Philip Pilkington: Kill The King – Why Are We So Scared of Fiat Money?

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil

“If it were done when ’tis done, then ’twere well if were done quickly.”
– Macbeth contemplating the killing of King Duncan

If a Martian were to visit planet Earth there is no doubt that it would find it bizarre how we relate to our current monetary system. Reactions to it range from the blithely uninformed commentator convinced that central banks are places before which we have to kneel; to the strident libertarian insisting that fiat money is the root of all evil and will only lead to Apocalypse. These are nice stories but the reality of fiat currency regimes, as the Modern Monetary Theorists have shown so well, is far more banal.

Money is just a token that we use to “keep score” of the debts we owe one another. It is just a unit of account that helps us keep track of who has given who what. Having a central quasi-governmental power in the form of a central bank simply helps us to do this and allows governments to extend deficit-financing in order to keep economic activity stable.

So, what accounts for the visceral reactions we see toward the system? Why do some bow down as if to a deity, while others recoil in horror as if confronted with a demon? The hint to this lies in the way we moderns relate to government and power. The fiat money system is an embodiment of arbitrary power and we in the modern world distrust this. Money is accepted largely by edict in that it is fiat money in which we can pay our taxes and it is also fiat money in which contracts can be legally settled.

Lying behind every dollar, euro and yen is a jailor and a judge who are ready to deprive us of our rights and our freedom should we choose not to play by the rules of the game. It is this aspect of the system that accounts for the strange reactions we see surrounding it. It is this aspect of the system that leads some to hide from themselves the reality of the system and imbue it with an auratic glow and leads others to hysterically attack it as a grave injustice and evil. To get to the heart of this matter we must understand better how we relate to political power today.

Right of Death and Power Over Life

In 1976 the French philosopher and historian of ideas Michel Foucault published what may have been the most important political analysis of the 20th century. Strangely, the analysis came at the end of a book entitled The History of Sexuality Volume I. Although it may appear odd at first it was in his excavations of the meaning of modern discourses on human sexuality that Foucault found what was likely the most important development of ideas in human history.

Foucault noted that prior to the 18th century and the rise of Enlightenment the manner in which Westerners – and probably everyone else – related to sovereign power was quite straight-forward. Under the system of monarchy there was a King whose power was in theory absolute. In reality, however, such was not the case. Where the Kings of the distant past did indeed have absolute power over the life and death of their subjects, Kings in the more recent past only had the right to their subjects’ lives only should the sovereign himself be under threat somehow. Although this eroded the sovereign’s power somewhat, the relationship between the King and his people was still largely the same. Foucault puts it as such:

In its modern form – relative and limited – as in its ancient and absolute form, the right of life and death is a dissymmetrical one. The sovereign exercised his right of life only by exercising his right to kill, or by refraining from killing; he evidenced his power over life only through the death he was capable of requiring. The right which was formulated as the “power of life and death” was in reality the right to take life or let live. (136)

This is the crux of the issue. In the past the sovereign’s power lay in the right over the life of those under him. The sovereign had the right to send his subjects into battle to die in his name, just as he had the right to have them tortured and killed should they break his laws.

But this was not simply the power to extinguish life. Indeed, the right to seize hold of life itself was only an extreme case of a right to seize the subject more generally, a right to expropriate anything the subject owned – from his life to his land:

Power in this instance was essentially a right of seizure: of things, time, bodies, and ultimately life itself… a right to appropriate a portion of the wealth, a tax of products, goods and services, labor and blood, levied on the subjects. (136)

Here we see the historical precedent behind many aspects of our current systems of government. Our governments too exercise these rights. They, in the last instance, have the right to our lives should the nation fall under threat and, in less extreme form, they have the right to seize our property in the form of taxes. However, they exercise them in a wholly different form and for wholly different ends.

It would not be too much of an exaggeration to say that in the pre-Enlightenment feudal era all state activity was basically geared toward extraction by the sovereign. This was, in many ways, seen as an end in itself. The Lord had the right to extract from the serf; the King had the right to extract from the Lord and so on; this was a divinely sanctioned system and such extraction was, at the end of the day, for the glory the ultimate sovereign: God.

However, as people began to question the justice of this system they began to formulate a new system of governance which is the one we are familiar with today. Enlightenment thinkers began to conceive of a system of governance whose goal would be to foster life rather than to threaten death. In contrast to the negative relationship between the sovereign and his subjects – based as it was on subtraction and extraction – this new form of governance would constitute a positive relationship through which people should grow and multiply. This is a system of governance based upon the fostering of life and the improvement of the species. Foucault referred to this new positive form of power as “biopower” which he contrasted with the old negative form of sovereign power.

Foucault claimed that as biopower came to dominate more and more of our states’ and governments’ functions we tried to distance ourselves ever more from the negative, sovereign dimension of power. This dimension of power gradually became more and more offensive to us. Its last true historical manifestation in the West was the fascist regimes who, in their rhetoric of sacrifice and blood and their appeal to the old symbols of the Kings, tried one last time to place sovereign power rather than biopower at the heart of the modern state. They failed and such dangers now exist in every persons’ mind.

The entire modern project of governance then, with all its dreams of freedom, can be seen at a basic level as an attempt to extract the sovereign powers from our modern state. It can be seen, in a very real sense, as a protracted attempt to kill the King.

Death and Taxes

The reality of modern governance, however, is somewhat different. In fact, a state cannot truly function through the fostering of life alone. A state always needs a dimension of sovereign power. Even if its goals are noble and it shies away from sovereignty as best it can, it still requires a dimension of sovereignty in order to sustain itself. It requires the ability to go to war, to lock up criminal offenders and to fund itself through the imposition of a system of taxation and fiat money creation.

And so we arrive at a central contradiction. Most of us want a state that does away with sovereign power once and for all and leaves us in charge of our own lives, and yet at the same time in order to have such a benign state we need to also imbue it with some degree of sovereign power. It is this contradiction that leads to the strange reactions we see toward modern money regimes the power of which as we have seen are backed by sovereign power plain and simple. Some people simply want to ignore this dimension of sovereign power completely and, if not pretend that it does not exist altogether, at the very least push it to the back of their minds and pretend that it all has something to do with a “science” called economics. Others get neurotically het up about the system and try to concoct fantasy worlds in which such sovereign power is simply not an issue.

Both approaches are dangerous in their own way. If the hysterics had their way the liberal state would lose its means to sustain itself and would begin to fall apart. As it became unable to fulfil its functions of fostering life law and order would break down and there would be a real threat that naked sovereign power of the fascist type would rear its ugly head once more. This is precisely, for example, what is happening in Greece at the moment. As the liberal state crumbles under austerity fascist parties surface carrying with them flags emblazoned on which are the symbols of naked sovereignty. Human beings need some sort of sovereignty in place to function and an attempt to do away with sovereignty altogether by starving a government of its sovereign powers only results in much worse forms of sovereignty rising to power.

The myopic herd, on the other hand, are dangerous because in their blindness they completely misunderstand how the system works. In their naïve idea that they live under a system of “free” markets where the state plays a minimum role – in their ignorance, that is, of the dimension of sovereignty in modern societies – they support policies that generate chaos and mismanagement.

What is needed then is a complete re-evaluation of the system. The system itself can be extremely functional if managed correctly. However, in order to do this we need to come to terms with the dimension of the state’s sovereignty. Yes, in a good society this dimension will be minimised as best we can – extracted resources, for example, will be turned to fostering life rather than building weapons of death – but to completely ignore the sovereign face of the modern state is a grave error.

After the Second World War we managed to come to terms with the sovereign nature of the state with reference to the Cold War. Big government was needed to protect the state and keep the enemy at bay. Today, however, we lack and enemy and while this makes our coming to terms with sovereignty all the more difficult, at the same time it provides a real opportunity to have the sovereign face of the state serve the fostering of life rather than the dissemination of the weapons of death.

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  1. Emily

    Fiat money is inflicted upon us via the point of a gun. Left to our own devices, nobody would choose to value worthless cotton/linen abstractions, unless they were reliably redeemable for tangible assets.

    We are not “scared” of fiat money – those of us who recognize that there are only two types of interactions in this world, those that are voluntary and those that are inflicted at the point of a gun – we merely renounce it as an unjust usurpation of our right to decide for ourselves what is money and what is not.

    1. Robert Dudek

      The point is that humans are too stupid to live together without someone pointing a gun at someone else some of the time.

      1. Emily

        I guess I’m just confused as to why those empowered to “point the gun” at others would be any less “stupid” than those who are having the gun pointed at them?

      2. ATV

        Emily nailed it and your counter-argument makes no sense.

        Crimes involving mobile phone theft and fraud also exist (because some people are stupid and nasty) but that does not justify a single agency (such as a government) taking over the mobile phone industry by force and replacing the free market in mobile phones with a monopolised service industry which they control through violence.

        If a single agency (such as a government) took over the mobile phone industry by force and we were stuck having to use their mobile phones and network I think we’d all agree that quality, innovation, choice, variety, efficiency and reliability would go out the window. There’d be no competition anymore. And all systems run through coercion and violence rather than voluntary transactions inevitably attract abuse, corruption and exploitation.

        No aspect of society should ever be run as a violent monopoly (and we all know why), but nowhere does this apply more so than the economy.

        We need to remove coercion and violence from the equation so that failing, corrupt, out of date or outright criminal businesses and service providers can naturally fall by the wayside as people abandon them in favour of those which offer better, cheaper, more reliable (or whatever) goods and services.

        If coercion and violence are part of the equation the opposite happens. The most corrupt, failed, criminal and archaic businesses and service providers are not only propped up, they are actively rewarded and protected.

        We all know this.

        It’s why in our daily interactions we would never allow Starbucks to provide us with coffee and sandwiches exclusively for the rest of our lives with no contract, no competition allowed and the ability to dictate (with guns) the price of coffee at will and deduct it directly from our bank accounts whenever they like.

        We understand that would create a temptation for them to take the ball and run with it. It’s not rocket science.

        You do not protect the economy from the effects of coercion and violence by granting a single agency (such as a government) the legal monopolistic right to run the entire economy using coercion and violence.

        1. skippy

          Gezz you people like to conflate the issues – the Government – is beholden to the private sector… cough… the free market.

          So if you have a problem with Government its BECAUSE of influence of the FIRE sector and others, its all inbreeding now… revolving door thingy.

