Public Money for Public Purpose: Toward the End of Plutocracy and the Triumph of Democracy

By Dan Kervick. Cross posted from New Economic Perspectives

A new year is upon us. And even before its first hour has been rung in, 2012 is already taking shape before us as a pivotal year in global politics. We can all feel the awakening under way. A revived longing for equality, shared prosperity and democratic solidarity is inspiring a vibrant new politics around the world. This new activist spirit is quickened by the keen apprehension of young people on every continent that something is very, very wrong with the present economic and political order. The rising generation, heirs to sick and damaged societies that have been unbalanced by decades of plutocratic rule and antisocial cupidity, have now begun to rouse themselves – and in the process they have rallied the moral outrage of their fellow citizens.

In the face of so much hope and energy, cynicism falls increasingly mute. The young occupiers of the public squares are giving new heart to all of those older, beleaguered reformers who worried that they might never see real change in their countries during their own lifetimes. Young people almost everywhere – from the defiant street vendor Mohamed Boazizi in Tunisia to the indignados in Spain to the participants in the Occupy movement across the United States and elsewhere – are rejecting the destruction wrought on their societies by a debased system of economic predation, environmental recklessness, elite privilege, corporate fraud and sheer inhuman greed. The youthful protestors are determined to restore democratic society and human decency, and redeem the dimming promise of their common future, and they have set their sights on the global dictatorship of big money. The 1%, once complacent in their impregnable fortresses of cash, can be heard to speak in worried tones of late. They lean pensively from their tower windows, no longer quite so comfortably aloof, and hear the rebel footfalls down on the streets in the dark.

The task the new activists have set themselves is formidable, because the economic disorders in need of repair are so numerous. The maladies here in the United States are particularly acute: Real unemployment is well up into the double digits – despite standard government habits of cooking the official unemployment books by not counting various classes of people without jobs. Unemployment rates among the young are especially appalling. Income disparities and polarization are staggering: For example, CEO pay in the US is now many hundreds of times higher than average worker pay, and the share of national income going to workers is now at its lowest level since the country began measuring that share almost 60 years ago. The share of income going toward corporate profits, on the other hand, is at the highest level since 1950, and yet many of these profits have been harvested by firing workers and cutting costs, not from new production. And by some recent measures, the proportion of Americans who count as either “poor” or “lower income” is close to 50%. As always, political power follows wealth, and that ineluctable social fact poses a large part of the challenge for reform. The greater the gap between the rich and the not-rich, the greater the capacity of the rich to buy the kinds of political influence they need to prevent change.

So the problems are not small, and they will not be easy to address and fix. We therefore need to battle for social and economic changes along many fronts. But as the new generation of activists point our societies toward these necessary reforms, so many of which pertain to the oppressive and unjust power derived from the control of concentrated money, they would be well advised to focus significant attention on the monetary system itself. The monetary systems that currently exist are deeply flawed: they are antiquated; they are socially inefficient; they are undemocratic; they lack openness and accountability; and they privilege elite financial interests over the interests of ordinary citizens and the public interest. Citizens in every country must begin to work together to reassert public control over their monetary systems, and assure that those systems are subject to democratic governance. And they must resist calls to expand the rule of private sector wealth over our monetary systems, and to reduce the public’s control over money even further below the level at which it currently stands. The public’s money must remain in public hands, so it can be mobilized for public purposes.

The aim of this essay is to assist the bourgeoning new movement for a more just and democratic world by contributing some ideas toward democratic reform of our monetary systems. These ideas do not primarily take the form of detailed policy initiatives or specific legislative proposals, although some specific suggestions along these lines are offered at the end of the essay. Instead, the focus is on providing a general framework for understanding the role of money and monetary institutions in the modern world – a framework that helps to clarify what money is, and also points clearly toward what money could be. The monetary system we actually have is an instrument of the plutocratic order of neoliberal money manager capitalism. But a monetary system fit for a democratic society lies within our grasp.

Few of the ideas in this essay are original. A good part of my thinking on the subject of money and monetary theory has been inspired by the work of a school of contemporary post-Keynesian economists and independent writers and researchers whose views often go under the name “Modern Monetary Theory” – or “MMT” for short. Some prominent thinkers in this field are L. Randall Wray, Scott Fullwiler, Stephanie Kelton, Warren Mosler, Marshall Auerback and William Mitchell. And like many of these thinkers, my thinking has also been strongly influenced by the 20th-century economists Hyman Minsky and Abba Lerner. But I hasten to add that there are several places in what follows in which I defend or suggest views that either diverge from, or go beyond the views that have been defended by the aforementioned authors.

1. The Public’s Money

I have claimed that the public’s money must remain in public hands. But what do I mean when I call a monetary system – such as the US dollar system – “the public’s money”?

I don’t mean that each and every dollar literally belongs to the public as public property. The United States government is ultimately responsible for the oversight of the monetary system and the ongoing creation of new dollars. But as dollars are created they are exchanged for goods and services, and thereby become the property of the individuals who produce those goods and services.

