Lambert here. I find this fable interesting for two reasons: First, it’s a powerful narrative exposition of what MMT would look like in the real world when put to use for public purpose; more like this please! Second, the cellphone-enabled “digital lira” of 2020 is screaming out to be simulated by an app — and a suitable back end — in 2012. Perhaps the UMKC buckaroo needs to go digital?
* * *
It was in the year 2020 that a majority of people first began to “see” what money is. For a few months—after the “realization” started hitting the pages, airwaves, blogs, tweets and twits of mainstream media—it became a silly joke: “2020 perfect vision, at last! How could things have been so blurry for so long?” For thousands of years, in fact.
Most agree the vision-shift began with the final collapse of the Eurozone in 2019, an event which had been forecast for some time. The surprise was that the unraveling had begun with Italy, instead of Greece as everyone had expected. It turned out to be the hot Italian blood that first reached a boiling point over the crippling cruelty of the long imposed austerity: the island of Sicily threatened secession and deadly street riots broke out in Rome, Naples and Milan—and then everywhere else. The government capitulated on September 12, 2018, declaring not only that pensions would be reinstated—with payments made in “the Italian national currency”—but also would be increased by 10%. It further declared a twelve month federal tax holiday: income and value-added taxes were put on hold for what was called the “National Transition.”
The dire predictions of hyper-inflation never materialized. Instead, people went back to work picking up the garbage and debris that had piled up for months, working for Lira, rebuilding burned out buildings and repairing roads and utilities that hadn’t been maintained for over a year. What caught everyone by surprise, however, was a decision by the Italian Ministry of Finance about how to affect the transition from Euro to Lira: Why go to the expense and trouble of printing Liras again? they reasoned. Cell phones for some time had been capable of making credit and debit card transactions. Why not, the Ministry decided, dispense with cash Lira entirely, and issue to every Italian citizen a “Digital Lira Card” (DLC) which could be loaded with Lira at any ATM machine, and then debited by any vendor with a cell phone. Why not indeed?
Within hours of the government’s Declaration of Transition, workers in the “Emergency Reconstruction Brigade” (created to remove the garbage and debris left by the riots) were pulling their “paychecks” by inserting bright red Digital Lira Cards into the slots of ATM machines—the Lira “in” the ATM machines having been “placed” there by computer keystrokes at the Ministry of Finance. Soon, DLCs were buying wine and bread, pasta, olives and biscotti in the markets of Napoli and Rome. The street cafes reopened and even the Teatro dell’Opera, which had cancelled its 2017 season, was back in business, swiping DLCs as patrons entered the theater. Most of all, everyone was happy the long, bitter political argument was over. Italy really wasn’t broke after all. It had only run out of Euros—and good riddance to boot!
What really got everyone’s attention, though, were the DLCs. There was something about using digital money that began to change the way people thought about money itself. It wasn’t as though it was something new—most financial transactions, in fact, had been occurring for decades with digital keystrokes. What made the difference, it seems, was the complete absence of cash money. The new Lira only existed in digital form: numbers on a screen. You could not hold them in your hand and count them out one at a time. You could not fold them into bundles and put them in your pocket or purse, or lock them safely in a strong-box. They could not fall out of your pocket and be lost either. The idea began to lose its grip of money being a physical thing which, like other physical things, was somehow associated with a finite quantity.
Even stranger, everyone began to clearly understand where the digital Lira (dLs) were coming from—how they were created. They were created by computer keystrokes at the Ministry of Finance. It wasn’t as if they were coming out of a pot that had to somehow be replenished. In fact, the Ministry of Finance was producing Lira exactly like an electric generator pumps electrons into the electric grid where they run motors and illuminate lighting fixtures and television screens. ERB workers could “see” this happen when they slid their DLCs into an ATM and watched the numbers tally up on the little screen.
Banks continued to make loans as before, but there was a surprise here as well: The cellphone-app made available for everyone to manage their DLC accounts clearly revealed—in a visual format—that when a bank loan was made, the bank was NOT increasing the nation’s money supply (as had been previously believed for hundreds of years.) When a pasta-maker borrowed 100 dLs to purchase flour, the right hand column of his DLC-app magically increased by 100 “new” dLs; but the left had column simultaneously showed -100 dLs—the amount he had to repay the bank. His net dLs (the bottom line on his DLC-app) remained unchanged: the bank, in fact, had not “created” any money at all! This reinforced the profound perception that the only new digital Lira being created were the ones keystroked by the Ministry of Finance. There was no other way they could get created. And, as this fact became clear, another began to percolate into people’s everyday awareness: The only way the Ministry of Finance could keystroke the digital Liras into existence was by “spending” them on something.