          Skippy… whats with the libtard mind falling into – a book – or a passel of – priest-approved – material. Get out side more[!], self inflected ignorance… shezzz.

          1. fresno dan

            How do you distinguish the private sector from the government? Does the goverment control Goldman Sachs, or does Goldman Sachs control the government? Let me make up my spreadsheet with government/private sector Bobby Rubin (whoops, Citigroup) and Hank Paulson (theres Goldman!)
            And than the 9,000 other financial revolving door guys who just want to serve the public (where do we get such men?)

            I would say, what with Jon Corzine, et al, that to fight Goldman Sachs, you have to fight the Federal Reserve…

          2. unworthy craftsman

            The “public” and “private” sector in modern times have evolved in a spiral. Our government is a corporate creation, and our corporations are a government creation.

        2. Ben Johannson

          We don’t grant government a monopoly on coersion and violence. These things exist in all levels and all sectors of American society.

          1. ATV

            My previous (second) comment did not appear here for some reason – testing with this shorter comment…

            “…We don’t grant government a monopoly on coersion and violence. These things exist in all levels and all sectors of American society….”

            Please name one group, other than a government (and its various agencies), who have the legal right to initiate force.

            Coercion and violence do occur in all of society by not legally, except in the case of government. Enforcing a contract which has been entered into voluntarily is also not the INITIATION of force.

          1. ATV

            Yes. Governments are legally allowed to initiate force. This in turn allows them to commit fraud (deception) and theft. Examples being money printing (fraud, deception) and taxation, banker bailouts, government debt etc (theft and fraud).

            Of course money printing is not wrong per se, what’s wrong is being forced (at gunpoint) to use this system and drown with it when it inevitably collapses.

            Dentistry using only knitting needles and hammers is not wrong per se, but it would be wrong for us to be forced to use this system, at gunpoint.

    2. James

      “Left to our own devices, nobody would choose to value worthless cotton/linen abstractions”

      And no sane person would choose to value worthless pieces of shiny metal taken from the ground, that too only has value because human beings have given it one.

      1. farang

        Yes, we only eat because humans have “given value” to food….

        The truth about gold, and to a lesser extent silver, is that it was valued in antiquity up to the present day because it does not corrode when stored, is malleable to create wonderful works of art still prized after thousands of years (the lines at a Tut exhibit is evidence of such), and, for reasons beyond explanation (like the fascination with the color pink by many females for instance), the “shiny metal” attacts the human eye, and creates a desire to hold it…which leads it to be a perfect commodity for trade. Or, for printing paper instruments *backed* by it.

        You seem to have forgoteen, or maybe are unaware, of how paper currency came into being….and why paper currency not backed by anything but “faith” in the private printers of such always fails: human greed.

        1. Ben-ha-meen

          1. “we only eat because humans have “given value” to food…”

          We do not eat because we have given value to food. The human species is like any other organism in that it must have an input of energy in order to function. It is not human + food, but the entire organism with food incorporated into the system which makes us human and able to function. One could say that we desire or value certain foods more than others. It is like saying that we breathe because we value air, and I don’t think anyone would say that. Air and food are inseperable from the human organism, and therefore it is not a matter of value or even desire but part of human nature. One would still be human without money – perhaps even more so.

          2. “You seem to have forgoteen, or maybe are unaware, of how paper currency came into being….and why paper currency not backed by anything but “faith” in the private printers of such always fails: human greed.”

          Ditto to Skippy! Graeber makes fantastic observations if you can ignore the constant umms, ahhs, during his speeches or his habit of picking up his drink during that @googletalk
          without drinking anything. For those reasons I’d suggest his book.


        2. David Petraitis

          I get a kick out of listening to Gold Bugs. They rail on and on about fiat money and fail to see the fact that ALL gold and/or silver based sovereign governments in history have also fallen. Non-fiat systems are more prone to deflation and the push for austerity, as evidenced today by Greece, and fiat systems are prone to inflation through government action, primarily war and the payments of debts related to war. Gold or fiat, monetary systems are created by society, usually elites, to create a means of commerce and control.

          The problem, as Graeber shows, and others have pointed out, is the rise of debt to levels that are unsustainable. And of course debt is the engine of capital accumulation. The whole idea of interest is only a form of accumulation without labor or land (agriculture). Philip’s point is that the money unit is the measure of the debts owed. Not of any mystical “value” in and of itself. It is a social agreement, debts themselves are social and power arrangements as Graeber shows. Money is a social fiction, which the Sovereign must support, even if it is denominated in gold ounces or cowrie shells. Really people need to get over the idea that social fictions are somehow preordained and immutable.

          In my opinion, gold can not sustain capitalism. Gold growth is less than the growth needed to sustain accumulation. If you want capitalism, and need endless capital accumulation at say 3% per year, then any commodity will be hampered as its unit of account, since accumulation must continue and usually (always) faster than any commodity growth. (I think petroleum in the years leading up to the peak were the exception.) Accumulation is why there is debt at the center of most civilizations. Many have had some form primitive accumulation, debt and also some form of Jubilee. A way to write off debts that have become too much to bear. In a blog some time ago I made the point that even should all the gold in Fort Knox be valued at $1,500 an ounce it would cover only 1.5% of the needs of the current US economy.

          Our current civilization, the first global one, is now living in a state of wishful double-think. We blithely assume capitalist accumulation can continue to grow, debts can continue to grow, and all debt must be repaid. Alternatively, those debts that are not repaid will see the property which is mortgaged seized by the owners of the capital.

          And those not mortgaged will see them paid back by the person’s body. Shylock’s “pound of flesh.” Which haunts all student loans these days. The debt is taken out of your life, and not against property. This is giving rise to the new feudalism. Indentured servitude to financial capital. Student loans are made into special purpose vehicles and sold as bundled loans to investors. Students are in servitude through investment banks packaging of the loans to nameless investors around the world. And the universities are nothing more or less than the originators of student debt.

          The end scenario is not pretty.

    3. jake chase

      The problem isn’t money. The problem is access to money. Those without property can get money only in exchange for labor. Those with property can borrow newly created money which competes with existing money and degrades money acquired through labor. But the problem is exacerbated (too weak a word, but I can’t just now come up with a better one), when the lending and borrowing fuels speculation rather than supporting production. This is the world in which we live today. Today’s money creators are irresponsible bankers. It is tempting to suggest replacing them with “responsible politicians”, but who has ever met one?

      We need fixes that discourage speculation: a tobin tax, a severe tax on “excess” capital gains, taxes on net worth rather than income. We don’t need more power in the hands of politicians. They only use it to serve themselves and their financial sponsors. And we need to cut banks down to reasonable size, to stop backstopping failed banks and enriching their criminal executives.

      Ordaining the power of government to spend without borrowing sounds great until you think about the people you are so eagerly empowering.

      1. Ben Johannson

        I’m sorry but you’re missing an enormous point: government already spends wihout borrowing. Where do you think the reserves used to buy bonds comes from? The government put them there.

        This is the biggest misconception about MMT I come across, that it advocates a course of action when it is in reality informing us the government already does this.

        1. jake chase

          I have made two separate attempts to reply to your objection, but each has been vaporized without even suggesting that someone is moderating them.

        2. beene

          The problem is debt based currency and then fractional reserve banking; both are a burden on the government (taxpayer). Plus being the source of destruction of all economies since money has been used to keep track of transactions.

          1. Ben Johannson

            I’m not sure what you mean when you write “debt based currency”. When MMTers refer to fiat money in this manner they mean our currency is an IOU between citizens, not financial debt such as one would encur from taking out a loan. Money serves as a medium through which I can satisfy my social obligations (paying taxes, compensating you for the DVD I picked up in your store, compensating you for driving across your lawn because I was drunk, etc.

        1. different clue

          One could do that de facto by making the marginal income tax rate very high on income at and above that 50x minimum wage level.

        2. LifelongLib

          My own estimate (based on an admittedly small amount of research) is that 20x or 30x is about right. This is roughly the multiple of minimum wage that well-educated professionals who aren’t in a position to game the system get (e.g. top engineers). Much above that and you’re looking at people who benefit from a monopoly (e.g. doctors), people who make money by something other than working, and/or people who are making the rules rather than just playing by them.

    4. from Mexico

      Emily said:

      …those of us who recognize that there are only two types of interactions in this world, those that are voluntary and those that are inflicted at the point of a gun…

      This is lying by omission.

      This is the sort of distortion and half-truth that the entire edifice of neoliberalism is constructed upon. Not even Adam Smith was this naive, disengenuous, or whatever one wants to call him, depending on what one believes Smith’s motives to have been.

      Missing are man’s necessities, and the coercive power they have. As Hannah Arendt noted in On Revolution, “For the libertion of the labourers in the initial stages of the Indutrial Revolution was indeed to some extent contradicitory: it had liberated them from their masters only to put them under a stronger taskmaker, their daily needs and wants, the force, in other words with which necessity drives and compels men and which is more compelling than violence.”

      1. jrs

        Also missing of course is the coercion inherent in any property regime. Some are preferable to others, usufruct I could more than deal with, a property regime that destroys the world not so much so. OTOH intelletual property, what a joke, it’s granted because it has social benefits and should be revoked when it doesn’t.

    5. Me

      “Fiat money is inflicted upon us via the point of a gun.”

      What in the world are you talking about? Let’s say that the currency was once again backed by gold. The monetary base would contract and expand thanks to how much gold a country has then. So if a country discovered a bunch of gold it could greatly expand its monetary base. If you expand the monetary base you also expand production and consumption. What sense does it make to expand production and consumption based upon how much gold a country has? We live in a world going through environmental and ecological hell. Why in the world would we expand or contract the consumption of resources, the production of pollutants and the like based on anything other than environmental or ecological limits? I’m sorry, but your thinking is not only 19th century and it also would please no one but creditors.

      Britain went back onto gold after the so called “bullion debates” in the early 19th century. There was one financial crisis after another for decades. The Bank of England had to step in time and time again to prevent economic collapse. Karl Polanyi talked about how unworkable the gold standard was in practice in his classic The Great Transformation. It didn’t work and it caused massive problems.

      What you want is a return of the disaster that was the free banking era. My god I’m sick of libertarians. As if the right wing privatizations, deregulations, the removal of capital controls and free trade hasn’t been forced on countries against their will. As if people and countries (especially poor people and countries) have consented to having their countries, productive economies and environments looted by parasitic rentier interests and capitalists. Why in the world is the IMF, the ECB, the BIS and the like but free market theft by force? That is the only way you fools can ever have your policies put in place, by force, cause no country would consent to them if they had a choice in the matter.