Nor do I mean that each and every dollar that is created comes into existence as a direct consequence of some act of public or governmental choice. Clearly this is not the case. The main force driving the creation of dollars is the banking system. Banks bring new dollars into existence by making loans that support the economic activity of businesses and individuals in the real economy. These loans expand the total sum of bank deposits, and bank deposits are properly regarded as one form of money. Money in a more restricted sense – physical currency and bank reserves – primarily comes into existence only after the fact in conformity with central bank policies that accommodate the desires of ordinary banks and their customers to expand bank deposits.

But the dollar is the public’s money because the dollar system is the monetary system that US citizens, by right, control. Constitutionally, the people of the United States are sovereign over their government, and the power over the US money supply is vested in Congress, the political branch closest to the people. The bureaucratic engine of dollar control – the Federal Reserve System – was created by an act of Congress and possesses all of its monetary powers by delegation of Congressional authority. Congress and the Fed set the rules for the banking system, and thus govern the processes through which new dollars are created and existing dollars are destroyed. The US government can thus be viewed as a monopoly producer of the dollar, even though it has delegated operational responsibility for those monopoly powers to the Fed. And private sector banking plays the large role it does only because some of the government’s monopoly power has been chartered out to the banks, presumably to fulfill a public purpose.

And yet, there is good reason to believe that the public’s monetary system is broken, and that the public purposes for which it is supposed to exist are being thwarted. As we can now clearly see, banks and other financial institutions blew up a vast speculative bubble of financial products leading up to the crash in 2008, a bubble filled with airy, foolish and fraudulent promises leveraged and re-packaged many times over. The Fed did nothing to prevent this international-scale Ponzi scheme from unfolding, and we are all now dealing with the financial carnage that resulted. And, as I will argue, the powerful monetary tools that could now be deployed to restore full employment and prosperity are locked up in an outdated and elitist system designed more to protect the reckless financial institutions that caused the disaster than to serve the public that is paying the price of the disaster. This deeply undemocratic monetary system is still directly supervised by the Fed.

But it would be a mistake to focus too single-mindedly on the Fed and its failures. The key monetary malefactors in the current crisis are a derelict and increasingly malevolent US Congress, a Congress which appears actively hostile to the very people it was elected to represent, and which works daily to serve the plutocratic masters who fund Congressional campaigns and sit atop our society’s financial hierarchies. It doesn’t have to be this way. The Fed is a creature of the US Congress; it was created by the US Congress; and it continues to play its role in the formation of monetary policy at the pleasure of the US Congress. Congress has all the power and capacity it needs to seize control of our monetary system on behalf of the broad public it represents, and to steer latent and untapped US financial power toward full employment and broad prosperity. But it refuses to make use of its inherent Constitutional powers to answer these pressing national needs, and works instead to protect the vested financial interests of the very few. The Congress that currently exists has been bought by the plutocracy. So it will be up to the American people to lead the charge on behalf of monetary democracy.

This is Part One of a six-part series.

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  1. rotter

    “Anti Social Cupidity” is a wonderfully,perfectly descriptive phrase. The behavior of our present economic and political regime, as well as the western culture in general, is what used to be commonly understood as antisocial. To be antisocial was considered a defect of character,(to be corrected or cured hopefully), not a libertarian virute. Philosophers called it narcisism and treated it with absolute contempt. Theologians called it vanity, and the most deadly of all sins. We call it “freedom” and worship it, and ourselves like golden statues.

  2. Hugh

    Well written, I agree. I would just add that the system is broken for us. It is not broken for the 1%. For them, it is working just fine in its primary function which is looting the rest of us until we have nothing left but mountains of debt which we owe to them.

    I have, since late 2008, put out a yearly list this time of year of economic proposals for what we might do to reset and restructure our economic and financial. They can be found here:

    For the rest, happy holidays to all.

    1. jake chase

      One percent of the US population is 3 million people. Anyone who thinks that 3 million people are in control of our financial system hasn’t even begun to think about the problem. A better number is 30,000, which would be 1/100 of one percent. These are the plutocrats positioned to loot our banks and corporations. One percent takes in well over 2 million ordinary people who made a few sensible decisions, worked hard, and enjoyed some luck. Tarring all of them with the bankster brush guarantees their refusal to participate in anything smacking of monetary reform. It means putting one’s trust in sanscoulottism, which has no more chance of success than using a fart to become airborn.

      1. JTFaraday

        Well, yes and no. On one hand, one a minority of the “one percent” actively makes decisions that damage the larger whole. A larger group–I call them “(investment) portfolio watchers”– has viewed itself, largely accurately I think, as the beneficiaries of these decisions and has been loathe to withdraw its support.

        The “one percent” is probably an adequate description of this extended group. I also think it’s a big source of what’s wrong with the economics profession. It’s really not that they’re stupid– or religiously afflicted.

        I do think, however, that the *criminal* element and the government capture by that criminal element that inhibits *reform* is something that this larger group is going to find is not in its interests.

        Take the disappeared MF Global funds, for instance, which looted traders much the way that pensions and corporations and municipalities and etc have previously been looted.

