serves as money.

        1. Darren Kenworthy

          A private bank might be delegated the role of currency issuer. Unless it makes and enforces the law, collects taxes, has a military and acts as the referee of market disputes, it can’t create money. This isn’t intended as an explanation of MMT, but as a reminder of the difference between money and currency.

          1. EconCCX

            Sounds like a made-up definition. Means of exchange, store of value, unit of account, easily divisible. That banks create checkbook money through the lending process is in every economics textbook, and is not in informed dispute. That’s what your house is priced in, that’s what drives business cycles, and that’s what moves globally at speed. Not the vulnerable, inconvenient, hand-to-hand stuff issued by government.

          2. Darren Kenworthy

            To respond to EconCCX, the made up part is where a privately issued currency can act as a unit of account, means of exchange or store of value without the consent of whatever entity has the power to make and enforce laws, collect taxes, raise an army and referee market disputes. Anyone can issue currency. It is only ever treated as something of value when backed by faith and force.

          3. EconCCX

            Thanks Darren. Note that in @1:56, the entity with law enforcement and military powers had the sole ability to create money. In @7:35, this entity merely has to consent to its issuance and circulation.

            Indeed, the USG consents to the use of Ithaca Hours as a circulating medium of exchange, provided taxes on its use are paid in dollars. I have no particular dispute with the 7:35 revision, but would add that monetary sovereignty, once surrendered, is extremely difficult to reclaim.

          4. joebhed

            A private bank that is designated the ‘currency’ issuer as that word is defined by law is at the same time designated the ‘creator’ of the money supply as money is defined by law.
            It is not giving up sovereignty in the temporary delegation of the money-creation power to the private banks. The sovereign can take it back at any time.
            The proof of the where the delegated money-creation and currency-issuing power lies is in the daily tally of the money supply.

        2. Aquifer

          Just out of curiosity (and i am asking this question, not because of any pretense to “knowledge” about this, because i have none) is it possible we might be talking past each other here?

          Outside of whether there is any “God given/natural” way by which “money” can be made, who has “authority” to make it in the US? And where did that “authority” originate? Is the authority prescribed in the Constitution? To whom? Has that authority been delegated somewhere along the line? Was that delegation Constitutional? Even if it was, and the authority was given to Congress and Congress gave it to the Fed, can it be given back? Should it? I.e can one set of “facts” be voided and replaced by another? What are the arguments for and against creating different sets of “facts” on which to run the system? Cannot we admit that any set, is in fact, a creation of folks and not handed down from the Almighty? Can we, should we, start from there?

          Would answering these questions help to figure out which set of “facts” are “true”? Relevant?

          Is this just a set of really dumb questions which demonstrates that i am just too dumb to understand any of this?

          1. Fiesty

            Master says he has already been on the Long March thru the MMT Word Cloud, and he doesn’t want to do it again.

            But he says check your wallet for a buck and you can read that it says Federal Reserve Note across the top. This should give you a clue about the rest of the Word Cloud.

            Master says proceed if you must, but what you already know is the Truth. The USG can print or default, but there may need to be some legal rule changes to do those things.

          2. Aquifer

            Golly Gee Feisty, thanx – that was really useful!!!! Why didn’t you just confirm my “too dumb” status and save a few words …

          3. Dan Kervick

            The Constitution assigns monetary authority to Congress. Congress created the Federal Reserve System in 1915 with the Federal Reserve Act, and has delegated the exercise of much of its monetary authority to the Fed via that Act and some subsequent legislation. So the Fed does what it does under authority given to it by Congress, even though Congress does little to intervene in the Fed’s operations.

            These are all legislative choices. Congress could always make different choices and take back some or all operational control of monetary policy whenever it wants.

          4. Aquifer

            Thanx, Dan! That is rather what i thought, but wanted some confirmation one way or the other ….

            So i am wondering, that being so, why isn’t there more conversation about simplifying the equation and just ditching the Fed – what useful purpose does it serve?

            I realize this idea is so tied up with Paulites that one risks being tarred with a Liber label. I am no Liber, but, in general I like to understand ideas on their own merits or lack thereof before considering the source, which may well be a distraction ….

            Would like to know the pros and cons of ditching the Fed, maybe that would be a good place to start – with money, as with much else, ISTM the KISS method is a pretty good one ….

          5. stanley mulaik

            I like what Dan is saying: The Fed is an agency of government: The Fed admits as much in its FAQ’s.
            When the Fed buys the Treasury securities from a private holder of them,
            it uses money it creates out of thin air for the purchase. This makes it a
            purchase by the government, because it is using powers only granted to the Congress to “coin money”, delegated by Congress to it in creation of the Fed.

            That this is a purchase by the government of the securities means to me that the government has automatically redeemed the debt of the securities to the previous holder of them. Being an agent of government, the Fed thus has no claim to have purchased them as an independent, private agent. Requiring the Treasury to turn around and raise tax money to buy the securities back is making the government buy the same securities twice. That is absurd and likely illegal, because only the original debt was legal. And the Fed has cancelled that debt for the government.
            Hence, there is no national debt at the Fed once the Fed has acquired all these securities by purchasing them. Congress and/or the President should challenge the Fed on “repaying the debt” or even paying the interest to the Fed from taxes.
            The Fed apparently has used the national debt and the interest on the national debt as a cash cow. Since 1834 when Pres. Andrew Jackson paid off the national debt (and created a depression), the government has “borrowed money” and never completely paid it back. It may have made sense to require taxpayers to repay the debt when on the gold standard, because the gold used by the Fed to purchase securities needed to be replaced from external sources, taxpayers. But after Nixon took the US off the gold standard, no one realized that this meant there was nothing that had to be replaced. The Fed was totally making up its money out of thin air (ex nihilo–out of nothing).
            But the government kept rolling over the debt by issuing more Treasury securities, getting the cash from buyers of these to buy the old securities and then having the Fed buy the new securities with money made out of thin air. But the interest still had to be paid. And on an accumulation of, say, $2.1 Trillion, at, say an average interest of 7% per year, the Fed was returning only 94% of that interest to the government and keeping 6% of it for itself to be distributed to its member banks. Let’s see .06X.07X2.1 Trillion =
            .0042 X 2.1 Trillion = $8,820,000,000. That would be the size of a big chunk of the Defense budget. If there is no debt, and the interest was paid when the Fed purchased the securities, this means a big cost to the taxpayers is eliminated. The Fed pays off the debt with created money. There should be no reason to worry about the size of the debt, unless the government is mistakenly paying twice for the securities, when once is a enough.
            Of course, Congress or the Secretary of the Treasury could eliminate the national debt with a $10 Trillion coin minted at the US Mint and deposited at the Fed, which credits it with Federal Reserve Dollars, and the Treasury uses those dollars to buy back the securities, in toto (all of them plus interest).
            But there should not be a national debt at the Fed.
            As for all those Treasury bonds bought by China and Britain and Germany and the Saudis, etc., those were not used for deficit spending. They are just like taking out a CD by depositing dollars in the bank (in this case deposited at the Federal Reserve Bank). When the depositors want their money or to redeem the securities plus interest, the Fed just credits their checking accounts with the money taken from thin air or their reserves. And we can regard the reserves at the Fed as an imaginary repository record of money
            received by the Fed in deposits. It can always create whatever it needs to pay out or back, ex nihilo. As for the platinum $10 trillion coin(s), they are in the vaults, but the Fed can always give them back to the Treasury, once it has recorded them in its reserves. No one else can cash a $10 Trillion coin or make change on it.
            There is no such thing as the national debt! It’s a myth. Taxpayers are not responsible for it.