      That is the funny thing. “Free markets” as defined by people like yourself can ONLY happen systematically by force. Without the state forcing “freedom” on indivduals they’d chose alternatives. Even trying your impossible utopia has destroyed country after country.

      1. ebear

        “So if a country discovered a bunch of gold it could greatly expand its monetary base. If you expand the monetary base you also expand production and consumption.”

        Not necessarily. Study the history of Spain post the Mexican conquest. A great deal of gold flowed from the new world to the old, the effect of which was to drive down the purchasing power of gold (inflation).

        If you have a lot of something, its value decreases. Gold is no exception.

        1. Me

          During the gold standard countries usually fixed their currencies to an ounce of gold, I think the US at the end as $35 per ounce of gold. If the US had a trade deficit with another country they had to transfer gold to the country equal to the amount they owed. So, for example, if the US had a $35 dollar deficit to France and one ounce of gold equaled $35 dollars then the US would ship an ounce to France. The US would then have fewer dollars in the system which would push up prices and interest rates. It was perfect for free marketers because the whole system could work with little direct government intervention. If a country had less gold over time they could devalue the currency, which the US did, and say that gold was now worth, say, $50.

          The old USSR under Lenin supported the gold standard because they had lots of gold. If you discover gold and you fixed your currency at $35 then you could expand the monetary base and purchasing power. If you don’t fix the currency to gold and gold is the underlying asset how do you not create massive chaos? How in the world would a productive capitalist invest in increasing production knowing it takes years in advance and gold and currencies could go up and down by the day, hell in the modern world by the minute? Financialization and who can take part in credit creation comes into the picture under gold too. So does the different needs of productive vs. financial capital. Totally different needs totally different types of investment.

      2. jrs

        The problem is that all your critiques of gold apply to the present system and even more so. Yea making gold the currency is a manmade usually hierarchy enforced decision. But fiat under the present system is no better. Currently we require endless growth of the economy under fiat and it’s as crazy (no crazier) than it’s ever been.

        Currently the economy is plenty unstable and a house of cards. And things have gotten worse for the majority under free floating fiat issued through banks. All wealth has been siphoned to the 1% or to the 1% of the 1%, I don’t know what percentage but I suspect many of their profits are FIRE industry profits and there are many causes of that but part of it just has to be that money is directly siphoned through banks.

        The ideal of many is fiat minus the banks. It may be better. It depends on who you want to empower. The banks and whomever they favor which is mostly big corporations? Oh heck no, that’s what the current system does. Gold miners? Not particularly but I don’t see it as the worst option, gold backing is not the worst option I’m saying, the present system is probably worse. The government? While the government has some decent social programs, should I really wish to empower the drone bombing, war making on the whole world U.S. government? I should wish to do so even less until we get money out of politics, this government works for the corporations! The people? Yes I’d like to empower the average person. How do I do that with money?

        1. Me

          “The problem is that all your critiques of gold apply to the present system and even more so.”

          Not at all really. I didn’t say the growth in throughput (resource consumption) is good I simply said that expanding and contracting purchasing power based on gold or any underlying asset makes no sense in the world we live in. We could expand or contract production and consumption, and along with it pollution, but it should have nothing to do with an asset backed currency. It should be entirely about the laws governing the environment and ecosystems.

          Besides, as I said, the gold standard was unworkable and chaotic. Read Polanyi and the Great Transformation. He goes into it and his case is pretty convincing.

          “Currently the economy is plenty unstable and a house of cards. And things have gotten worse for the majority under free floating fiat issued through banks.”

          How did the gold standard work for countries? It obviously worked well, right, cause all currencies are backed by gold aren’t they? It proved to be workable, right? Citing Graeber, credit money and asset backed money has come and gone numerous times in human history. To say gold or an asset backed currency has always worked is absurd. It too has crashed and proven to be unsustainable.
          “their profits are FIRE industry profits and there are many causes of that but part of it just has to be that money is directly siphoned through banks.”

          Can financial interests create credit money on their screens? Were they able to create credit money going back centuries? So there was always a FIRE sector, this is what classical economics from Ricardo to Marx dealt with. Rentier interests have always been with us as has credit creation. The problem now is that the debts are un-payable and in times past the creditors were forced to do debt write downs. Its fantasy to pretend that the problem of credit creation, financialization and the growth of debt is a modern problem we just started dealing with since Nixon went off of gold.

          “How do I do that with money?”

          You don’t. You deal with who gets the surplus created by the productive economy and who doesn’t, and why. You analyze how big finance is relative to the real economy. You talk about how much income is unearned and why (realizing this isn’t something we started dealing with since we went off of gold). I would recommend doing what the classical economists did, not just Marx. Analyze the economy in terms of class. It makes much more sense than analyzing the economy in terms of the individual like the neoclassical, Austrian and libertarian economists do.

      3. JTFaraday

        “Karl Polanyi talked about how unworkable the gold standard was in practice in his classic The Great Transformation. It didn’t work and it caused massive problems.”

        Technically, that’s not what he says. Technically, what he says is that the international gold standard worked until it didn’t.

        It worked during the “one hundred years’ peace,” during which the international banking system, and the personal cross national relations established therein, smoothed out its rough edges and made it work. When the political accord he calls the “balance of power” that produced the 100 years’ peace fell apart, so did the international gold standard.

        It was likewise impossible to reinstate it in the new context of increased international hostility, at which time its domestic shortcomings were highlighted. You can’t arm up, if you’re limited by your stash of gold! This just highlighted the longstanding situation in (at least several, he doesn’t specify) countries anyway, which operated under a dual currency system in which a national currency was utilized domestically alongside participation in the gold standard with reference to international trade.

        I’m sure I’m not representing him perfectly either. But, you know, try. The reason I think this is important is that it clear that currency regimes change with changing historical political contexts, a condition which we ought not lose sight of while we’re busy in our primary occupation of economic ideologue.

        1. Me

          You’re right, I should have been a little clearer. I was trying to say that it ultimately failed and proved unworkable. Having said that, the main countries under the gold standard went on and off of gold depending on how well it seemed to work for them at the time.

    6. Lambert Strether

      Emily writes: “[T]here are only two types of interactions in this world, those that are voluntary and those that are inflicted at the point of a gun.”

      1. Whether she knows it or not (there’s no cite) Emily is reproducing the terms of Warren Mosler’s famous demonstration “how to turn litter into money”. Please note that MMTers regard this demonstration of how the fiat gets into fiat money as descriptive, and not necessarily as prescriptive. This undercuts her argument elsewhere on this thread about the origins of money, but let that pass for now.

      2. I agree with many who urge that MMT does not have a critique of the state, and that any prescriptive MMT policy proposals would do well to give an account of the nature and trajectory of the state organs carrying out the prescription.

      3. Much of the critique of Pilkington’s post seems to focus on Statism (archism?) as such. It’s not clear to me how much of it is on point.

      4. “only two types of interactions in this world…” is ludicrously tendentious, cartoonishly oversimplified, easily falsifiable by anthropologists, sociologists, psychologists, historians, priests, teachers, parents, friends, lovers, and analysts above … well, let me not say toddler- but Junior High School-grade, and anybody who isn’t prone to binary thinking. Dear Lord.

      1. craazyman

        Doesn’t it make you just wanna reach for the “Troll-Swatter (TM)” and smash that sucker into a bloody red smashed troll outline like in a crime scene photo with a flattened pointy troll hat laying just off to the side, all underneath a fly-swatter grid pattern with the 2-pronged wire fly swatter handle sticking down and to the right. This could be a million dollar idea for any competent web programmer. The type itself has to be in about a 30% shade so it’s still legible, but not so dark it competes with the superimposed graphic, just so we can see how stupid it was. hahahaha

    7. Septeus7

      Quote: “We are not “scared” of fiat money – those of us who recognize that there are only two types of interactions in this world, those that are voluntary and those that are inflicted at the point of a gun.”

      Typical binary western reductionism and completely wrong. The real world has many shades of voluntariness and coercion in every interaction. The idea of absolutely objective categories of “voluntariness” and “coercion” violates the Libertarian’s own theory of subjective valuation and they unwilling to notice this obvious truth.

      I will demonstrate this fact with a parable. A tale of two enterprises:

      In town A, there lives a man who has discovered a book of recipes from his late grandmother and thus using the book as inspiration has developed a concept for a restaurant. However, he lacks the resources to open shop and secure the inputs of labor and capital to realize this his dream.

      Our “free market hero” comes up with an idea. He will write a script to the people he owes stating that a certain amount of future production from the shop will be theirs in repayment of the debt. He builds the shops and thanks to his grandmother’s recipes the shop is a smashing success and quite popular. So the “Free Market” Hero entrepreneur says that a he wants his script returned to his company in exchange for the profits. But the business partners don’t want to cash out and instead want to hoard the debt script.

      Clearly, we have a case of “evil socialist” business partners running to the government so they can violate the terms of the voluntary contracts and extort value far above what was originally given to our “Free Market” Hero. Everyone should fight against the these this anti-contract government backed extortion for the causes of “liberty” in favor the fiat script issuer.

      In town B, there is a polluted river which when it floods has the tendency cause all sorts of damage and thus causing the town’s people to be sick. The evil socialist mayor who upon the advice of an engineer decides that the town should build a water treatment plant to stop the illness and other damages caused by the river.

      But the town has no money and indeed it hasn’t even invented the modern concept of money yet and instead works on the taxes as labor or yield concept. So the “evil socialist” politician decides to issues a debt script from the government stating that whoever donates time and capital to the water treatment project will be given a certain amount of script saying that government owes him for his services in building the water treatment system.

      Well, the “evil socialist scam” works and the majority people think this is a good idea and decide to let the government manage the task of building the water treatment plant. The results is the illnesses of the town’s people disappears and the productivity of everyone is increased by access to clean water.

      So the “evil socialist politician” says to everyone they need to pay taxes and return some of the government IOUs as the government in the management of water treatment infrastructure has repaid it’s debt with the benefits of the clean water. But not everyone received these IOU notes but the tax is placed upon everyone because everyone benefits from the clean water.