        So, the task as I see it, is to get this larger group to wake up already. The attack on the public is spreading up the food chain–and who didn’t think it would?

        Well, apparently someone didn’t.

        1. Blunt

          “The attack on the public is spreading up the food chain–and who didn’t think it would?”

          It spread that way with the financial corporations before and during the implosion of 2007/8. The stronger ate the weaker. Why would JP Morgan Chase remain and Lehmann, Merrill and Bear be gone?

          And surely the 1% of the 1% currently watch one another like a handful of forest shrews locked up together with no food. They’ll begin to eat one another soon.

    2. Jim

      I dunno…I think the vast generalization of the 1% looting the rest of us is a generalization as overdone as would be fixing a jet engine with a hammer. My cardiac surgeon is definitely in the 1%. He has looted nothing. All he has done is pull himself up from the 50% level, study hard and make a major life commitment. Most of the 1% are there due to their efforts, not due to looting anyone. The only looters dwell within the financial system and of course, in government. The greatest looting of all time, indeed, was govt looting of $7 trillion from the Treasury to backstop the criminal banksters (“no laws were broken”) gambling losses. Welcome to the fraudocracy.

      1. jake chase

        I think it was closer to $20 trillion. For $27 trillion they could have solved the problem with a $100K distribution to every living American (or perhaps limited it to households, reducing it by 60%). Then, they could have denuded and incarcerated all the crooks (or simply floated them offshore to say, Guiana, or whatever they call it these days). Having done this, the country could get back to business: buying worthless dreck, watching brainless entertainment, polluting the planet, and destabilizing foreign governments trying to rein in imperialist predation. You know, the good old days of Clinton prosperity.

        1. be'emet

          or better to honor them and forcibly retire them? A confiscatory wealth tax (not an income tax!) above some luxury living amount could solve many of our worst woes. Second best, confiscatory inheritance tax. (Both would make lots of work for lawyers.)

      2. JTFaraday

        Professionals who are also investors, who become aware of practices in the financial sector at some point become culpable in those practices.

        My guess is that many of them will not do anything to alter those practices so long as they view them as benefitting themselves. They sat through deindustrialization and services outsourcing, etc, and are doing just fine, thanks. After all, they “worked hard” for their money and they’ve earned it.

        My guess is also that if they continue to adopt this short run perspective, they will find themselves screwed in the long run.

        Apart from employment issues in the recession and the government austerity program, most of the disorder in finance and real estate directly impacts persons with assets.

        You would think more of them would be up in arms by now. I can’t imagine where this false sense of security comes from.

    3. Hugh

      Again kleptocracy is a system. It is not a few financiers twisting their moustaches at us as they rob us blind. It is a construction of our elites, of what I call the Establishment. It is made up of politicians, veal-penned political activists, the two party machinery, many government bureaucrats and regulators, the media in all its glitzy emptiness, a complicit judiciary with Dickensian justice for us and “Get out of Jail Free” cards for them, academics and think tanks that churn out obfuscatory, scientificality justifying looting. It is all the upper and middle managers who get just enough out of the current system, for now, to fear and resist any change in it.

      Just a few numbers for this holiday season:

      The top 1% own 50.9% of US stock, bond, and mutual funds. Bottom 50% own 0.5%. The top 10% own 90.3%.

      Overall, the top 1% own 33.8% of the country’s wealth. The bottom 50% own 2.5% of it. And the top 10% own 71.5%.

      There is just no way in the world to defend wealth inequality like that. We can always find a few examples of the so-called virtuous rich, like the cardiac surgeon mentioned above. The truth is just about no one wants to take away all the wealth of those who do useful things, but such examples are exceedingly rare. And even with the cardiac surgeon, yes, such a person would be well paid under almost any system, but is likely being overpaid in ours because of the inefficient, overpriced healthcare system we have.

      The real question though is what we do about the rentier class that contributes nothing, ties up vast amounts of resources that are needed elsewhere, and whose depredations in fact destroy so much. And look at that last figure. The bottom 50% of Americans own 2.5% of the country’s wealth. 2.5%. It is not just that a few, however we wish to define them, have so much. It is how many have virtually nothing.

      1. colinc

        Thanks for that link and excerpt, Hugh!! Some eye-popping numbers revealed there. Nonetheless, I hope you don’t mind if I try to gussy-up that pig a little.

        Using Wikipedia’s List of countries by GDP (nominal) and the U.S. population numbers from the CIA World Fact Book, calculating for “working age” in [very] rough terms, I deduce the following.

        Top 1% = ~1,777,746 33.8% of US GDP = $4,931,790,110,000
        – OR – roughly $2,774,181.53 each

        Bottom 50% = ~88,887,278 2.5% of GDP = $364,777,375,000
        – OR – roughly $4,103.82 each (multiply by 676 to match above “per capita” number!)

        If only I could afford a new pitchfork. The one I have now is too rusty to even take on a bag of trash.

  3. Ed

    Merry Christmas! I do think “actively hostile to the people it represents” is increasingly too accurate a description of the American elite in general for comfort, and the evidence from similar historical situation is that none of the paths forward from here are good ones.