        3. Chris Cook

          In fact I don’t believe that MMT has analysed the system entirely correctly, but they are more correct than you.

          Fiat currency is and always was a credit instrument returnable in payment of taxation.

          The role of the Central Bank in this fiat currency creation is as the Treasury’s ‘fiscal agent’ who issues these tax credits on the Treasury’s behalf and holds them to the order of the Treasury.

          This means that their relationship is not – as is widely supposed – a banking counter-party relationship where a Treasury credit is reflected by a Central Bank debit and vice versa, but is rather an agency relationship where a Central Bank credit reflects a Treasury credit.

          This reality is obscured by the cock-and-bull central bank balance sheet which conflates (undated) reserves held on behalf of banks with (dated/term)interest-bearing loans to banks as ‘liabilities’. These liabilities are completely distinct, the former being an ownership (creditary) claim, and the latter being a debt claim.

          Where MMT is in error, in my analysis, is that they assume bank credit creation to be issuance of a bank credit/IOU and therefore assume that repayment of bank loans destroys this credit money.

          This is not the case. What private banks are doing when they spend or lend is FIRST to create a ‘look-alike’ (some would say perfect counterfeit) of the credit created by Central Banks (and which is completely indistinguishable) and THEN to lend or spend this new fiat currency by crediting the current account of the recipient or borrower, as the case may be.

          The only way in which these Treasury credits can be destroyed is by the Central Bank, acting on behalf of the Treasury.

        4. Dan Kervick

          The Treasury is not the whole government. Suppose the Treasury sells a security with a $10,000 yield to a private sector buyer for $9,998 dollars, and the Fed buys that security from the dealer for $9,999 dollars. Treasury then pays the Fed $10,000, of which $2 is returned to the Treasury because it is interest. What’s the net result:



          Net = $0



          Net = +$1



          Net = -$1

          But here’s the thing:. That -$1 balance on the Fed’s balance sheet is a bookkeeping convention created only to communicate Fed operations to the public in an accounting language people understand, because it is the language ordinary firms speak. But the Fed did not have to “get” that dollar from anywhere in order to spend it. The custom of referring to that negative balance sheet figure as a government “liability” is misleading, since if you possess a dollar in circulation the government doesn’t still owe you anything. The Fed simply created that dollar and spent it into existence.

          The Fed also spends money into existence in other ways, such as when it pays interest on reserves.

          The Fed is an arm of the government created by Congress, and it exercises its monetary policy decisions under a delegation of Congressional authority.

          1. Aquifer

            Why do we need a “Fed” if we have a “Treasury”? Is it just another term for a “Central Bank”? And if that is so, who makes the rules for the Bank?

            Is getting money by going through the Fed anything like getting healthcare by going through private insurance companies? Is it an extra step that just makes money “more expensive”?

            If we didn’t have the “culture of the Fed” would that change the terms of the debate between MMT and our current model, whatever its called?

          2. joebhed

            Perhaps all true.
            The difference here is between creating money – which in this case happened PRIOR TO the issuance of the government debt and enabled its original purchase, and in creating liquidity – for the buyer/investor of the government debt.
            The CB’s purchase of the security through digital expansion of its balance sheet is merely restoring the original, more liquid form of holding to the private sector, ostensibly for the needs of the economy.
            Reversing the transaction removes the liquidity provided by the CB. (at some point)
            While it is certain that the CB can create its own balance sheet, and that our financial crisis has obliterated any of Bagehot’s guidance, the money supply of which both we and the government are the ‘users’ is not the beneficiary of these CB actions.
            That is all “bankers’-banker-to-banker” stuff.
            Had the Treasury issued those balances directly into the economy without issuing debt, then we would have government creating money when it spends, where we live and work.
            As the government should.

          3. Dan Kervick

            “The CB’s purchase of the security through digital expansion of its balance sheet is merely restoring the original, more liquid form of holding to the private sector, ostensibly for the needs of the economy.”

            It is not merely restoring liquidity if it pays more for the security than the purchaser paid for it. If they do pay more, then the net effect is government creation of money.

            It is not entirely true that the commercial banks create all the money. If we just look at electronic account balances, for example, we can see that money comes in two forms: the broader form (commercial bank deposit balances) that is an asset of the commercial bank depositor and liability of the commercial bank, and the narrower form (reserve balances) that is an asset of the commercial bank and a liability of the central bank. These forms of money are interdependent. The narrower form of money in the form of reserve balances is the medium in which banks make payments among themselves. The balances you hold in your bank accounts are effectively claims against these bank reserves.

            Yes, I believe it would be good to supplement the banking system’s ongoing money creation with direct creation of monetary assets through Treasury spending.

          4. stanley mulaik

            We need a central source for the money supply. But it doesn’t matter if the Treasury first has to issue securities, sell these to get money to spend and then the Fed buys the securities from the current previous holder of them, using money created out of thin air. The Treasury’s action of issuing the security to begin with started the chain of events leading to the creation of new money.
            So, if for tradition’s sake we allow the system to go on as it is, with an intermediate buyer between the Treasury and the Fed of the securities issued by Treasury, that is still the same as having the Treasury sell the securities directly to the Fed (now prohibited), or having the Treasury issue the dollars directly, debt-free (like Lincoln’s greenbacks). But since the Fed is an agent of government, any securities it purchases should be seen as redeeming the implied debt of the securities.
            We have to get Congress to know its powers and have the will to eliminate the so-called debt, by refusing to pay it anymore, or by giving the Federal Reserve a budget based on its through-put but not requiring the Treasury to pay interest from taxpayers or buy the securities from taxpayer money.
            None of this concerns the possible inflationary risks of fiat money. But the risks are no more than the risk of having an accident in an automobile, if the automobile is improperly driven. If government improperly creates and spends money into the economy without concerns for effects of inflation in the context of the export-import balance, savings-investment balance, taxes versus deficit spending balance, then that is reckless and ignorant behavior.
            But just getting a balanced budget or a surplus should not be an aim of the federal government. It should get stable prices with full employment. And
            that can occur with deficits, with surpluses (with exports making up for taxes that take money out of circulation), or there can be deflations with balanced budgets, if there are continuing excessive importations of goods.