      A brave group of anti-socialist decides they are going to stop the “evil socialist politician’s” scheme to enslave everyone to him and his crony government contractors and claims that “taxation is involuntary” and folk’s should have sell themselves and their property just to get access to the IOU notes required to pay the the “evil socialist government.” Thus everyone should fight on the sides against the fiat script for the cause “freedom.”

      The fiat action of credit is objectively the same but the “Libertarian” claims only one is coercion and the other “at the point of a gun” because the subjective language of the framing of the action. The libertarian only values the nominal framing being a subjectivist in favor of what he likes at the time and has no regard for the truth that fiat credit’s value in the objective changes in caused by it’s use and not the language of the labels applied.

      The Libertarian is a sophist using nominalist claims that describing this or that action is objectively coercive depending on the label they apply to the action and thus the action should be objectively values as “bad” but at the same time they claim the right subjectively apply label to things as “value” is subjective. It’s a trick. There is no content to Libertarianism just tricks of rhetoric.

    8. phil

      “nobody would choose to value worthless cotton/linen abstractions, unless they were reliably redeemable for tangible assets.”

      Lol what a stupid comment. Try to buy something with your cotton/linene abstractions. You will find that they are reliably redeemable for tangible assets, goods and services.

  2. mmckinl

    We do not have a sovereign monetary system … we have a system controlled by private corporations.

    Behind the thin veneer of the so called Federal Reserve system is a privately owned and operated system.

    This cabal creates all of our currency and credit and takes a percentage of all that is created …

    In a truly sovereign monetary system the government would print our money and spend it right into the economy.

    The idea behind the privately owned and operated Federal Reserve is that only bankers can handle that responsibility.

    However, time after time the greed of the private bankers has thrown this country into chaos …

    Creation of currency and credit is a great responsibility but it comes with even greater rewards …

    Both the responsibility and rewards are the domain of of the Federal Government as written in the constitution.

    It is past time to take back our right to the profit and prerogative of currency and credit creation for the common weal …

        1. Susan the other

          But, even if this were true, it represents only a closed circle of socialism for the rich because the lower classes (99% of society now) are excluded from any gains. The mechanism by which 500Bn could have been given back to the Treasury is extraction by austerity from us chickens. Which money, before it was given back to Treasury, went to big banksters and money market funds and from there into the stock market for their rich clients and back out of the “market” by profit taking, commonly known as selling high, and in this circuit the original bailout, or tax giveaway, managed to accumulate a bit of interest or appreciation. But all this was done at the expense of society, taken from the social good, to keep the oligarchy on life support and the stock market from crashing. Period.

          1. Ben Johannson

            Look, they way in which government distributes financial wealth is certainly one of the most, if not the, pre-eminent issue of our time, But that’s ultimately a political issue. We are choosing to allow our insitutions to be used as piggy-banks, as de facto profit extraction machines.

            The Fed was established by Congress and can be abolished by Congress. It must return any “profits” to the public. It cannot function at all without Treasury, in fact.

            Thinking of the Fed as a private and untouchable entity plays right into the hands of those who use it to loot our country.

          2. MRW

            I agree with Ben.

            I used to be one of those who railed against the Fed, repeating things I read in books 20 years ago. But then I did a little homework. I spoke to a banker about 13 years ago who drew the whole thing out for me. He had also worked on the S&L crisis with Bill Black. He told me I was FoS and hadn’t verified what was in those books, that I had just accepted it.

            Over the succeeding years, I realized that Mullins and Kah and Schauf got major things wrong, which, if I’m being kind, was more a factor of the Fed’s arrogance and lack of transparency during their research than anything.

            This wasn’t a lifelong pursuit. I just wanted to know how things work, without philosophy or policy or politics added on, which is why I liked MMT when I first encountered it two years ago. (I still cant understand what Scott Fullwiler is talking about ;-) but I listen to him and read him. One of these days the pennies will drop.)

            Susan, the fault is Congress’s. It is the entity that created the rules that the Fed operates by. The Federal Reserve is 12 entities, and the shareholders are banks within that entity’s region. If your money is in a bank, then you bank with a shareholder–an entity, not a person–which makes an annual 6% dividend of the price the bank paid for the mandatory shares initially. (The total dividends paid out to all shareholders is about 1.56%.) This isn’t rocket science. The truth is out there. The problem is that people in their rage at the system fly off the handle with their incomplete information and don’t (1) figure out how things work, and (2) fail to distinguish between financial capitalism and industrial capitalism. Failure to understand the difference, which the bankers, traders, and investment banks grasped after we went monetarily sovereign in 1971, is WHY they can take advantage of it and ordinary people are at a loss to stop it.

            It’s very simple: what is the kind of capitalism that we want? Financial or industrial? As Michael Hudson pointed out: “The largest asset in every economy was still real estate – mainly the raw land, as well as oil and gas, mines and forests and other resources supplied by nature, not human labor.”

            What do we want? Government of just those who are rich enough to buy and own all the land, resources, mines and forests, or who own the mortgages on them? People defined as ‘rentiers’? Or do we want government of, by, and for the people in this country who produce the goods and services that create and maintain a healthy economy for every member in it?

            The former is financial capitalism. The latter is industrial capitalism. Because people are ignorant of these differences, they have no way to communicate what they want to their congressmen. Fiat money isn’t the problem. Failure to understand how it can work to the average person’s benefit is.

    1. Emily

      “Creation of currency and credit is a great responsibility but it comes with even greater rewards”

      Rewards such as funding wars (which result in the murder of hundreds of thousands of innocent people) started on lies and bailing out insolvent banksters who fund the campaigns of politicians?

      “Both the responsibility and rewards are the domain of of the Federal Government as written in the constitution”

      The responsibility of the decision of what constitutes money and who may “create” it are the domain of the individuals engaged in economic transactions, period.

      1. mmckinl

        Why do you think the banksters love war? Because they get a cut of all the money spent and the interest thereafter.

        It is only by taking back our right to sovereign money that we can stop this kind of perversion.

        It is a non-starter to argue that we can run a modern society on an agreement, person to person, about what constitutes money.

        1. Emily

          “It is a non-starter to argue that we can run a modern society on an agreement, person to person, about what constitutes money.”

          Wrong, this is how it has worked since antiquity. “Money” has historically been the product of just such a series of events.

          “Money” has historically been merely a standard among individuals all agreed upon voluntarily. The gun only enters the equation relatively recently. This is the genius of the state; usurping systems that were envisioned and enacted by the free market, and then claiming credit for themselves, and then claiming that such systems would subsequently be impossible absent their involvement.

          1. mmckinl

            The dollar was agreed upon by democratic vote of the Federal Government in order to standardize money and promote commerce.

            The problem arose when early on it was decided to let banks issue their own “dollars”.

            The first “national banks” as is the current Federal Reserve were all controlled by private interests …

            Should we assume control of our currency and credit creation we will free ourselves of this private monopoly …

            Any government needs taxes to operate even for basic functions. These need be collected in a common currency.

            Financial markets need a common currency to operate between individuals, jurisdictions and states.

            The legal enforcement of contracts and debt collection has always been solely a function of government.

            Local currencies are viable for simple transactions but not for modern commerce …

          2. Yves Smith Post author


            You honestly do not know what you are taking about. Your remarks on the origins of money are utter fabrication.

            Go read David Graeber’s Debt: The First 500) Years. And in the meantime, quit spewing ignorance here. I don’t have much tolerance for it.

          3. Emily


            I don’t see how anything I’ve written contradicts Graeber (whom I’ve read) – perhaps you could be more specific as to your objections to my arguments?

            I’m not saying people didn’t use credit, or get themselves in debt, and I’m not saying that they necessarily used gold or silver or whatever – I am merely saying that historically, the medium used in economic transactions (whether that be barter, trade, credit, specie, whatever) has been agreed upon voluntarily by market participants, not inflicted upon them at the point of a gun by a central bureaucracy. In other words, nobody was forced at the point of a gun to offer their product or service only for the currency allowed by the thugs of the state, which is what we have now, and which sadly you seem to fully endorse.

          4. Me

            “I am merely saying that historically, the medium used in economic transactions (whether that be barter, trade, credit, specie, whatever) has been agreed upon voluntarily by market participants, not inflicted upon them at the point of a gun by a central bureaucracy. In other words, nobody was forced at the point of a gun to offer their product or service only for the currency allowed by the thugs of the state, which is what we have now, and which sadly you seem to fully endorse.”

            I’m sorry but I would expect this type of thinking from an ignorant child. It is amazing how little libertarians know of economic history. It really is. Take the US. The US had the highest industrial tariffs in the world for a century and a half. It has put in place different kinds of industrial protectionism ever since, even under “free market” gods like Reagan. It has the most protectionist agricultural system in the world. A good portion of our modern technology has come from the massive socialist institution that is the US military. On and on, and the US is the “free market” success story, right? Ha Joon Chang has shown how EVERY developed country used massive staste intervention to develop. There is nothing close to a libertarian success story nor will there ever be. How about the enclosures? What exactly was being enclosed? What happened to the people who inhabited the communally owned lands after they were privatized? How about colonialism, Western imperialism, what about the right wing economic policies that were forced on people and countries by the state? None of that was voluntary. Forcing Bolivia to privatize its water a decade ago wasn’t voluntary. You’ve said your libertarian bumper stickers, we’ve all heard them a billion times over. Please stop.

          5. Lambert Strether

            Emily writes: “Money” has historically been merely a standard among individuals all agreed upon voluntarily”

            This strikes me as a myth of origin on a par with Adam Smith’s location of the origin of money in barter. It’s also contradicted by anthropologists and historians (both these links are to NC posts though as a new reader, Emily, you may not have had a chance to read them).

            So I would like some evidence for your assertion, since other sources falsify it. If your claim is true, that should be easy for you to to. In addition, it’s the lynchpin of your argument, so if you can’t provide evidence, everything else you’re saying needs to be substantially discounted.

          6. ebear


            What you have here is an example of how sovereign power actually works. Apparently your intellectual currency is not accepted in this realm because you haven’t read the correct (state approved) books. In a truly democratic forum you’d be corrected (if needs be) by your fellows. Here you get corrected by the monarch (or one of her retainers). A tolerant monarch by most accounts (including her own), but a monarch no less.

            Broadly speaking, this illustrates why “blogging” as a form of political discourse will ultimately fail. Owing to their private nature, blogs always come with a bias or agenda. It may be open (Karl Denninger) or it may be concealed by a veil of “intellectual” honesty, but it’s always there. You just ran headlong into it, which isn’t a bad thing if you draw the right lesson from it.