  4. steve from virginia

    “A revived longing for equality, shared prosperity and democratic solidarity is inspiring a vibrant new politics around the world.”

    You left out the ‘shiny new car’ part along with the house in the suburbs. Every man woman and child on planet Earth, all seven billion … turning on those air conditioners at once, rushing down to Walmart to buy X-boxes on sale.

    All voting for Gingrich … because, “he’s right, I can feel it!” Good grief!

    Instead, a gigantic nature raping machine that strip-mines capital out of anything that looks of ‘value’ to turn it into an industrial good called ‘money’ that some have more of than do others. This industrial good belongs to the ‘people’, yea the people thought is was just fine to pack Jews into boxcars, then out of sight … because that left more for the ‘people’.

    “I can hire half the working class to murder the other half” said Jay Gould.

    Always around the corner out of reach, that industrial utopia where ‘the people’ have flying cars and painless ‘adventures’ and all the other ‘good thing’ that come out of a factory (in China).

    Instead, a crisis of existence where the resources needed to keep the ship w/ seven billion afloat in a sea of absolute zero nothingness and cosmic radiation are destroyed for ‘convenience’. The hairless monkeys are indeed clever but I think they’ve outwitted themselves this time.

  5. Jack M.Hoff

    Mr. Kervick, your last couple sentences;

    “The Congress that currently exists has been bought by the plutocracy. So it will be up to the American people to lead the charge on behalf of monetary democracy.”

    They sure provide a good laugh for christmas eve. Where were you when the rules were set for how our political process works? Where it was set in stone that money buys policy. You must have skipped that day in class. You need look no farther than the publics overwhelming opposistion to the ‘TARP’ program. Tell me dear sir, by what margin did that go through Washington? And how about the publics initial opposition to the Iraq war? That was shut down pretty easily by the gov’ts propaganda machine, wasn’t it?
    So, being we know that nothing gets done without money in Washington, or maybe a better way to say it, is that nothing gets done for those without money, just how are ordinary people going to change this system? Please answer me that one. I know of only one equalizer, which isn’t prudent to speak of in todays Gitmo coming to US world.

    1. different clue

      Since I am a physical coward who shrinks from danger, I try thinking about and doing something about other ways …
      pre-violent and non-illegal…to weaken, degrade, and attrit
      the money-lines and channels of the looterlords above us.

      I try thinking of things that could work if a hundred million Americans were to do these things in a diffuse and leaderless but very systematic and persistent way. What if a hundred million credit-card-users were to do half their daily-purchase bussiness in cash (or at least checks) as against with the credit cards they use today? How much merchant fees and interest payments would they prevent from reaching the Lords of Card Credit? All without a single bad word being said or a single window being broken. That’s just a single for-example.

      If a tomato grows in a garden and gets eaten without a single dollar bill changing hands, did that tomato ever even exist to begin with? Yes. Yes it did. Creative thinking can start there and spread outward.

      Every dollar is a bullet on the field of economic combat.
      Lead the money around by the nose.
      I am not my keeper’s brother.
      Nobody owes the rich a living.

      1. psychohistorian

        I agree that there are many ways for millions to effect the systems of consumption to cause chaos within. These things will happen as frustrations increase.

        I hope there is enough common sense in the populace left to not take the more repression pill.

        I look forward to the rest of the series to see if anything is said about the context within which this might be established? What is the MMT position on inheritance and private property?

    2. LucyLulu

      So, being we know that nothing gets done without money in Washington, or maybe a better way to say it, is that nothing gets done for those without money, just how are ordinary people going to change this system? Please answer me that one.

      Perhaps we haven’t had much luck yet, but ordinary people do still have the vote, as well as the overwhelming majority in terms of numbers. When enough people get fed up, we can vote all the crooks out. The problem right now is that there are still too many that buy the propaganda of “what is good for the wealthy is good for the masses”. I can’t tell you how many people from the middle class, even lower class and unemployed, losing their homes, I know, that are Tea Party members who defend the policies that protect the elite against the “socialists” as if they were defending their religion against heretics. I honestly don’t get it.

      1. Lew Glendenning

        90%+ percent of voters are against the bailouts.

        Governments around the world keep using taxpayer money to delay the inevitable collapse of banks and governments.

        There is no indication that voters count in the minds of the elected.

        Money buys power. That + the Progressive’s “Pass a law, make the world a better place” == control by the 1%.

        Systems get into states with no, or at least no low-cost, transitions to better states. The inertia of large scale socio-politico-economic systems is at least proportional to the number of people who depend on it for their livelihood * their salaries. The systems in the US and Europe will collapse before it can be reformed.

        There seems to be a correlation between the size of the wars and the size of the economic problems governments are trying to distract the populace from. A small ‘N’, so we can hope to avoid WWIII, maybe.

        1. LucyLulu

          I agree. Our Congressmen/women and President are not representing the wishes of the majority of the people, nor their best wishes. And we may go to the polls in November and send them packing (well, only 1/3 of the Senators).