And spend they did. To everyone’s astonishment, during that year of “National Transition,” September 12, 2018 to September 12, 2019, the federal government solicited proposals from private business and contractors for over sixty billion dLs in reconstruction and repair projects. The public education system was expanded, new schools and trade colleges were planned for every community, and teacher training was made a national priority. The “Emergency Reconstruction Brigade” was quickly expanded to entirely replace unemployment benefits, providing useful work for any unemployed Italian citizen over the age of sixteen who wanted to work for a paycheck. After the general clean-up was completed, the ERB undertook whatever services local mayors determined could be usefully provided without competing with local businesses. Proof-of-Concept grant programs—modeled on the Gates Foundation efforts to eradicate tropical diseases—were established to provide seed money for small-scale innovators on any topic, with the grants awarded through an internet-based peer review and voting process. Coastal cities began the long and arduous process of raising their historic, stone-laid sea-walls against the dire predictions of rising oceans. The national unemployment rate, which had been nearing 40% before the riots, dropped to less than 10% in twelve months.
With unemployment plummeting, the biggest debate within the Ministry of Finance during that year of “National Transition” was whether, or for how long, to extend the federal tax holiday, and what kind of tax structure to impose when it ended. What enlivened the debate in an unexpected way was the realization—suddenly clear as day—that the reason they would be reinstating federal taxes was NOT because they needed to collect digital Lira to pay for federal spending. It had become perfectly clear that the Ministry of Finance could spend as many dLs as needed simply by keystroking them into existence. It was not necessary first to collect them as taxes. No, the reason the Ministry would be re-imposing a federal tax would be to drain dLs out of circulation—and the reason they would do that would be to control inflation. While inflationary pressure on the dL had not yet appeared, it seemed inevitable that it would as unemployment dropped closer and closer to a theoretical full employment. This, the Ministry of Finance realized, was what the federal taxes would effectively be doing: taking back out some portion of the dLs they’d previously spent in, to keep the total number of Lira in circulation from ballooning out of control.
Once this realization became a consensus, the debate shifted to what kind of federal tax should be imposed. If it was not being collected to cover federal spending, shouldn’t it then achieve some other purpose? Why not an Income Tax for wealth redistribution? But if you had just agreed that taxes would not be used for federal spending (there being no difference between a tax-collected dL and a keystroked dL) then how would an Income Tax redistribute wealth? Taxing income, it was evident, no longer accomplished anything at all! In the same way, what was accomplished by taxing consumption with a Value Added Tax? You wanted consumers, after all, to consume, so why “penalize” them for it? What was eventually agreed upon was a Carbon Tax. This had the merit, first of all, of achieving the goal (which they all knew would soon become critical) of draining dLs out of the economy to control inflation. But second, it achieved the goal of incentivizing both businesses and consumers to burn less carbon in both manufacturing and consumption. The seawalls being raised by the Emergency Reconstruction Brigade might not have to be built so high as they otherwise would.
There was one group who was particularly unhappy about all of this: The Mafioso had begun scrambling to convert their businesses to any currency other than the Italian Lira because they discovered it was suddenly impossible to fill suitcases with laundered cash for their felonious transactions. The godfathers were steaming with fury—but, of course, it was awkward to make their objections known. In a related discovery, the federal government found that a simple computer program virtually eliminated the corruption typically endemic in government contracts. Every dL issued, it turned out, could be tracked endlessly, and accurately, through the economy. The program, known as L-Track, could do searches with variable filters which generated an instant report of where the digital Lira were at any given moment. It was impossible to hide them, and difficult to skim them without being seen.
The world was watching all this of course. With great interest. Mainstream economists were busy explaining the “Italian Spring” and scrambling to explain why it appeared that the federal “deficit” the Italian government was “tallying up” didn’t appear to be “debt” that it was ever, at any point, going to have to be “repay” to anyone at all. This final bit of confusion came to a head—and the “great realization” started to unfold, the blinders torn off, the window shades yanked up, the curtains thrown open to a new understanding of money itself—when those villainous financiers who had held the Eurozone hostage through all the years of the debt-crisis, bidding up the interest rates they demanded to buy the Greek, Italian and Spanish bonds, refusing to take even the smallest “hair-cut” when those nations struggled to make their interest payments—when those self-righteous bond-buyers came to the Italian Ministry of Finance and announced they would now like to buy Italy’s bonds again! And the Ministry of Finance replied: “Bonds? We have no bonds for sale. Why would we want to sell you bonds? We have no need to borrow your money!” And the bond-buyers responded: “But we want to buy your bonds! We need a place to park all this cash that we can’t think of anything good to do with—a place to park it that will earn us interest. We need you to issue bonds so we can buy them!” And the Ministry of Finance replied: “If you want to spend your money in Italy, come and build a factory or start a business, or invent a new way to convert sunlight to electricity using Nano-particles, or commission a new opera or some other great work of art…. But don’t come here wanting to buy our bonds. We’re no longer in the business of parking your money for you—and paying for the privilege.”
That was in the year 2020, and the world sat up and took notice.