            I like you Emily. Whether you’re right or wrong doesn’t matter to me. It’s the honest effort that counts.

            Tao Te Ching 49: Opening the Mind

            Evolved Individuals have no fixed mind.
            They make the mind of the People their mind.

            To those who are good, I am good;
            To those who are not good, I am also good.
            Goodness is Power.

            Of those who trust, I am trusting;
            Of those who do not trust, I am also trusting.
            Trust is Power.

            Evolved Individuals in the world
            Attract the world and merge with its mind.
            The People all focus their eyes and ears;
            Evolved Individuals all act as infants.

          7. Emily


            Here you go:


            I hope that you actually take the time to read it, even if it may be diametrically opposed to everything that you believe. Unlike our host, I will not accuse you of being lazy if you do not.

            Otherwise there are many other sources for the information you requested. One need only have the courage to look.

          8. Lambert Strether

            No, not Mises. If I want propaganda and epistemic closure, I can go read the scriptures at Heritage, AEI, or for that matter Brookings. Can you cite to works of scholarship? Hudson and Graeber do.

            NOTE Adopting your frame, I’ve addressed the issue of commenting here. “Host,” in that frame, is obviously a misnomer. The word you’re looking for is “site owner.”

          9. Emily

            Finally, Lambert, the linchpin of my argument has nothing to do with the history of money, but everything to do with the immorality of violence. You cannot deny that violence is necessary for the viability of fiat currency – I notice that you do not even attempt to make this case – and so you are only left to argue that violence against the peaceful is somehow not always evil. I eagerly await your response on this. Next you might attempt to enumerate the circumstances under which Rape, another act that cannot be achieved without the use of violence, is morally acceptable.

            Personally, I see no great need to rationalize with those who advocate violence to achieve their ends, any more than I would attempt to convince a rapist that his actions are evil.

          10. Lambert Strether

            @Emily: On the history of money, thanks for admitting that your comments are completely off topic with respect to this thread. So you always do that?

            Your supplemental remarks on violence are covered by my previous comment here.

          11. skippy

            The non – violence canard is the libertarian last – final protective ideological line, not unlike the love of gawd[s canonized for popular consumption.

            Emily I have directly linked (search this blog) the – well spring – of your preferred ideology (belief) straight back to the wealthy – aristocratic – heraldic – of their day or their handmaidens (back door scratchers). It is – liberalism – for them – and not for the species or any other living thing.

            Seriously Emily, emotion precludes the thought of non violent humans and as denoted in empirical observation… were are animals, now, how we conduct our living arrangement’s is another matter entirely. So as far as I can tell, the hole non violent thingy, is just cover for don’t physically attack your superior wealthy betters.

            Skippy… Libertarians (non violent) and Guns – lots of Guns – with all the maximizers one can get… what an epic oxymoron… that and a world ruled by markets… cough… the wealthy… for the wealthy. IMO 40ish years of Randian thunkit running things has not worked out so well…. eh… but a more – pure – application will remedy the problems it created in the first place? Morons[!!!]

          12. skippy

            @Emily… BTW if one wanders over to ZH and looks at the comment section… the cerebral potential of your belief is on parade… not much violent tendency’s eh… reconcile that…

            Skippy… Proud to have been banned from that – payed for – mouth piece of cortex injected sovereign man rubbish. On the bright side… if SHTF were to occur, the collectivist’s would band together for survival, where as the individualistic mob would off themselves in an orgy of self inflicted violence. Its my grass… get off… or die… shezzz.

          13. Lambert Strether

            @Emily: Saying “Go here and read this, and then you will understand,” is a classic trollish deflection.

            It’s not this reader’s job, or any reader’s job, to go offsite to do homework that you assign them.

            It’s your job to persuade readers, here, based on evidence and reasoning, not via mere reference to putative authorities.

            So far, I’ve asked for evidence on your assertion about the origin of money. Your response was to (a) refer me offsite to a work I’d have to comb for links (I gave you NC material from Hudson and Graeber), and (b) declare the whole issue irrelevant anyhow. This too is trollish behavior.

            Respond to the orginal request (works of scholarship, please), and then you might build the sort of track record that would cause readers to invest more time.

          14. bob

            Hey skippy, I was also banned from commenting at ZH. Pretty funny stuff. You can be a rabid rascist idiot, but speaking anything resembling ‘truth’ is strictly forbidden.

      2. ATV

        People who believe only a government can ‘control’ money are just being superstitious.

        The basic value of any form of money is its ability to be (1) transportable/ accessible (2) Safe from counterfeiting and theft (3) accepted by others (4) able to hold its value.

        As with all services, we all have different needs and wants. You don’t care about inflation if you’re going to spend the currency within a month. You do care if you’re going to save it for 30 years.

        Without government’s violent monopoly, whoever can best fulfil these varied requirements would get our custom. And we would expect a variety of currencies and systems to exist reflecting a variety of needs and wants. This variety would also provide a safety net. If one goes belly up we wouldn’t all starve. (Like when one model of car gets recalled for being unsafe, most of us don’t even notice).

        Bottom line is this. In a free market absolutely no one would continue to use government currencies because they devalue so quickly. The proof is in the pudding!

        1. EmiIy

          Yes. This. Thank you.

          An instructive work of scholarship would be Andrew Dickson White’s “Fiat Money Inflation in France”. This work is absolutely essential reading for anyone who claims to be interested in economics. I doubt Lambert would be able to dismiss this so easily as “propaganda”:

          “Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time.”

          I should read more of White. That man was a genius, and eloquent to boot.

    2. MRW

      This cabal creates all of our currency and credit and takes a percentage of all that is created …

      First, learn the 1-2-3 of the US federal monetary system, then comment. I admit I am a reluctant idiot, but you are more so. Hyperventilating as you do is unattractive in addition to being wrong.

        1. beene

          It does not matter who owns the fed, it is how it empowers the banks to create money out of thin air and then charge the government (taxpayer) interest.

        2. Chris Engel

          The flow of ideas on NC works much the way that money is distributed throughout society.

          Without the state (in our case, Queen Yves), producing money to give to private entities to use as reserves to create even more money, there is no monetary ststem.

          Just like Yves has to create a post on NC, and from that post, the mass of readers flood to use that as the basis of contributing more ideas in comments.

          Sometimes, a post is created that leads to some bad comments being made that aren’t helpful to the overall community. Just like bad loans are often created from reserves that the government makes, and don’t help the overall economy.

          And finally, if Yves ceases to create posts, ideas cease to flow on NC.

          Just my observation.

        3. MRW

          Brown wrote that in 2008. She has since met up with Randall Wray of MMT fame and he’s corrected some of her assumptions.

  3. Daniel From Paris

    “Money is just a token that we use to “keep score” of the debts we owe one another. It is just a unit of account that helps us keep track of who has given who what. Having a central quasi-governmental power in the form of a central bank simply helps us to do this and allows governments to extend deficit-financing in order to keep economic activity stable.”

    This is simply not true. Give a fair view to the monetary history.

    Yes, The US has historically enjoyed a incredibly robust economy (for some reasons including both cultural and soil-based ones). And a relatively robust monetary system for a while. The Brits even more so (in terms of historical perspective).

    Does that make a solid base to build a “general theory” on currency theory. My take is no.

    Your MMT looks more like an additionnal case of “US exceptionnalism”. Left-winged and “liberal” (as you say and by the way this “liberal” is course an abuse of your own language).

    Wake up.

    The story of currencies – even the recent one – is not properly accounted for by this MMT-ers.

    No, those countries whose currencies went bankrupt were not all of them run by stupid or illegitimate governments.

    No, the US is and will be no exception in the grand currency bargain. That has shown already once in recent history (around 1980). That will happen again.

    1. Ben Johannson

      You are completely and utterly incorrect. Money evolved as a method of satisfying social obligations between members of a society, search the term “weregild” for more information. Money is always a social IOU, as in I owe you and you owe me.

  4. Tom

    I am too old to believe in Santa or in a government who does not steal and dissipate until the SHTF, but this guy apparently is not. Or is just that he likes the good academic tenure and want us to keep paying for it and for all the hierarchy that enslave us?

  5. JGordon

    Most of the economic transaction I’m personally aware of already take place outside of the scope of your decaying fiat currency regime, and outside of the purview of your treasured “sovereign state”. So go ahead and walk into the abattoir to feed the state if you like; you’ll get no argument from me that you have a perfect right to choose that for yourself. But myself, I think I’ll head in another direction.

      1. JGordon

        There are a lot of ways to do economic transactions without using the issue of a corrupt state as the intermediary. Admittedly though if you’ve grown up on a diet of pablum and propaganda as most Americans have then seeing the alternatives can be difficult. At first anyway. Circumstances will force you to abandon fiat currencies relatively soon too, as it already partically has for many other people I know.

        1. Ben Johannson

          Define “soon”. In the next year, or thirty years from now will you still be pronouncing fiat currencies will be abandoned soon?

          How is this any different than announcing that someday the sun will burn out and then patting one’s self on the back for successful prognostication?

          Saying fiat currency will be abandoned “soon” without defining when this will happen is useless information. I’d suggest you stop allowing Peter Schiff to scam you.

  6. kimilsung

    If you guys want to define money yourselves go and hunt rabbits in Somalia. I’ll stay here hunting stags thanks very much.

    1. ATV

      …. or just hang around in any western country (with its government controlled economy) for a few more years. We’ll all be huntin’ rabbits soon.

  7. ohioprole

    Where is the troll filter?

    Pilkington pens a thoughtful piece on political philosophy and our relationship to the idea of money and all the wingnuts appear!

    Is it really too much to ask for thought as opposed to dismissive ridicule and talk of hunting rabbits in Somalia?

      1. StealthBadger

        “Perhaps the reactions prove my point to some extent… ;-)”

        I was amazed at how wonderfully considerate the various foaming-at-the-mouth-commenters are. It is truly selfless of them to demonstrate so clearly the loose dichotomy of perilous misunderstanding you describe in the section marked “Death and Taxes.”


      2. Beppo

        I really liked the way you introduced foucault’s biopower in this article. Of course the reactions of the end times goldmasters show how terrifying simple truths can be. I’m hoping for some Agamben follow up :-)

    1. Yves Smith Post author

      I’m tempted to put most of the people who have piped up on this thread into moderation for general boneheadedness and bringing the level of discourse down by at least 20 IQ points. Pretty much all the people who think they are clever critics of MMT simply have demonstrated they are too lazy to even understand it. There are some valid criticisms to be made of MMT, but I have yet to see one on this thread.