    1. different clue

      I know that this blog has been following Occupy from a certain hopeful perspective. John Robb at Global Guerillas has been analysing Occupy as a form of non-violent open-source insurgency and comparing it to the violent insurgencies and guerilla war efforts he has analyzed in the past. I have just recently found a new (to me) blog called The Confluence whose proprietor (called Riverdaughter) has been taking part in some of OWS’s New York City activities. She has been writing and reporting about what she sees and what she thinks it means. Her blog is mainly a political blog, but she sometimes offers analyses of the effects the looterocracy is having on her own chosen field of pharmaceutical chemical research. Some of her articles on that subject have been as carefully analyzed and detail-rich as some of the economics articles here. I would suggest that OWS-minded people (and perhaps others), give her blog a visit and the archives a scan to see if they think it may be of some ongoing present and future interest to them.

      1. LucyLulu

        Thanks. I’ll check it out. The inequities in the practice of medicine and need for healthcare reform has been a long term interest of mine, though I haven’t followed it as closely as the mortgage market. However, the medical/insurance industry and BigPharma are every bit as corrupt and immoral as the finance industry, and if reform doesn’t happen, will either be bankrupting us in the next decade or so, whether paid with public or private funds…… or we will be forced to make some very difficult choices as to who gets care and what kind of care people will receive. Few will be able to afford what most take for granted today. Fee-for-service needs a good, long look, most likely needs to be scrapped, too many abuses. Pharma is gaming the patent system, paying competitors not to distribute generics.

        Some of our high costs are a result of our demanding expectations, wanting the best and wanting it now. A true story to illustrate the point: A local orthopedic surgeon was talking about his years practicing in the navy where the typical wait for a particular knee procedure was 7-8 weeks. He said that 90% of the sailors had cancelled their surgeries before surgery day, having recovered spontaneously. He was asked what that had taught him. He replied, “Not to wait to do surgery.” Granted, this doc was rather a jerk but the point still holds. People don’t want to wait several weeks to see if they will get better with no treatment, esp. if it is a non-invasive procedure like an MRI or CT scan and they don’t have to pay much out-of-pocket. If they hurt their back, they want their MRI within 24 hours, even if most people will feel better within a month and the MRI costs at least $1500 (and you sure don’t want surgery anyways without trying to heal without it). But docs know if they don’t order the mri, the patient will find another doc who will. There is method to the madness in countries like Canada with waiting lists (sometimes). Those wait lists end up avoiding many unnecessary procedures. Emergency and critical procedures obviously are not wait-listed. Sometimes necessary (but not time sensitive) procedures do involve waits however, so that is the downside, not saying there are not disadvantages, there are. No system is perfect. (And I prefer our system, where one can decide to wait or not, but we may not have a choice ultimately.)

        1. Lew Glendenning

          Problems of the world of medicine are due to the same Progressive reforms as happened in banking : The regulatory approach was used to produce a cartel, an evolution that has happened in every country that has used the Progressive ‘rule by experts’ approach.

          Cartels don’t have to worry about public opinion, competition, …

          All of the heavily regulated industries look very much like the military-industrial complex : a few large suppliers who don’t compete with each other. They look that way because the Fed keeps money lose and companies can easily buy other companies and because the companies only have one customer : the regulatory agency.

          All of the heavily regulated industries have outstanding profit margins compared to un-regulated industries.

          All of them have end-user customers who they treat like shit. Who loves banks? Insurance companies? Drug companies?

          The Progressive view of how the world should work has proven to be very flawed. It is the reason that the 1% owns the 99%, all around the world.

          1. Hugh

            Thank you for that turned upside down bit of nonsense. The simplest question is Cui bono? It wasn’t progressives. It was our kleptocratic elites. And that is hardly surprising because it was they who engineered these scams for their own benefit and for the rich kleptocrats who paid them.

            Your logic is akin to blaming firefighters for fires. With the natural conclusion that if there were no firefighters we all would be better off. Nice try, but it doesn’t scan.

          2. F. Beard

            Dang it Lew, I can’t disagree with a thing you said above.

            The Progressives made a deal with the Devil (counterfeiting and usury) and surprise, surprise, the Devil is accomplishing his ends and not theirs.

            But oppressing the poor for their own “good” is a great temptation for the elites and probably always has been.

            To my shame, I figured out what was going on long ago but cynically thought it was for the best.

        2. different clue

          Clever bit of deceitful inversion there, Mr. Glendenning.
          The problems with drug companies and banks today are due to anti-progressive pro-conservative DE-regulationism. The ThatcheReagan Conservatives filled the regulatory agencies with retrogressive conservative moles who supported fraudulent gang-banking, poisonous drugs, etc. And the ObamaClintonite Rubinite scum have advanced the process.

          Just like in the good old days before Glass-Steagall, the FDA, etc.

          And you hoped we wouldn’t see what you did there. Why don’t you tell us all about how Enron liberated the poor and set Grandma Millie free from progressivist PUCHA oppression? Go ahead, tell us why don’t you . . .