    2. Susan the other

      If it is all political, why can’t the state extend time. That is all money amounts to when credit is involved. It expands the rule of actually having something before you can offer it on – that government must first have the money in its coffers before it can extend credit. But governments cannot stop operating because time does not cooperate in a timely manner. So yes, everything, absolutely everything to do with ecconomics, is totally political.

      1. Susan the other

        thank you Lambert, please post all you can from this Columbia Seminar Series… I wish someone would tackle the 800 lb. gorilla: the military and its paranoid trappings. I actually think peace can be superimposed from above. The Earth was steady state before we invented economics. Before Mitt Romney.

    3. Dan Kervick

      You are failing to look at the government from a consolidated perspective, where the Fed balance sheet and the Treasury balance sheet are added together.

      The Fed spends money into existence constantly, and it doesn’t have to have money in any kind of account first.

      1. EconCCX

        >>The Fed spends money into existence constantly, and it doesn’t have to have money in any kind of account first. @Dan

        Indeed, but Federal Reserve Banks are privately owned corporate entities, designed that way so it would be impossible for the USG to manipulate their account balances.

        Yesterday’s discussion thereupon.

        The USG must surrender to these banks bonds, tax receipts or sovereign coins before it may spend. USG owns the reserves in its own accounts. USG does not own the bank or its assets or books. It does not earn seigniorage on Federal Reserve Notes. Reserve Notes are the bank’s liabilities, whereas UST coins are among the bank’s assets. Making very clear the institutional distinction.

        USG has a policy voice in the bank’s governance through the Board of Governors, and is forgiven the INTEREST on T-Bills the bank owns, hence the annual gift to the Treasury.

        Again, anyone who believes that taxes to the USG don’t fund spending should be able to demonstrate as much through links to public documents, which would tell us how much of USG spending is funded by the Federal Reserve Banks through unreciprocated money creation. And document as well the reserves supposedly destroyed by taxation.

        1. Aquifer

          “Federal Reserve Banks are privately owned corporate entities, designed that way so it would be impossible for the USG to manipulate their account balances.”

          Better we should let private entities manipulate their account balances, instead, right?

          1. EconCCX

            >>Better we should let private entities manipulate their account balances, instead, right?

            Aquifer, I hope you’re not putting words in my mouth. I’m describing a predatory system of money, not endorsing it. It happens to have some great virtues, and it almost works. But it delivers entire civilizations into the gaping maw of global usury. The ideal form of money is service-backed, and service-denominated. Digital bridge tolls, subway tokens, Forever stamps as media of exchange for everything we buy. Click my link for one essay on a pitiably undeveloped site.

            But service-backed money probably could not have built Silicon Valley. Again, enormous virtues and fatal flaws. Several competing forms of money must coexist, as Beardo always tells us.

          2. Aquifer

            Seems as though the design – deliberately to keep the Gov’t out – insured that private entities had free reign to manipulate and that Gov’t’s only role, when they “manipulated” themselves into a hole, was to bail them out because they were dragging us along with them. So lets move to get those Fed Banks “nationalized”, i.e. out of private hands, doncha think – hey if we have to be the ones to bail them out, then we should have a BIG say in how they function – she who pays the piper should call the tune ….

        2. stanley mulaik

          The Federal Reserve bank is a consortium of private banks with the government
          created by law in 1913 by Congress. It has to be an creature of government.
          Whatever the private banks in the consortium do, ultimately it is the Fed
          itself that creates the money under Congressional powers, not these banks as private banks. The private banks themselves do not have the power to create money, ultimately. They can create loans out of thin air, but to monetize them it all has to go back to the Fed which lends them the dollars. That is independent of the operations of the Fed with the Treasury in the open market. It’s the difference between vertical Treasury-Fed-Bank operations and Horizontal bank-bank operations in the theory of MMT.

          1. EconCCX

            >> The private banks themselves do not have the power to create money, ultimately. They can create loans out of thin air, but to monetize them it all has to go back to the Fed which lends them the dollars<< @stanley mulaik

            See, you've simply made that up, and that's why you have no cite. Private banks clear the checks their loan-takers write by passing reserves back and forth to each other. They do not need to borrow from "the" "Fed" (is that the Board of Governors? Is that a particular bank?) in order to lend. And the lending adds directly to M1. The primary component of M1 is the private debt of commercial banks, in the form of deposit accounts.

          2. EconCCX

            Federal Reserve Banks pay interest on reserve balances, which means those reserves are being being borrowed from depository institutions, not loaned to them.


            The Federal Reserve System’s own lending facility is the Discount Window, which is a high-priced, emergency source of short-term credit. Not a primary source of funds.

            4. Is a depository institution that is eligible for primary credit allowed to use the Federal Reserve as a regular source of funds?

            The Federal Reserve expects that, given the pricing of primary credit, institutions will not rely on the discount window as a regular source of funding. Though institutions are not required to seek funding elsewhere before requesting primary credit, primary credit is intended to be used mainly on a very short-term basis, usually overnight, as a backup source of funding. Primary credit is available for a period of up to approximately one month to generally sound depository institutions that cannot obtain funding in the market on reasonable terms. Ordinarily, this will be relevant only for very small institutions.

            5. Are there any restrictions on the use of funds a depository institution borrows from the Federal Reserve under the primary credit program? Under the secondary credit program?

            There are no restrictions on the use of primary credit. In particular, borrowers are not prohibited from using primary credit to finance sales of federal funds.

            Secondary credit is available to meet backup liquidity needs when its use is consistent with a timely return to a reliance on market sources of funding or the orderly resolution of a troubled institution. Secondary credit may not be used to fund an expansion of the borrower’s assets.