      And even on a paragraph/argumentation level, a lot of the attacks are lame too.

      1. Thorstein

        I really tire of having trolls hijack NC threads within 20 minutes of their being posted at 1:17 AM. PHP isn’t my first language, but I’ve seen enough WP code to assert it should be a simple hack to only allow comments by approved commenters until (say) 4 hours have elapsed. I would gladly give up my “right” to butt in early with my occasional non-professional comment in exchange for not having to wade through screens of dreck to get to the constructive criticisms of NC’s informed commentariat.

      2. Siggy


        Curious post this. A fiat currency of itself, is not the devil incarnate. A fiat currency as an instrument for debasing the exchange transaction is the devil. MMT has a singular flaw, unlimited issuance leads to unlimited increases in units of exchange.

        1. Calgacus

          MMT has a singular flaw, unlimited issuance leads to unlimited increases in units of exchange.

          Good thing that MMT sez to limit issuance rigorously. If we had continued our MMT/FF system since 1942 (the USA pretty much had a 90%+ MMT approved system then) – the National Debt would likely be much less, and the dollar much less inflated since then.

          If it were the same nominal amount, it would be represent the financial, liquidity needs of all the lower middles in their trailer parks on the Moon, and the rich bastards in their Asteroid Belt colonies.

  8. Crassus

    The fiat sovereignty to which Phil refers is not imbued by fiat currency in and of itself, it’s the interest it carries and the concomitant debt that it generates at point of creation that does that. It’s the politicians, bankers, judges and jailer that underpin the repressive statutes, debt laws, prosecution and jailing of debtors that are tacit minions for the fiat Sovereign.

    The principal difference between a fiat United States Note and a fiat Federal Reserve Note is that a United States Note represented a “bill of credit” and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate interest, for the Federal Reserve System (btw not just a private system – as it’s an indirect form of government taxation).

    Borrow both one hundred United States Note (a still legal national currency note) and Federal Reserve System note. Hold them in your sweaty little hand for fifty years; only one of them will put you in jail for the remainder of your life if you don’t pay it back- principal plus compound interest.

  9. Break80

    I have not read Foucault, so I may be stepping out of line here. However, the idea that only with the Enlightenment did thinkers begin to believe that the end of government was to foster life rather than to threaten death is silly. Such a view seems to ignore the entire Aristotelian “perfectionist” tradition that influenced Western thought at least through St. Thomas. I am sure that Foucault is too good a philosopher to not be familiar with that line of thought. I guess-and this is speculative, given I have not read Foucault–that his analysis is just a manifestation of the post-Modern fetish with power, a return to Thrasymachus and the Sophists, a thoroughly cynical and unhelpful view.

    1. Philip Pilkington

      Yes, you can find the push for biopower throughout history. Eros (biopower) versus thanatos (sovereignty) and so on. But it only came to be realised in the modern nation state.

      “I guess-and this is speculative, given I have not read Foucault–that his analysis is just a manifestation of the post-Modern fetish with power, a return to Thrasymachus and the Sophists, a thoroughly cynical and unhelpful view.”

      See, I find this sort of dismissal of anything labelled postmodern to be “a thoroughly cynical and unhelpful view.” But maybe that’s just me…

      1. craazyman

        I think it went back pretty far, Phil. I’m not sure about this Foucault dude . . .

        1st Samuel, Book 8, in King James English:

        10 And Samuel told all the words of the Lord unto the people that asked of him a king.

        11 And he said, This will be the manner of the king that shall reign over you: He will take your sons, and appoint them for himself, for his chariots, and to be his horsemen; and some shall run before his chariots.

        12 And he will appoint him captains over thousands, and captains over fifties; and will set them to ear his ground, and to reap his harvest, and to make his instruments of war, and instruments of his chariots.

        13 And he will take your daughters to be confectionaries, and to be cooks, and to be bakers.

        14 And he will take your fields, and your vineyards, and your oliveyards, even the best of them, and give them to his servants.

        15 And he will take the tenth of your seed, and of your vineyards, and give to his † officers, and to his servants.

        16 And he will take your menservants, and your maidservants, and your goodliest young men, and your asses, and put them to his work.

        17 He will take the tenth of your sheep: and ye shall be his servants.

        18 And ye shall cry out in that day because of your king which ye shall have chosen you; and the Lord will not hear you in that day.

      2. Beppo

        To Philip, and everyone on this reply chain, if you object to Foucault’s demarcation, please read Agamben. He extends biopower to the Roman era. Read Homo Sacer! It’s awesome!

    2. from Mexico

      • Break80 says:

      I have not read Foucault, so I may be stepping out of line here. However, the idea that only with the Enlightenment did thinkers begin to believe that the end of government was to foster life rather than to threaten death is silly.

      I agree.

      Focault makes the same error that Marx did, which is that he buys into the demonization and denigration of politics that, as Hannah Arendt put it, “runs like a red thread throughout the centuries that separate Plato from the modern age.” And as Arendt goes on to explain: “What is important is that the same notion was taken up, again in secular terms [that is the same secular terms it was articulated by the ancients], by post-Christian philosphy.” (Hannah Arendt, “Karl Marx and the tradition of Western political thought,” )

      Thus we see Focault making statements like this one in his famous debate with another famous structuralist, Noam Chomsky:

      We know that the educational system maintains the power in the hands of a certain social class and excludes the other social class from this power.

      Here Focault has either fallen under 1) the influence of the Classical-Western tradition, or 2) Marx, described here by Reinhold Niebuhr:

      In Marxist thought political power is always subordinate to, and the tool of economic power. Government is always bogus. It is never more than the executive committee of the propertied classes…

      The significant point in the American development is that here, no less than in Europe, a democratic political community has had enough virtue and honesty to disprove the Marxist indictment that government is merely the instrument of privileged classes.
      REINHOLD NIEBUHR, The Irony of American History

      Hannah Arendt:

      [T]o equate political power with “the organization of violence” makes sense only if one follows Marx’s estimate of the state as an instrument of oppression in the hands of the ruling class.
      HANNAH ARENDT, On Violence

      and Amitai Etzioni:


      The two most important observations about the application of interventionist power are: (1) its exercise generates economic consequences comparable in magnigude to those gained through the exercise of economic power (by one economic actor over others), and (2) interventionist power can be applied whether or not the actor commands economic power.… In short, economic actors can, by the use of political means, achieve various effects often attributed in concentration of economic power.

      The theorem just stated is in opposition to the Marxist notion that polical power merely or largely reflects economic power. While it is true that if an actor commands economic power it might be converted into interventionist power, economic power is not a prerequisite for interventionist power, and interventionist power is often the source of economic power. While many actors command both kinds of power, there is no necessary correlation between the two.

      AMITAI ETZIONI, The Moral Dimension

      We see Pilkington pick up on this same demonization of government theme that we see in Focuault and Marx when he states:

      It would not be too much of an exaggeration to say that in the pre-Enlightenment feudal era all state activity was basically geared toward extraction by the sovereign. This was, in many ways, seen as an end in itself. The Lord had the right to extract from the serf; the King had the right to extract from the Lord and so on; this was a divinely sanctioned system and such extraction was, at the end of the day, for the glory the ultimate sovereign: God.

      And as you say, this “idea that only with the Enlightenment did thinkers begin to believe that the end of government was to foster life rather than to threaten death is silly.” But with Focault, theory trumped reality. Government had to be demonstrated to be bad, and if it required the rewriting of history to achieve this, then so be it. (Note in the debate that Chomsky is not nearly so pessimistic as Focault is, and believes a better governing system is possible, so does not fall into the trap of advocating nihilism.)

      But rather than belabor this point, let me just point out that whether one embraces the spiritual, noblesse oblige mandate of early feudal, Christian monarchy and the mos maiorum mandate of early Roman monarchy, on the one hand, or on the other hand the materialist self-interest axiom of Machiavellian monarchy, the optimal policy outcome for the sovereign is the same.

      In the Christian (spiritual-moral) theory of rulership, as articulated by the friar Bartolomé de las Casas (1474-1566), “the king is given for the use of the people, not the people for the use of the king.” “The king is not the arbitrary master of his kingdom, but more of an administrator — he should use his authority only to increase the spiritual and material welfare of his subjects.”

      But the Machiavellian (materialist self-interest) theory of rulership comes to a very similar conclusion:

      Turning now to the other case, when a private citizen becomes the ruler of his country not through perfidy or intolerable violence but rather through the aid of his fellow citizens, we may call what ensues a civil principality. I say that one becomes the ruler of such a principality through the support of either the common people or the nobles, for these two opposing parties are to be found in every city; and they originate from the fact that the common people do not want to be commanded or oppressed by the nobles, whereas the nobles do want to command and oppress them. From these conflciting desires will come one of three consequences: principality, liberty, or license.

      A principality, then, can come into being either by means of the common people or by means of the nobles, depending upon which of these two has the opportunity… The man who becomes prince through the help of the nobles will find it more difficult to remain in power than the man who becomes prince through the help of the people, for the former will be surrounded by men who will presume to be his equals. As a consequence, he will not be able to command them or control them as he would like.

      But the prince who comes to power through the support of the people will stand alone, and there will be few or none at all near him who will not be disposed to obey him. Besides, it is impossible to satisfy the nobles fairly without injuring others, whereas it is indeed possible to do so with respect to the people, for their wishes have more right, since they seek to avoid oppression while the nobles seek to oppress. It should also be noted that a prince can never be secure against a hostile populace because it is numerous, whereas the can be secure against the nobles because they are few.


      • Break80 says:

      I guess-and this is speculative, given I have not read Foucault–that his analysis is just a manifestation of the post-Modern fetish with power, a return to Thrasymachus and the Sophists, a thoroughly cynical and unhelpful view.

      Here I have to break with you and agree with Focault. To argue that the elaborate structure of both overt political as well as hidden institutional (universities, the press, the intelligenstia, etc.) power does not exist is, to use your terminology, “silly.” I agree with Focault that it exists, where I disagree is that it is always the instrument of oppression.

      1. Siggy

        Haven’t seen you here until this. I remind you that less is more and your last paragraph is sufficient, all the rest is dross.

        1. from Mexico


          An attorney can’t just skip to his closing statement and leave out the discovery phase of the trial. That is, of course, unless he’s making his argument to a stacked jury.