          Mr. Beard, I am surprised you bit Mr. Glendenning’s ThatcheReagan Clintobamacratic baited hook.

          1. F. Beard

            I am surprised you bit Mr. Glendenning’s ThatcheReagan Clintobamacratic baited hook. different clue

            I guess he chose his words very carefully. :)

            Actually, I reckon the Progressives are (well meaning) elites themselves. But let us not suppose that stealing from the poor can ever be for their own good.

          2. Foppe

            But let us not suppose that stealing from the poor can ever be for their own good.

            But this is done all the time. David Harvey, Cosmopolitanism and the Geographies of Freedom, p. 55:

            Such practices are now gathering strength around the world as microcredit is more and more touted as the solution to global poverty. Initiated in the first instance as a noncommercial scheme to provide very small amounts of capital to large numbers of very poor people (especially women), microcredit projects are now touted by commercial financial institutions as a way to bring large numbers of people into the disciplinary apparatus of the market while extracting high rates of return (in some instances as high as 20 percent). This conversion of philanthropic microcredit into a commercially viable system of microfinance is of considerable significance. It is an attempt to impose the cultural change (a self-disciplinary apparatus) that Friedman considers crucial to creating the Hat world of neoliberalism. This now refracts back into philanthropic practices. A new school of philanthropists (trained in the ways of Wall Street) now believes, David Gross reports, that “fighting poverty effectively relies on the creation of low-wage factories, as well as the establishment of lending institutions that charge
            rates that many Americans would deem usurious.”7
            This astonishing view that the poor will benefit the more they are disciplined by the market-and, incidentally, exploited by the rich-is not at all uncommon. Earlier, it was John Turner’s famous anarchist-inspired advocacy in the mid-1970s of self-help housing in the favelas and slums of the world that was so delightedly seized upon by McNamara’s World Bank as the key to reducing the travails of poverty and underdevelopment. It was supposed to give rise to a populist capitalism that would work for all and thereby abolish poverty. The scheme failed to realize its aims (though some intermediaries became wealthy), and poverty is worse than ever, as excruciatingly documented in recent reports on the state of our “planet of slums.”8 Private property arrangements, we should remember, have any chance to work only when, as Grotius and Adam Smith long ago insisted, the “moral sentiments” that regulate social interactions are of the requisite quality. The noncommercial micro-credit schemes for which Yunnus, the originator, received the Nobel Peace Prize, incorporated this moral element, while the now numerous commercially grounded microfinance schemes do not.

    1. F. Beard

      You remind me of what surgeons use to say:

      “Let us spray!” (with carbolic acid to kill bacteria).

      Btw, I highly recommend James Burke’s “Connections” series on the history of technology and science.

  6. Max424

    “…L. Randall Wray, Scott Fullwiler, Stephanie Kelton, Warren Mosler, Marshall Auerback and William Mitchell.”

    There’s the ultimate Murderer’s Row right there. In my opinion, it easily eclipses in talent the original of Combs, Koenig, Ruth, Gehrig, Muesel and Lazzari.

    Yes, both Ruth and Gehrig were top ten all-time greats (spots 1 and 6?), but none of the other four, including Hall-of-Famers Combs and Lazzari, would crack the top fifty.

    On the other hand, Wray, Fullwiler, Kelton, Mosler, Aurback and Mitchell are all –at the very least– among the top twenty greatest economists of all-time. How can we state this with so much confidence (and bravado!)?

    Easy. Two reasons:

    One: because all six are batting above .900 (greats like Smith and Marx, in comparison, never hit .500)

    This current Murderer’s Row is so terrifyingly dominant; not only will no one pitch to them, no one can even summon the courage to entertain the possibility of taking the mound against them*

    *Except Paul Krugman. Give the Kruger credit, he’s at least in the dugout, watching the shellacking. The rest of his worthless teammates showered and went home, long ago

    1. JTFaraday

      As I scan the New Economic Perspectives roster, I’ll draft Michael Hudson and Bill Black.

      Helicopter Ben’s lesser avatars can go sit in the dugout with Krugman.

      1. JTFaraday

        Oh wait– except that dugout won’t be at Princeton with the leading lights, Krugman and his former boss.

  7. deeringothamnus

    My Christmas and New Year’s thought if I may. A major root, if not the tap root, of the problem is the need to maintain the charade that people’s pensions and retirement savings are worth anything. Pensions become underpinned by toxic dreck. The reason is that promised rates of return were made or sold to people that are unachievable without making a fiction of the risk involved. Credit default swaps were one example. The present, second internet boom may be another. I don’t see how companies like Facebook or Google can justify their valuations. There are only so many ads to sell. I believe that pension funds and other institutions probably need to funnel huge amounts of money into certain asset classes at levels of risk and return that are not realistically or reasonably available. My belief is that many internet companies are fictitious fabrications of banks like Goldman Sachs, created to provide “investment product” for pension funds and other institutions to invest in. My hope for the new year is that all the toxic dreck rises to the surface, and stinks in the hot sun, before it finally sinks to the bottom.