    4. stanley mulaik

      I have been trying to get a clear understanding of MMT’s position on the role of the Treasury and the Fed in creating money.
      Congress initially deficit spends (spends more than it took in in taxes). The Treasury needs to come up with the cash to cover the deficit part of the spending.
      Treasury issues securities and these are sold at public auction to banks, institutions, governments, individuals (but usually banks).
      The treasury gives the security as an IOU to the purchaser, and promises to pay back the principal plus interest.
      The Treasury then deposits the cash in its account at the Fed. Next it draws from that account to spend the deficit.
      In the meantime the Fed comes (not clear if it waits for the security to come due or right away to save the bank from giving up a big chunk of its money to the Treasury) and buys the security from the current holder of the security.
      The Fed uses money it creates out of thin air on the spot for buying the security.
      The Fed’s buying of the security puts money back into the current banking economy an amount equal to what Treasury took and spent back into that economy in deficit spending. That means the Fed has created new money and put new money into the economy as a result of the Treasury issuing that security, The economy’s money has now grown equal to the amount of the security bought by the Fed.
      This indirect way of creating money, Treasury issues security, private purchaser buys it, then the Fed buys the security from the private purchaser, is an artificial constraint: The Fed, by law, cannot buy Treasury securities directly from the Treasury. If there were not that constraint, then to create new money, the Treasury would issue a security (or money order) and the Fed would buy it with new money created ex nihilo (from nothing). Deficit spending would be directly financed by the Treasury and Fed working in concert. Under current system we can see that the indirect way used by the Fed to buy the security achieves the same result: it creates new money equal to the money the Treasury spends into circulation as authorized by Congress.
      Money being fungible, we can equate the Fed’s money with the money the
      Treasury spent, because the Fed has cancelled the debt to the purchaser by buying the security. The money taken from circulation by Treasury in selling the security has been replaced in the purchaser’s bank by the Fed. But there is now more money in circulation than before, the difference being equal to the value of the security issued by Treasury.
      Both the Treasury and the Fed are agents of the government. Fed works under powers given Congress by the Constitution and delegated to it.
      That leads to the question: Has the act by the Fed in buying the security from the private purchaser, redeemed that security for the government, and if so, why does the Treasury now have to retire the debt of the security by purchasing it, and paying interest on it with taxpayer dollars? If the Fed is an agent of the government, it has automatically redeemed the implied debt of the security for the government. And if this is so, why aren’t Congress or the President moving to deny payment of the national debt? It’s been paid!

      1. EconCCX

        >>That leads to the question: Has the act by the Fed in buying the security from the private purchaser, redeemed that security for the government, and if so, why does the Treasury now have to retire the debt of the security by purchasing it, and paying interest on it with taxpayer dollars? If the Fed is an agent of the government, it has automatically redeemed the implied debt of the security for the government. And if this is so, why aren’t Congress or the President moving to deny payment of the national debt? It’s been paid!<<

        It's because a Federal Reserve Bank is a private entity. When it buys a Treasury Bill, it has surrendered its own liabilities, Federal Reserve Notes or Deposits, in exchange for the T-Bill, a USG contract to pay back a greater amount at a later date. The USG still owes that money, very much so, to a Fed Bank, or to whomever that bank may sell the T-Bill to.

        That a Federal Reserve Bank is the government's agent doesn't mean it's the government. It means it's a contract institution for the USG's banking functions. The USG can't overdraw an account at a FRB any more than it could overdraw at a commercial bank. USG can mint a coin and sell it to the bank, or it can sell a T-Bill, a bond with a future obligation to pay. But there's no "consolidated balance sheet." That's an MMT fiction.

        1. stanley mulaik

          I’ll defer to EconCCX on the monetization of horizontal debts.
          I’m not a banking expert on horizontal operations.
          But simply saying that the Fed is a private consortium of banks makes the
          Fed an independent entity from the government, doesn’t wash. The Fed
          in buying the Treasury securities is using powers of Congress (the government), which makes it an entity of government. The private banks don’t put up their hard cash to buy the Treasury securities. So, they are not owed anything, since it is the Fed and not these banks per se that owns the securities. The Fed creates the money out of thin air with Congressional money creating powers delegated to it from Congress. That means it redeems the debt implied by the securities for the government. It may be that the private consortium of banks doesn’t want you to see this difference, because your interpretation, which is probably the common one, allows them to claim that the taxpayers owe the Fed the interest, from which they draw 6% of the profits. They should just get a budget like every other government agency.

        2. stanley mulaik

          EconCCX said:
          >”It’s because a Federal Reserve Bank is a private entity. When it buys a Treasury Bill, it has surrendered its own liabilities, Federal Reserve Notes or Deposits, in exchange for the T-Bill, a USG contract to pay back a greater amount at a later date. The USG still owes that money, very much so, to a Fed Bank, or to whomever that bank may sell the T-Bill to.”<

          If a Federal Reserve bank possesses a T-bill, how did that bank obtain the T-bill? Did it buy it with money created out of thin air? If so, then it acted for the government, and in reselling the T-bill, it acts for the government. So, the government has an obligation to repay, and the Federal Reserve should buy back the T-bill to redeem it again.

          If the Federal Reserve Bank of New York (or wherever) gets the T-bill in some payment of private debts to that bank, or buys it with its own deposits, the government owes it the principal and interest. But the particular Federal Reserve bank should put the T-bill up for auction, and the Fed will ultimately buy it with money created out of thin air and redeem the obligation for the government.

          We need to distinguish the Fed as the government's central bank and the governmental agency that buys Treasury securities and bonds with money created out of thin air, and the individual private banks in the consortium of banks with the government that Constitute the Federal Reserve Bank. Their gold reserves do not back the money supply. Their private deposits are not used to buy T-bills at public auction for the Fed. So, the individual banks are not owed anything when the Fed buys the T-bills at public auction (unless the Fed bought the T-bill from them) .

          Can the individual bank with a T-bill go directly to the Treasury and demand redemption, or does it have to go to the open market and sell the T-bill to convert it to cash? In that case the Fed will eventually buy it from a holder
          with new money created out of thin air. That should redeem the obligation of the government. A T-bill in circulation issued in deficit spending ultimately represents new money, it seems to me. If it is like a CD representing a deposit in dollars made by some individual or entity (e.g. Chinese govt.)
          then the Fed will simply pay back the entity its dollars when it wants to withdraw them (minus any penalties for early withdrawal). The government does not rely on these deposits for deficit spending. These deposits are at the Federal Reserve and are redeemed by the Federal Reserve, which has unlimited money at its disposal to pay all debts and obligations. In these cases no new quantity of money enters into the economy when the Fed returns money to a depositor who redeems a T-bill.

        3. EconCCX

          If a Federal Reserve bank possesses a T-bill, how did that bank obtain the T-bill? Did it buy it with money created out of thin air? If so, then it acted for the government, and in reselling the T-bill, it acts for the government. So, the government has an obligation to repay, and the Federal Reserve should buy back the T-bill to redeem it again. @stanley mulaik

          Again, FedBank obtains these T-Bills by relinquishing Reserves, in note and deposit form. Its own liabilities. Its own debt. FedBank isn’t creating money out of nothing; that’s a sovereign function of the USG. Rather, FedBank, by issuing its own debt, is obligating itself to surrender an equivalent value in Treasury coins, instruments of final payment that FedBank did not and cannot create. It has vaults full.