          And just because so much argumentation is of the latter type — making truth claims devoid of any supporting evidence while preaching to the choir — does not make it correct.

      2. Expat

        I disagree with Siggy. Your comments and your extended quotations add weight to your argument and often suggest nuance and depth that is not immediately obvious to the casual interloper. Moreover, depth is what is missing from most reporting and discussion of issues today, since apparently few among us take time to read anymore. And I might add that no one has to read anything he or she does not want to. You don’t even need an “off” button to skip over text.

        1. ebear

          Hilarious! One poster gets trashed for not citing enough references, whle another gets trashed for citing too many!

          Hail Eris!

      3. jsmith

        To briefly reiterate:

        Arendt is largely considered in academic circles as a socio-philosophical hack who repeatedly and consciously misread Marx so that her pet mish-mash theories of history would appear more sound.

        Sure, her writings APPEAR to make sense but upon closer academic examination one finds her work is shallow, misguided and erroneous both in its descriptive and prescriptive properties.

        Although the entire Arendt article fM links to is embarrassing as it consist mainly of Arendt’s mad backpedaling in trying to NOT look like an academic lightweight who had misread Marx – i.e., the previously unpublished scribblings that fM links to were first published in 2002 and a scrapping together of her notes – pages 308-312 in the article are particulary embarrassing as Arendt makes a fool of herself in blatantly miscontruing Marx’s ideas on labor in a vain attempt to “prove” that he was wrong, just wrong.


        Niebuhr – the philosophical grand wizard of post-WWII neoliberal geopolitical strategies – thanks, pal! – is also known to have blatantly and purposefully misread Marx – his former guide – when the fascist Americans came calling for some copy.

        And that’s not playing the ball and not the man, fM.

        Niebuhr was an very much an alive person – unlike Marx – whose thought inlfluenced the leader of the US especially as concerns the lovely idea of the “just war”.

        How cute!

        And he received a Presidential Medal of Freedom from LBJ and award that Madelaine Albright also took home.


        Gee, the man who inspires Albright, Obama, McCain and the tawdry neoliberal acolytes worldwide I’m sure is just a GREAT pick to comment on Marx, huh?

        Anyways, for a quick review of how Niebuhr traded in – up? – his Marxism for a more theological (read: Christian) understanding of humanity – gee, what could go wrong with that? – please review the summary of Niebuhr’s thought starting on pages 36 and following of the book “Reinhold Neibuhr: Theologian of Public Life” available here:

        I’d love to comment more but will not be able to today although I must say that everytime I see fromMexico use Arendt and Niebuhr supposedly as some sort of definitive refutations of Marx I can only assume that a poster as erudite/well-read as he is doing it on purpose for some reason.

        1. jsmith

          sorry forgot the link to ole Reinhold so everyone can bask in his greatness.

          Oops, did I again forget to mention that the man was an ardent Z*******t who supported the forcible removal of Palestinians from their land?

          What a guy!!!

          I’m sure he’s one we should all go to counter the lunatic ravings of scary, scary Marx.

        2. from Mexico

          @ jsmith

          If you make Marx a divinity; and if you make his writing holy writ; and if you then make yourself arbiter of that holy writ, then what distinguishes you from the biblical literalists or Christian fundamentalists?

          But I did find this from one of the links you furnished the other day, so I assume it is on your approved reading list of the correct exegis of Marx’s holy scriptures. And it’s pretty much the same rendering of Marx that I and the others I have cited have made (emphasis mine):

          That Marx said “violence is the midwife of history,” we agree. But only Arendt’s inventive mind can deduce from this that Marx also believed that “violent action therefore [is] the most dignified of all forms of human action.” Against that day when the state has withered away and the class struggle is a bad dream, we offer the hypothesis that poets will quarrel on a mass scale with nothing more damaging than verbal violence over the use of meters, and painters will rend the air in a dispute as to the use of solid colors and abstract art. There will be all kinds of struggles. All except the class struggle.

          If men are not chained to the machine and the tractor, what productive activity will engage the free energies and minds of men? Being a child of the great German philosophic tradition, Arendt must know that Schiller defined art as the realm of freedom. When men are free from the compulsion of labor, the creative transformation of society, nature and man himself stands on the order of the day. In Literature and Revolution, Leon Trotsky foresaw the day when men would level mountains in one area and raise them in others, turn arid deserts into singing gardens and reshape even their own bodies to their own desire. And in this day of atomic energy, Trotsky’s imaginative visions become real possibilities – if capitalism is replaced by a socialist order.

          That was written in 1955. But we know now that the “violence” — “the midwife of history” — that was supposed to transform “society, nature and man himself” to “that day when the state has withered away” and “when men are free from the compulsion of labor,” never came. You and your fellow Marxist fundamentalists are still waiting for the rapture.

          The only thing similar to your “correct” exegis of Marx’s holy writ in contemporary Christian eschatology is Millennialism, which holds that Jesus, upon his second coming, will establish his Kingdom of God on Earth and rule on earth as he does in heaven. This is the only Christian doctrine — based on the literal interpretation of prophecies in the Revelation of John — that posits paradise on earth. All other Christian doctrines posit paradise in heaven, in the otherworld, the supernatural.

          Another secular doctrine that is almost identical to your exegis of Marx’s holy writ — which holds that society, man, and nature can be transformed to a state of absolute freedom by the temporary use of violence — is neoliberalism. As Greg Grandin pointed out:

          Like Friedman, Hayek glimpsed in Pinochet the avatar of true freedom, who would rule as a dictator only for a “transitional period,” only as long as needed to reverse decades of state regulation… Of course, the thousands executed and tens of thousands tortured by Pinochet’s regime weren’t talking.

          Accordingly, the Junta justified its terror as needed not only to prevent Chile from turning into a Stalinist gulag but to sweep away fifty years of tariffs, subsidies, capital controls, labor legislation, and social welfare provisions — a “half century of errors,” according to finance minister Sergio De Castro, that was leading Chile down its own road to serfdom.

          “To us, it was a revolution,” said government economist Miguel Kast, an Opus Dei member and follower of both Hayek and American Enterprise Institute theologian Michael Novak. The Chicago economists had set out to affect, radically and immediately, a “foundational” conversion of Chilean society, to obliterate its “pseudo-democracy”….

          [T]he Chicago group institutionalized such a hierarchy in a 1980 constitution named after Hayek’s 1960 treatise The Constitution of Liberty. The new charter enshrined economic liberty and political authoritarianism as complementary qualities. They justified the need of a strong executive such as Pinochet not only to bring about a profound transformation of society but to maintain it until there was a “change in Chilean mentality.” Chileans had long been “educated in weakness,” said the president of the Central Bank, and a strong hand was needed in order to “educate them in strength.” The market itself would provide tutoring: When asked about the social consequences of the high bankruptcy rate that resulted from the shock therapy, Admiral José Toribio Merino replied that “such is the jungle of . . . economic life. A jungle of savage beasts, where he who can kill the one next to him, kills him. That is reality.”

          But before such a savage nirvana of pure competition and risk could be attained, a dictatorship was needed to force Chileans to accept the values of consumerism, individualism, and passive rather than participatory democracy.

          1. skippy


            Whilst myself concurs with the main altruistic thrust of your comments, it does not seem to directly address jsmiths comments… who was Arendt… whom did they parley with… beyond the scope of their words and writ… what were the actual acts committed in influence pedaling amongst the hoi polloi of authority.

            Skippy… myself find’s relevance in both opinions proffered (in word and not always in application), yet, the antagonistic approach from both sides, clouds the deeper meaning – resolution of conflict between the two.

          2. MRW

            Thanks for pointing out that Greg Grandin article, from Mexico. I’m printing it off so I can savor it over a beer in the bar in about an hour.

          3. JTFaraday

            “Another secular doctrine that is almost identical to your exegis of Marx’s holy writ — which holds that society, man, and nature can be transformed to a state of absolute freedom by the temporary use of violence — is neoliberalism.”

            Well, that’s another one we can write off. I wonder what will be next?

  10. F. Beard

    Why argue? The Bible clearly says that Caesar is to be paid with Caesar’s money (Matthew 22:16-22 ) so there is no doubt that inexpensive fiat is a legitimate form of money for the payment of taxes. Indeed, inexpensive fiat is the ONLY morally legitimate form of money for the payment of taxes else some private interest (e.g. gold owners) is profiting off the taxation authority and power of government.

    The problem is that fiat is also de jure and de facto legal tender for private debts. This is not necessary and causes a great deal of contention over the management of the fiat money supply since it affects everyone.

    1. skippy

      Hi beardo… It much be hard for you to watch… your own… not obeying the – tenements – that they gave themselves up too.

      Skippy… So much bastardization… eh… same old culprits at the end of the day. Never the less… find some simple joy in everyday.

    2. charles sereno

      @ F.Beard:
      I hope some NC readers go to Matthew’s story (it’s short). I think it shows a rare, clever side of JC who tricks the trolls into producing a (hated) Roman coin. That was the the view of Gandhi, Tolstoy, Thoreau, and many others.

  11. Tom

    I am not sure about Foucault having captured the relationship between the governed and the ruler in any system – at least the way presented here. I believe that the ruler knew his power over life was limited by the conditions of those he ruled. Power based on a pyramid where the layers below must be maintained to stay on top. More layers afforded the ruler a modicum of buffer should he be a screw-up or should the environment (disease, crop failure) not match what protection he offered under his rules – maybe money was just an additional layer allowing the ruler a bridge of time to remain in power, until things re-normalized or he re-tooled.

    “Enlightenment thinkers began to conceive of a system of governance whose goal would be to foster life rather than to threaten death.” I think that it is to put the ‘cart in front of the horse’ to state that ‘enlightenment thinkers’ in anyway were leading the way but, rather, they only observed what was taking place among the masses at the time – just observing the decay of the layers that made up the pyramid whose top was to be with God or the chief or the ultimate power.