  8. Susan the other

    Public Purpose. Our government, that is us, should have been looking closely at what goods and services fall under the category of public purpose goods and services. But instead, for the last 30 years, it has behaved as if public purpose did not exist. We have never created any policy in this country that clearly took a stand for anything that could be defined as a “public purpose.” The definition could be very broad. Should be. It should encompass all of the departments once established and now neglected or eviscerated: Department of Energy (what a joke), the EPA (also a joke), the Department of “Education”, the Dept of Health and Human Services; Housing etc. All we did was create departments. I’m surprised we don’t have a Department of Departments. As they say in Texas: “All department, no policy.” How can you maintain good politics without good policy?

  9. FRauncher

    Bravo Yves! I’m with you 200 percent for MMT, not that it’s that different from other post Keynesian theories. As Brad Delong points out, it’s mostly expressing what we should have learned about Macro, but making everything much clearer and more understandable.

    By the way,should we put Steve Keen near the top of the batting order? Or would that be “cricket”?

  10. drb48

    “The youthful protestors are determined to restore democratic society and human decency, and redeem the dimming promise of their common future…”

    Yes, and once upon a time [some 40+ years ago] I too was a “youthful protestor” – equally “determined to restore democratic society and human decency”. Now however, I’m one of “those older, beleaguered reformers who worried that they might never see real change in their countries during their own lifetimes…” and frankly, I see nothing in the Occupy movement – or anything else – that leads me to believe that these new would-be reformers will succeed where we failed. In this corner at least – sadly – cynicism is far from mute. I’m fresh out of hope that “change we can believe in” will be forthcoming in what’s left of my lifetime. It’s been 100 years since TR railed against the “malefactors of great wealth” and we’re going backward, not forward. They’re winning, the rest of us are losing. Dickens wrote “A Christmas Carol” more than a century and half ago but this Christmas Day the Scrooges of the GOP remain unmoved. Merry Christmas indeed.

  11. Lew Glendenning

    Anyone who extols Democracy doesn’t understand much.

    Democracy is an unstable form of government, a fact known since Athenian democracy and widely discussed by the people who wrote the US Constitution.

    That is why we have a Republic, and also the reason that our system has been getting more unstable.

    And the underlying fact, that ‘money buys power’, is the reason that all of the reforms proposed by writers that NakedCapitalism cites are foolish : there is no possible reform that is meaningful to a system FUBARed except killing it and starting over.

    For every reformer, even if they should get a strong reform law passed (increasingly rare), there are 100,000 lawyers working on how to pass through enough loopholes to allow their clients to make money without having to actually compete in the market place.

    Simple laws, enforced by fully-informed juries, are the solution in every older society and the obvious solution in this one, but that is not in the interest of the legal profession, so can’t happen until this system collapses.

    Around the world, 90%+ of the voters are strongly against the bailouts. Around the world, the bailouts of the rich with taxpayer money continue. Around the world, the descent into a long Depression continues.

    And this guy thinks that discussions of “the people’s money” is going to help?

    Still think Democracy is the answer?

    1. Joe Rebholz

      “…there is no possible reform that is meaningful to a system FUBARed except killing it and starting over. …”

      But we can’t kill it all at once. It feeds us. We have to modify it gradually, carefully step by step until the present system is effectively dead and gone and replaced by a totally new system.

    1. F. Beard

      The entire population should be bailed out equally and banking as we know it abolished. State Banking does not deal with the fundamental injustice of giving “credit” to some and not everyone else.

  12. don

    Why the central focus given to money, and to the monetary system? Why not a focus on class dominance, as the article starts off with? This is the real source of power relations that needs to be addressed. Whereas focusing on the monetary system — itself only an expression/representation of class dominance — only serves to obfuscate and even slightly mystify the much deeper rooted and structurally significant class power relations.

    Only once that power is attained to a degree in which the monetary system can then be radically reformed, does it heed us to focus on the monetary system, unless one is engaged theoretically, which is just fine, but the author is posturing as if it were much more than that, that it deserves significant attention. How is it that this attention deserves anywhere near the attention needed on class, environmental, health, energy, ownership and management, etc.. This simply reflects the author’s economistic-centric approach. The author has it backwards and the thinking is a reductive abstraction.

    So lets be clear, discussions around how the monetary system should operative is a discussion that will not come around until power and class relations are such that those who clearly benefit from current monetary operations are no longer in a positions to defend it.

    1. different clue

      We may not have the time or luxury to focus on one thing first and then the other thing in the fullness of time. We may have to try focusing on Class Dominance Relationships and Monetary-DebiCredit Systems at the same time . . . with both sides of our brain.

      If we understand the Class Dominance system and all its groups and players, and we understand the Money system and all its buttons and levers; we can understand which Money system buttons and levers and channels divert money towards which Class Dominance players and away from which other ones. Perhaps we the Class Dominated can figure out which Money system buttons and levers and channels we can sabotage, pour sugar in the gas tank of, pour sand in the crank case of, put caltrops under the tires of, etc. etc. etc.