          FedBank debt not only pays interest to banks who own it, but has desirable properties of liquidity that Treasury debt lacks. The ability to act as a bearer instrument when in the form of Federal Reserve Notes. The ability to be transferred electronically, to the cent, between financial institutions, governments and end-users.

          So, while FedBank indeed creates money at a computer screen by purchasing T-Bills, it isn’t doing so as the US Government, but as the USG’s creditor. And it isn’t creating that money from nothing, but obliging itself to surrender something of great value. That customers demand only a minuscule percentage of FedBank debt to be redeemed for Treasury coins each day is part of what makes Central Banking an extremely lucrative endeavor. That and the fact that Treasury itself is obligated to surrender such coins in exchange for FedBank debt as well as, obviously, for Treasury Debt. FedBank deposits, being infinitely more liquid and transmissible than coins, hold the demand for Treasury coins at bay.

          But make no mistake. The relationship between USG and FedBank is a cooperative, yet arms-length, creditor and debtor relationship. It derives from USG’s history of borrowing in gold from private banks. USG can pay back in base metal coin now, but pay it must. And if you own dollars, you’d be far worse off if all that USG debt were monetized. That fear is motivating the run to gold.

          1. stanley mulaik

            I’ll start with this from EconCXX
            “Again, FedBank obtains these T-Bills by relinquishing Reserves, in note and deposit form. Its own liabilities. Its own debt. FedBank isn’t creating money out of nothing; that’s a sovereign function of the USG. Rather, FedBank, by issuing its own debt, is obligating itself to surrender an equivalent value in Treasury coins, instruments of final payment that FedBank did not and cannot create. It has vaults full.”

            I doubt that there are now enough coins equivalent to $16 Trillion to back up all those Federal Reserve Notes in the economy. There wouldn’t be enough space to store that many in any of the Fed Reserve BankS. Our dollars are only backed by other dollars, and there have not been $16 Trillion in coins issued.

            So, when and how has the USG been using its sovereign powers to create money, if it has not been issuing other than a small amount of the money in
            circulation, in coins.

            If the Fed Banks are the “creditors” of the USG, they are a fraud, because they have credited the Federal Government with more money than they have
            in their vaults and can’t back their loans if the USG can’t pay them back in
            They are the biggest bubble of all. And I doubt that the Chinese believe
            this is the way our money system works, when they buy US bonds, knowing that regardless they will get their dollars back, even if taxpayers don’t have it.

            It would seem to me then that the megacoin solution to the national debt is the solution to the national debt. All the Treasury needs to do is issue several $10 Trillion denomination coins, deposit them at the Fed, and buy back all those T-securities at the Fed, canceling the debt. That being so, why aren’t Congress or the President (who now has these powers in the US code) simply ordering the $10 Trillion coins be minted and deposited at the Fed. Perhaps the Federal Reserve Bank(s) don’t want that, because the interest on the accumulated debt since 1834 held in T-securities at the Fed is a cash cow for them. And they will dissimulate and obfuscate the possibility of this to prevent it.

            If the Fed admitted that in buying the T-securities with money made out of thin air they were functioning with Congress’s powers to create (coin) money
            and doing so for the government, thus canceling the debt automatically.
            there would be no need for the physical megacoins.

            The problem may turn on what the Constitution means by “The Congress shall have Power … To *coin* money, regulate the value thereof, and of foreign coin…” When the Fed extends credit without backing it with coins already in its reserve vaults, is it creating money with governmental powers or its own
            powers, illegally. It is buying a governmental security without backing of coin. If it is buying the T-bills with governmental powers, it is off the hook, and it becomes the agent of government that creates money for the government. But in doing so, it is canceling the debt obligation of the T-bill.
            When the Treasury issues T-bills for deficit spending it is initiating a process that creates new money to be issued into the economy by the Fed. It is not working with money already in circulation.

  5. michael hudson

    I’ve just returned from the 11th Post-Keynesian conference at UMKC, where Randy and I gave papers, as well as a live radio discussion with Bill Black.
    It is very hard to summarize MMT briefly, because it requires rewiring the brain for the concepts. I think Stephanie Kelton did a great job in Rimini, Italy last spring, which should be accessible. Also, Randy’s new book, “Modern Money Theory, was just published by Palgrave MacMillan.
    governments DO spend money into existence. That’s why the US Gov’t was able to add $13 trillion to the US debt to give to Citicorp et al, and why the Fed took $29 trillion of financial junk from the largest US banks and also European banks. That is what makes the US Fed (and the Bank of England) so different from the ECB.
    Randy and I are in agreement about the ability to create money — and for the need for a debt cancellation. Under government as creditor (as in the Chicago Plan), it is easier to annul debts owed to oneself than to annul debts owed to an oligarchy. That was a point I made at the Columbia lecture.
    By the way, Stephanie Kelton just lectured last Wednesday there. Please watch HER presentation which I’m sure is crystal clear. She’s a great teacher (and is now our department head at UMKC).

    1. Lambert Strether Post author

      Michael Hudson, I do not of course disagree with the concept, but I think one riff to introduce to the polemic exposition would be a very concrete, down-to-earth example, as concrete as the barley and the ale. (I’d cite to Julie Remache and Nathaniel Wuerffel with “push a button”, but that’s the Fed.

      (I mean an actual concrete example with a real individual if possible. Something some actual person does in their cube at a computer.)

      1. michael hudson

        You’re right, Lambert. The failure to walk the audience through such an example leaves the discussion highly abstract.
        This seems to be a problem that is widespread among monetary theorists. The topic attracts nutters.
        that’s why I suggested Stephanie as a good explainer.The Levy Institute APPLIES many of these concepts in its reports. So interested parties can go there and get the kind of examples that you rightly notice are needed

        1. Aquifer

          Could you give an actual citation to a “talk” etc, one could go to. Intuitively this stuff makes sense to me – but i find I get bogged down when trying to explain it to another which means i don’t really “get it” myself. If I cannot explain it to the “average Joe”, and answer questions about it, then i can’t “spread the word” and frankly methinks until this reaches the level of “common sense” in the way that house hold finance does, it won’t get out of the box into general parlance. I tried explaining it to my sister, e.g., but got bogged down fairly early.

          I really would like to spread it around as i have a feeling that this is the only way to get free of the trap of the 1%, and if we could introduce it into the household/political dialogue as the Right has done with “the balanced budget” idea, we could have a chance. Methinks that it will take things like me talking to my sister, etc. and not going to conferences in NY that will get us there and for that we need “average Joe” terms and analogies and illustrations that folks can relate to.

          Guess this is a wordier way of saying what Lambert said, but i wanted to enforce it from the point of view of an “average Jo(e)” ….. Thanx

          1. Hugh

            The standard criticism of MMT is that it has a lot of counterintuitive ideas, that even if true, are terribly explained by its practitioners and run straight into the indoctrination we have all received. I think a big problem with it is that it lacks a philosophical superstructure. It doesn’t seek to address the public in any serious way, certainly not in one that would get them on board. And it has an intellectually disjointed appearance, especially when it moves from the discussion of money to proposals like the jobs guarantee. It doesn’t help that, with the exception of Joe Firestone, that guarantee is put forward in thoroughly neoliberal terms.

            It’s why I put together a society and resources model. It’s simpler, and I think more persuasive. People have a lot of inbuilt prejudices about money, that indoctrination thing. But they do not have them with regard to resources.

            We as a society decide what kind of a society we want and further decide that we will distribute our resources to create and promote that society. Money and MMT are merely the way we effect those resource distributions. This model has the superstructure MMT lacks and ties together MMT’s monetary and social elements. And most importantly, it explains why things are being done and places social purpose at the very heart of the whole process.

            Unfortunately, the standard reaction of MMT practitioners is either to say they already do all these things or contrarily, that MMT was never meant to do them.

          2. Aquifer

            OK, Hugh, so where are the details of YOUR model?

            It occurs to me that this whole area might benefit from a checklist like that for the elections – a list of issues and a checkbox of how each of the “parties” would handle them …

            If economies are creatures of society, then why don’t we let society decide on which system it wants to run it? If we thought about it in that way, we would have to be able to explain this stuff in ways that even dummies like me can understand ….

        2. John Merryman

          The one point that seems to be overlooked in discussions of money is that it is a contract, not a commodity. For example, if I give you an IOU, it is a contract and that is the nature of money.
          Since we treat it as a commodity, the basis of which is supply and demand, to create supply, demand/debt must be created and our entire economy is built on the need to create and service debt.
          On the other hand, if people understood money as an obligation, they would be far more careful as to what value is converted into it and the tendency would be to store value in stronger communities and healthier environments, because that would serve the current purpose of security, implicit in monetary savings.

          1. Expat

            For the record, you are describing a security, not money. The difference may be miniscule but it’s very important.

          2. Ms G

            If an IOU is a “security” (rather than a contract) then what were the marks on the ancient tally sticks? Those were basically IOUs. Were they also “securities”?

            Perhaps you could explain the difference between a “security” and a “contract” in this specific — IOU — context. (This is state without any snarc or irony.)

          3. EconCCX

            @Expat, no, John has it right. The balance in your deposit account is a bank’s private IOU. A contract. It’s also money, beyond any question. Divisible, transmissible, lawful and liquid. The only money Apple has, for example, is private bank debt (contract money) and a comparatively tiny amount in Federal Reserve banknotes and USG-issued coins.

          4. EconCCX

            Er, let me rephrase. Of course Apple has funds in every imaginable denomination. But the overwhelming preponderance of it is in commercial bank IOUs. The private contract money John described.

          5. Robin Hood

            Ms G

            I only know what my Bards and Scribes tell or sing to me, and they didn’t know anything about bone money, but your wiki has this section which sounds about right. Tho the details are not explained so well.

            Split tally
            The split tally was a technique which became common in medieval Europe, which was constantly short of money (coins) and predominantly illiterate, in order to record bilateral exchange and debts. A stick (squared Hazelwood sticks were most common) was marked with a system of notches and then split lengthwise. This way the two halves both record the same notches and each party to the transaction received one half of the marked stick as proof. Later this technique was refined in various ways and became virtually tamper proof. One of the refinements was to make the two halves of the stick of different lengths. The longer part was called stock and was given to the party which had advanced money (or other items) to the receiver. The shorter portion of the stick was called foil and was given to the party which had received the funds or goods. Using this technique each of the parties had an identifiable record of the transaction. The natural irregularities in the surfaces of the tallies where they were split would mean that only the original two halves would fit back together perfectly, and so would verify that they were matching halves of the same transaction. If one party tried to unilaterally change the value of his half of the tally stick by adding more notches, those notches would not be on the other tally stick and would be revealed as an attempted forgery. The split tally was accepted as legal proof in medieval courts and the Napoleonic Code (1804) still makes reference to the tally stick in Article 1333. Along the Danube and in Switzerland the tally was still used in the 20th century in rural economies.

            But to answer your question, Friar Tuck says the terms IOU, Contract and Security are interchangeable in this context, and he wasn’t singing when he said that. He also said IOUs could be called Bonds, too, but we prefer to call them Credit Instruments, or Tally Sticks, for short.

            Sometimes a third party would give you pence or chickens for the good half of the stick, but not always. That’s why some people think they are money too.

          6. skippy


            It may have a relationship to Proprietary security (physical) Vs Contract security (promise). Long story, short… it seems virtual reality has superseded the old physical in the pecking order.

            skippy… If this is the case, it scares the bloody hell out of me. It would provide some explanation as of why so many laws are ignored, their defunct for all intents and purposes. A vestige of the past like an appendix (property… cough C/RM-BS). All the debt contracts MBS, CC, etc, all streaming back and forth from PC’s, exchanges and black box nodes… it could all just De-res… BTW funny that Ithaca time was brought up above. Imagine converting all those electrons of price to X = time + energy and apply its effects on this world with in a relative short time line…. huzzzzzz… crispy…

          7. Ms G

            Hi Mr. Merryman. We have lots of theories now on what you might have meant by the distinction between “IOU” and “security” as it refers to a promise to repay money. If you have a moment to jump back in to clarify what you meant, that would be helpful!

          8. Ms G

            @Robin Hood. Ok, so wiki seems to say that the tally sticks (with their colorful and fascinating history) were basically the notched-wood equivalent of a piece of paper that says “I owe you 20 bucks.”

            What makes the notched-wood and the piece of paper “securities” rather than “contracts”?

            Friar Tuck seems to think these are just two synonyms from the world book of “terms signifying a debt relationship.”

            We still don’t know what is meant by “security” versus “contract” in re. an IOU.

            I’m being a bit of a terrier on a bone with this one because I’ve been learning that in finance and business and economics, there are many quite simple things whose simplicity is obscured by technical idiom. And that if I’m to wrap my head around these important subjects, part of the process is to translate/deconstruct terms, phrases and concepts!

          9. Robin Hood

            Ms G

            Well, Friar Tuck says to always read the Small Print, in the Contract, Wherever that may Be.