      If the OverClass has hijacked all the labor productivity gains made over the lass thirty years, perhaps we can figure out how to undo and reverse some of those labor productivity gains? Perhaps we can target those shrinkages and reversals very specifically against revenue streams reaching the OverClass? If economic growth has benefited the OverClass strictly and only, is there a way to target economic shrinkage against the OverClass? To shrink the economy from the top down so as to shrink-wrap the economy around the faces and heads of the OverClasses and thereby choke off their financial air supply?

      1. F. Beard

        If the OverClass has hijacked all the labor productivity gains made over the lass thirty years, perhaps we can figure out how to undo and reverse some of those labor productivity gains? different clue

        You’ve got to be kidding. The solution is not destroying productivity but sharing the profits from it justly. Automation and outsourcing was financed with the population’s own stolen purchasing power. That alone would justify some sort of social credit or minimum income.

    2. Dan Kervick

      Five more parts to come. Patience. But I agree the monetary system is only one area in which class domination shows itself.

    3. F. Beard

      The author has it backwards and the thinking is a reductive abstraction. don

      I think you have it backwards. Fix the money system and the class problems will fix themselves.

      Why do people defend a system based on counterfeiting, usury and government privilege and which allows the rich to steal from the poor? That system killed 50-86 million in WW II alone. That system REQUIRES exponential growth just to pay the interest on the loans that fuels the economy. Why the desperate attempts to defend the indefensible?

      Whose side are you really on?

  13. joebhed

    “Nor do I mean that each and every dollar that is created comes into existence as a direct consequence of some act of public or governmental choice.”

    That is evidence of the flaw in your thinking. If you really understand the public money system, which I prefer to call the Money System Common, then, by definition ALL money must come into existence to fund some public purpose,and THEN the bakers can have it to do what they want

    But if the money doesn’t come INTO EXISTENCE via government creation,you are left with a private money system.
    And you can do this all over again.

    The construct of a public money system is ALREADY BEFORE THE CONGRESS as H.R. 2990, the Bill by Congressman Dennis Kucinich to take the public’s OWN money system back from the private bankers.

    You are right that there is an awakening to the results of a hundred years of debt-based money, which is gross wealth mal-distribution.

    Please consider right outside the parasitic paradigm of fractional-reserve banking.
    The Money System Common

    1. Dan Kervick

      Thanks joebhead,

      I’m interested in the Kucinich proposal, but I think the system which we currently have, and which I was describing in this first part of my essay, permits for a substantial amount of endogenous money creation driven by the banks themselves, in which the government’s role of passive accommodation rather than active creation. See Scott Fullwiler’s papers on this topic more more detail. I think this one is especially good:

      1. joebhed

        I’ve read most of his is -why NOT print money’ stuff.
        THE real problem is that neither he nor you seem to understand that this is a systemic problem and the system is the fractional-reserve banking SYSTEM.
        There is only one way to cure the problem of oligarchy and plutocracy – change the system..
        Please have a listen of Prof em Dr. Bernd Senf of the Berlin School on the ROOT cause of the financial crisis:


      1. joebhed

        Frederick Soddy was the first to apply the principle of scientific rigor to the money system and find it to be the ‘confidence trick’ that leads to the plutocracy this article is about.

        His book on The Role of Money and his Descartes Lecture on The Bearing of Physical Science on State Stewarship (as in the national monetary system)

        should be the starting points for anyone studying macro and monetary economics.
        The Kucinich Bill is really modeled on Soddy’s recommendations for fixing the money system.


  14. Bhikshuni Lozang Trinlae

    Rep Barney Frank was explaining to Countdown viewers last week how unelected private bank appointees to the Fed board made it impossible to reform into direct public interest (vs .1% trickle down,) in an attempt to excuse Bernanke’s performance (“his proposals are over-ruled by the conservative board”).

    If some part of the solutions to the global economic ‘auto-immune disease’, is monetary policy controlled by the Fed, then it would seem that so long as the latter is in the hands of unelected self-interested governors, (and the corporations they serve, the best we can hope for is to train up the youngest generations with what they will need to know to minimize damage and rebuild.

  15. Lafayette


    Two years ago we stayed massively away from the polls and got the T-Party (T for Troglodyte) into Congress, from which they have been stonewalling out of spite any legislation that resembled stimulus spending and refusing tax hikes to close budget deficits.

    Let’s wake up – the same people who bitch-in-a-blog (meaning this one) stay away from elections at the rhythm of one voter out of two. We have one of the worst voter turnout records on earth. Scroll down to the bottom of the list here.

    We are a nation of politically apathetic stooges who get Highly Discomforted when those at the levers of power treat us like the sheeple that we are. But who gave those representatives power over our political destiny? Do we have any Real-Right to bitch and moan since we did nothing to stop the rot?

    Enough of the moaning. The moment is right to start fixing the problems. Despite the fact that there is no QuickFix to a mess we’ve been getting ourselves into for decades, so let’s get started on a long haul that might take us decades to reform America.

    We have met the enemy and he is us. (“Pogo” by Walt Kelly)

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