            “I owe you $20” is a simple Contractual understanding and Recorded somehow as a Security. A Debt Security or Instrument. There is Stock – Ownership in an Enterprise – which is a Security, issued with Terms – which is the Contract, and this type is called “Equity”.

            I have noticed in your time that people use the term IOU when they somehow mean the debt is sure to be reneged upon by an unscrupulous and unreliable borrower. Or it is some hard to verify verbal agreement with no witness. Or it is your Disney character, Wimpy, saying “I will Gladly pay you on Tuesday for a Hamburger today.”

            Could that be your concern?

          10. Ms G

            @ Expat (and amends to Mr. Merryman) — the question about “security” vs. “contract” re. an IOU was for you.

          11. Robin Hood

            Ms. G

            Reread this thread again from higher up. When I said this

            “I owe you $20″ is a simple Contractual understanding and Recorded somehow as a Security.

            I was thinking in terms of a loan. If you put $20 in your bank account, I think it’s call it a demand deposit account. You can call it whatever you like.In Merry Old England sometimes we called it “gone”.

          12. John Merryman

            Mrs. G,
            The point isn’t whether there is some line between securities and money. Yes there are many forms of contractual obligations. The problem is treating money as a commodity. Then its value is not based on trust, but supply and demand. If the demand can be sustained, ie. the willingness of some party, such as the apparent black hole of the Fed, to take the other side of that obligation, the supply of money becomes infinite. Eventually though, even the Fed blows up. Consider that back in the eighties, Volcker was credited with curing inflation by tightening the money supply. Given the Fed draws down money by selling debt it is holding, what is the real difference between the Fed selling what’s on its books and the Treasury issuing fresh debt? Other than that the Treasury uses what it gets to pump into the economy in other ways, such as building more warships. Since the Treasury was massively increasing its balance sheet at the time, it’s safe to say much of the excess liquidity causing inflation at the time was soaked up by the Treasury, not the Fed. Stockman, not Volcker, cured inflation. Today the Fed pours money into the banks, as the government drains it back out.
            An essay I wrote, trying to make sense of it all:

          13. stanley mulaik

            To me the difference between a security and a contract lies in that a contract is more than a security. It is an agreement to perform something in return for something. The act to be performed can and usually is more than simply to repay a certain amount of money plus interest to the other party. So, the term contract is a more general agreement of obligation, whereas a security is an obligation to repay a certain amount of money to the holder of the security at some future date, with a prescribed interest. The term “obligation” from Lat. meaning “to bind against”, may be the kernel idea common to securities and contracts, and debts.

      2. Fiesty

        I don’t have a cube. I have a cat, hamster and rabbit exercise clinic.

        I make $17,000 a year and pay 13% income tax, plus all those other taxes.

        My taxes go to pay for public purpose things like fire hydrants.

        I just got approved for a credit card, but I don’t use it much.

        Master says this would work fine, but everyone else does it differently, so now we have MMT to explain how the bug is really a feature.

          1. EconCCX

            Then whose account does our tax payment go to? Does that account only grow? Are there numbers in the public record that support this depiction of the USG’s funding process?

          2. Ms G

            Lambert — how do you mean? I thought tax receipts turned into the money that FedGov spends directly on its own programs + contracts and into the money that FedGov funnels to states and local entities to spend on Fed-approved programs + contracts. Really confused by your comment.

          3. Fiesty

            Ms G

            He is directly quoting a line MMTers use over and over.

            Even the Big Guys that are the ones that “understand” it.

          4. Fiesty

            Yes, well it’s not my line.

            Master says that since we have run a deficits for 40 years, MMTers have concluded that taxes don’t pay for USG spending. Like it’s axiomatic, I think was the word he used.

            But I don’t want to put words in anybody’s muzzle, so maybe we will hear more from the people that say that.

    2. Stan Musical

      “Randy and I are in agreement about the ability to create money — and for the need for a debt cancellation.”

      This would include student-loan debt? I would think so, but if not, why not?

  6. craazyman

    What Would Al Do?

    You dudes are two sharp guys for sure. Your thoughts and willingness to share them are much appreciated (by me and obviously many others). I trust you’re getting paid for talking about this stuff. All this for free seems wrong. :)

    But what the heck is “public purpose”? It’s one of those words like justice or art or pornography. They say “you know it when you see it”. But somehow that doesn’t satisfy. So many will disagree on what it is and what it should be. The phrase is born as opposition and lives there and never dies.

    MMT is a philosophical rebellion. And in all matters of rebellion so often I think of my hero the shoe salesman, Mr. Al Camus, poverty stricken French Algerian child who knew he would be world famous, author of The REBEL, Myth of Sisyphus and that nearly unreadable book, The Plague, along with LE CHUTE, which summarized so eloquently the eternal problem of making space in the world for the abstraction of justice — that two-faced head of an unknown god — and Nobel Prize winner and part-time shoe salesman when he needed the money to round out his eccentric resume. He would have never gotten hired by the Vampire Squid or even JP Moron. Ouch. Just kddng.

    Mr. Camus was insistent on pursuing threads of his ideas to their sources, which he traced through western thought to their springs in that ethereal realm of something we loosely call “soul”, which we seem to elevate to a higher status than the flesh. Why that is is not at all clear. But such contemplations are a 2000 year hobby for most of Western mankind, and even farther back than that, no doubt. As the saying goes “Many brave men lived before Agamemnon; but all are overwhelmed in eternal night, unwept, unknown, because they lack a sacred poet.”

    MMT is a reframing of institutional relationships and an intellectual rebellion against the necessity of a form of economic suffocation, a rebellion that makes several reasonably obvious points regarding money and debt, which, to a thinking person, are perhaps simple in their construct and less than astounding in their profundity. But shocking, to be sure, due to their conflict with conventional wisdom.

    This is where Camus was not content to rest, the point where injustice is named, rage is justified, insitutional relationships are revealed as corrupted and the prevalent definitions of the elemental forces at work are shown to be convenient errors. Instead, he needed to find the source of justice, so that whatever was built from rebellion on the ashes of injustice would be complete and whole and nourished by something that could not be negated by any construction of thought.

    It may be too much to ask of MMT to incorporate such an extension, possibly even digression, into its philosophy, one that articulates public purpose and in so doing justifies the risks it asks the public to take in concentrating the power over its money into an elite different in form and kind than the purposefully atomized elite that have nevetheless bound themselves together and looted in the name of a philosophy that even a child would find hard to believe, if it were presented idea by idea.

    But the collectivists are no better, if history is evidence, and they’ve failed so miserably when given power in other nations at other times, usually concentrating a violent coercion into an atavistic tribal priest-king and inner circle of factotums, and then they’ve left their piles of corpses and their decimations and their plagues.

    Some people ask “What would Jesus do”? But since this question is about philosophical rebellion I humor myself by asking: “What would Al do?” I frankly don’t think he would find much enduring distinction between Modern Monetary Theory and it’s foil, what we have now. I think he’d see each as equivalent halfs of an invisible whole — a whole that, to succeed in its public purpose, requires an instrinsic balance, skilled navigation, regulation and insight — and that succeeds or fails independent of its unique institutional structures and dependends instead on the underlying integrity and wisdom of its operators as private men and public citizens.

    I think there is where he’d look for the eternal source of stability and justice and where he would find it, in that nearly unconscious space of assumption and prejudice that precedes decision and action and that guides each with a wise hand or the wavering and corrupt flail that opens space in the world for corpses and plagues.

    It’s not that conventional money theory has not worked or cannot work. It did not work, in the here and now, for historical reasons that are somewhat localized in mindspace and time. Operator error, in other words. MMT would risk that too, and its implementation may be equally open to capture and abuse in ways unique to its structure. Perhaps no more than what we have now, but certainly no less.

    Money is a social phenomenon and like all living things it can’t be caged in numbers beyond a certain point or measured or limited within a certain range of error. You can’t run out of it any more than you can run out of time. One person can, but not society. This should be self evident. You can run out of justice and purpose and descend into barbarity, but these transcend money and exist independently of it, as history shows so clearly.

    This comment isn’t very good. I admit it, but it’s Sunday and Washington Redskins football is on the radio. Sorry about that and about wasting your time reading this.

    1. Hugh

      It may be too much to ask of MMT to incorporate such an extension, possibly even digression, into its philosophy, one that articulates public purpose and in so doing justifies the risks it asks the public to take in concentrating the power over its money into an elite different in form and kind than the purposefully atomized elite that have nevetheless bound themselves together and looted in the name of a philosophy that even a child would find hard to believe, if it were presented idea by idea.”

      Very interesting. I commented a little higher up, before seeing your comment, about MMT’s failure to have a philosophical superstructure that would tie it together and make it not just comprehensible to the general public but give us a reason to defend. I don’t see this as a digression but rather an absolute necessity if it wishes to be taken seriously.

      I would disagree with you on two points. First, I think the rich and the elites already use MMT principles to further enrich themselves. It is only when they turn to us that they invoke gold standard thinking and tell us there is no money for our needs. Second, for me, elitism is about a system of privilege which those with wealth or power endow themselves. I don’t think we need new and better elites. We need more and better explanations and explainers. I don’t think the concepts of MMT are terribly difficult, but they are almost mind-alteringly badly presented by their adherents.

      Oh, and though it’s been years since I read it, I always rather like La Peste. But then I used to like to read Umberto Eco not because his novels went anywhere but because they needed to be decoded and it was always an interesting ride. I don’t know whether I would like La Peste more or less if I reread it now. I think the one thing I have learned since is just what an incredible craftsman Camus was in his writing. In works like La Peste and L’Etranger, there is nothing superfluous, everything has a point, a point that Camus gave serious thought to.

      1. Calgacus

        MMT’s failure to have a philosophical superstructure that would tie it together This is a very strange criticism. The opposite of the usual one, that MMT is too philosophical, nothing but philosophy, or unimportant trivialities that everyone knows (Mike Beggs on Graeber) or literary criticism (recent (& obtuse) “math” visitor to UMKC PK conference.) I agree that MMT is frequently not presented well. But each time, it gets better. The MM Primer is pretty good.

        Sure, I’m all for more philosophy. I’m fanatic about it. Without philosophy, any subject becomes BS. Aside from Wray, and perhaps some obscurer circuitistes, I’d say that the thoroughest philosophical support is given by Geoffrey Ingham & also by Geoffrey Gardiner. John Smithin is good too. But just about everyone accurately sees a lot of philosphy in most MMT expositions.

        It doesn’t help that, with the exception of Joe Firestone, that guarantee is put forward in thoroughly neoliberal terms. Just plain wrong, as I’m sure Joe would tell you too. The MMT JG is the opposite of neoliberal, and every MMT thinker proposes a decent living wage.

        the standard reaction of MMT practitioners is either to say they already do all these things Regarding the JG, absolutely correct. Every thing you’ve said should be in the JG proposals – is already there.

        If you’re interested in relations with environmental economics, then I think Bill Mitchell has written some, & Forstater taught a course at UMKC on it, and wrote some papers.

        Money and MMT are merely the way we effect those resource distributions. Far too close to neoclassical. Money organizes production. The way we do things now is insane, unless you are a plutocrat who prefers the suffering of others to his own enrichment. However one distributes resources, should one work & invest to create & accumulate them – and then blow them up? It’s what we do now, and “distributing” doesn’t really describe it.

    2. Aquifer

      So justice and purpose are temporally bound, but money which is transcended by them, is not? Don’t you think that perhaps both are likewise bound by the wisdom of those who articulate them?

      I agree that money is a social phenomenon, just as “property” is. I think it is whatever society says it is, which is what i was trying to tease out with my questions above about who has the authority to measure or create it.

      “Public purpose” is also a slippery concept, fraught with difficulties – note the legal issues that arise from its definition when it comes to the “right” of eminent domain – in many ways the quintessential expression of the conflict of public and private ….

      In all these areas the devil is in the details, ISTM ….

  7. LAS

    Thank you for the opportunity to view the talks. Except for absence of exams and degrees, perhaps this is the new free public education.

    Some points might have gone over my head, but two things in particular remain. From Michael Hudson, the mention of an exponential debt curve versus an S curve for real goods & svcs is pretty graphic. From L. Randall Wray, it is the description of how a sovereign government has the capacity to reduce unemployment at will, not hostage to market forces. Marry these two ideas and it seems incredibly unjust that so many modern populations are in the process of being unnecessarily ground down anyway.

    Sometimes it seems all of humanity is organized by claims. There’s this one culture of will to power over others, righteousness (mostly unmerited) and credits on the one hand. On the other hand, we also have a separate culture to instill a sense of obligation or sin in others. One can see this in individual personal relationships and then somehow it gets organized systematically to be imposed on a whole population. It is a phenomenon I often wonder at.

  8. Heron

    One of the things I find really interesting about this discussion is that none of this is really all that new. Take Dr. Hudson’s aside about the dangers of running a government surplus(which forces lending out of public bonds and into risky, high-interest bank loans). Hamilton was arguing the stupidity of a balanced budget provision and the usefulness of a national bank/managed debt approach to national finance back before the Articles of Confederation were ratified! I mean really; Mercantilism has been a discredited economic theory for nigh on 400 years now, and one of the major revelations debunking it -that a well managed debt is a public utility- is still considered widely controversial.

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