    Seems to me (I admit that I could be totally off base here but, I am here to learn) that co-operation between other humans is an innate human trait that can be seen in countless many other species. Money, power structures, rules of the game etc. are just outgrowths of the basic instinct.
    Money, having proved itself a powerful instrument in the instinctual-co-operational-survival operation of our species and, the ability of humans to use this medium of co-operation to assert dominance vs. submissive — good vs. evil — life vs. death — etc.
    To me, it is obvious that money can be seen as much more than:
    “Money is just a token that we use to “keep score” of the debts we owe one another”

    Recognizing that money is much more leads me to the observation that; money reaches down to our deepest instincts…good and bad. So I will understand the emotional reaction to any theory about it. Also, laws around money, contract, co-operation etc. are ways we humans co-operate and try (for a better common good) to prevent our tools from hurting us — to prevent us from accidentally killing ourselves when cleaning our guns (guns- another tool)

    1. Tom

      “Enlightenment thinkers began to conceive of a system of governance whose goal would be to foster life rather than to threaten death.”
      I think the enlightened thinkers were more saying ‘ things are not working to well here – we got the God thingy power structure pretty much working — how can we re-jigger this whole thing while maintaining God or whatever at the top and still get along’

    2. Lee

      “More layers afforded the ruler a modicum of buffer should he be a screw-up or should the environment (disease, crop failure) not match what protection he offered under his rules – maybe money was just an additional layer allowing the ruler a bridge of time to remain in power, until things re-normalized or he re-tooled.”

      This passage reminds me of the notion of government functioning largely as a benevolent insurance scheme. Surplus grain, for example, extracted and stored for redistribution during hard times. This function is very ancient and certainly, like so much else, predates recorded history. This socialization of risk promotes larger human groupings that confers many competitive advantages over smaller groups.

  12. diptherio

    In theory there’s no difference between theory and reality; in reality, there is.

    In theory a national government can make use of its currency sovereignty to promote social welfare. In reality, in the US anyway, our national government has long since been captured by corporate interests and the sovereignty of the government (monetary and otherwise) is used increasingly for the benefit of corporate interests and as a club to bludgeon the citizenry. Given the reality of our specific situation (and leaving aside theoretical questions about whether or not governments can conceivably work in the interests of the populace-at-large), is it any wonder that many people feel a little hesitant about MMT? How can anyone who has been paying attention to the machinations of our ruling elites over the last few decades not feel some trepidation when considering an apparent expansion of the power of those elites?

    It seems like every other day we spend our time analyzing the corruption and capture of the Federal Government and lamenting the dim prospects for breaking the grip of the monied interests in Washington. We discuss the foul dealings of our “kleptocracy” to no end on this site, so should anyone be surprised that the idea of giving these leaders even more power strikes many as a supremely bad idea?

    This isn’t to put-down MMTers in general or Phil in particular, but just to point out that a different marketing approach might be in order. Stressing that MMT is already a reality for bankers and should be for the rest of us too, is something I’d like to see more of.

    Of course, labeling those who disagree with you “hysterics” and “the myopic herd,” doesn’t help Phil’s case much. It’s colorful writing sure, but it’s kinda ass-hatty if you ask me; at the very least it is belittling to any reader who doesn’t already share Phil’s perspective. Not a problem, I guess, if Phil isn’t concerned with anything apart from preaching to the choir. And blithely stating that the system “can be extremely functional if managed correctly,” given who the managers currently are, and given that we have no obvious way of replacing them with non-corrupt managers, strikes me placing the cart a considerable distance before the horse. If frogs had wings, they wouldn’t hit their ass on the ground when they hopped.

    I enjoyed the radio interview with Phil a couple weeks ago quite a bit. In person, he comes across as thoughtful and nuanced in his analysis. Unfortunately, in his writing the tone often veers towards the smug and self-righteous. Learning to speak nicely (or at least not disdainfully) of people whose ideas are not the same as ours is something we all need to work on, imho, especially those who have been placed into a “spokesperson” role.

    1. Calgacus

      Basically right, but:
      the idea of giving these leaders even more power strikes many as a supremely bad idea?
      Illustrates the problem Ben Johannson indicates above:

      the biggest misconception about MMT I come across, that it advocates a course of action when it is in reality informing us the government already does this.


      Stressing that MMT is already a reality for bankers and should be for the rest of us too, is something I’d like to see more of.


      How does our MMT system function right now? Basically by governments just plain giving tons of its valuable money to rich people and banksters for: Doing unbelievably insane, criminal or stupid things, or at best, nothing at all (bonds). And disguising this money 4 nothing with MOUNTAINS of BS.

      All MMT says is: give the state’s valuable fiat money to poor or ordinary or middle class – or even civic-minded richies – in return for their valuable, scarce labor, or for democratically-agreed-on needs and goals. Under the auspices of a JG if there is no other more specific government program and goal.

      A main tool of the money for insanity , austerity for real needs kleptocracy is the Big Lie that we don’t have a free-spending MMT system now, that MMT says to give the leaders more power. If they didn’t know this was a crucial Big Lie, the kleptocrats and their “academic” mouthpieces wouldn’t fib so much about it.

      1. Me

        “All MMT says is: give the state’s valuable fiat money to poor or ordinary or middle class – or even civic-minded richies – in return for their valuable, scarce labor, or for democratically-agreed-on needs and goals. Under the auspices of a JG if there is no other more specific government program and goal. “

        Why bother posting about something you clearly haven’t spent any time studying or trying to understand? MMT says that private interests take part in credit creation (which I guess is the “freedom” of banks to create credit money at will, a “freedom” they’ve had for centuries) and that the government can do so. Many MMT economists don’t back throwing money at private banks, they’d like to replace them outright and have the state take part in credit creation. The fact that you think that throwing money at banks is MMT shows how little you know of the subject and shows how little you know of the people in power that HAVE thrown money at the banks.

        There was this guy named Milton Friedman, who you might have heard of. He had a belief on why the Great Depression happened and believed in the quantity theory of money. The person in charge of the Fed believes Friedman’s explanation of the GD and said directly to Friedman that he would not allow another GD to happen. Bernanke has said that he would throw lots of money into the market and not do a repeat of the GD and he has said that Friedman and his ideas are why he thinks the way he does. It is FRIEDMAN’s ideas that are being put in place now, not MMT or Keynes’.

        1. diptherio

          I think you’re over-reacting. What both of us are saying is that the MMT truth that the government faces no funding constraint on its activities is already being used…by the Fed…for the benefit of the banks…and that’s not a good thing.

          I think you’re getting all testy with someone who you’ve just misunderstood. He’s suggesting a JG, if you didn’t notice.

          1. Me

            No, I think you are simplifying the matter greatly. It is far more complex than you seem to realize or are at least willing to acknowledge. Giving money to banks is not MMT, has nothing to do with MMT at all. Most MMT economists want at least a public option in banking. The vast majority of bank lending is for assets already in place (something Michael Hudson has written a lot about) and for speculation. Very little goes to actual production. Having a public option in banking, maybe even doing what Keynes called for in the last chapter of the General Theory which is a complete socialization of finance, is a means to lessen the power of banks, remove their monopoly on credit creation and allowing the government to lend to the actual productive economy. This is something banks haven’t done and won’t do.

            Giving money to banks has nothing to do with MMT. As I said, if you listen to the person in charge of giving out that money, he has no time and I would guess no knowledge of MMT. He is a follower of Milton Friedman and what the Fed has done is completely in line with what Friedman called for. We know this because Bernanke said so HIMSELF at a big birthday gathering for Friedman a few years ago.
            Again, I am not overacting. You are not accurate and need to analyze the situation with a little more depth.

          2. EmiIy

            “It is far more complex than you seem to realize”

            Sophistry always is…


            “A sophism is a specious argument used for deception. For example, sophisms can use obscure words and complicated sentence structures to intimidate the opponent into agreement to avoid feeling foolish or can manipulate the opponent’s prejudices and emotions to overcome their logical faculties.”

          3. Me

            “It is far more complex than you seem to realize”

            “Sophistry always is…”

            Please have at it as far as pointing out where I am wrong logically. Should be easy for you Emily. I don’t think my language is overly complicated, anyone who has read up on MMT would surely have run across the ideas and economists I mentioned in my post. My guess is that you haven’t done tons of research on MMT and I see no evidence that you’d be open to something like MMT that you have a fundamental disagreement with ideologically.

            Sometimes things ARE more complicated. Sometimes people do simplify the matter. Sometimes people think something is sophistry when they really just don’t understand the issue. To say that MMT has anything to do with giving tons of money to the banks is nonsense. There, plain English, simple to understand. The person running the Fed is a follower of Milton Friedman, has bought into Friedman’s explanation of the Great Depression and is acting on Friedman’s advice. He said as much and it is what people like Friedman seemed to recommend for the Fed to do. Friedman did also believe in the quantity theory of money. Look up why they call Bernanke “helicopter Ben”. What the Fed has done under Bernanke has nothing to do with Keynes, MMT or anything to do with progressive economic policy. If you think this is sophistry then maybe stop posting here and study the issue more.

          4. Calgacus

            The fact that you think that throwing money at banks is MMT

            Huhh?? Me – I’ve admired and liked your informative comments – to the point of concocting a mile-long search string a while ago for the benefit of another guy who wanted to pick out your NC comments with your difficult-to-search-for name.

            But diptherio understands what I said. While – how could my comments be construed as suggesting money be thrown at banks? This was not my intention.

            It is FRIEDMAN’s ideas that are being put in place now, not MMT or Keynes’.

            Centuries ago, it might be that some forgotten astrologer’s ideas were used to cast a ruler’s horoscopes. But the reality of astronomy was still described by the ideas of Galileo, Copernicus and Kepler. MMT/Keynes doesn’t need to be put in place. They describe the real world MMT system we already have. Once they are understood, full employment, the JG is a consequence which is obvious and unavoidable in any moral system but that of a serial killer.

            The idea that banks have a monopoly on credit creation is one that MMT academics fight hard to dispel. Government (deficit) spending most certainly is credit (money) creation. Moreover, creation of forms of credit – HPM and T-bonds, which are more powerful than what private banks can create.

  13. aj

    Excellent Article, as always, Phil. Yes your writing always brings out the crazies. I don’t know why they hang around on this site, anyway. You think they would be better off reading the Mises website or too be too busy out buying gold to hoard.

  14. Brooklin Bridge

    Where does the rule of law fit into this? I’m missing something, but power, or restraint, seems presented above (a certain amount of “arbitrary” power) as something government enforces on it’s people, but isn’t it also something the people expect government to enforce on itself through a contract? In the evolution of the whole thing, from the Magna Carta on (at least), wasn’t the Constitution a pivotal point and part of the scheme to make government a life enhancer rather than just a life detractor?

    Lying behind every dollar, euro and yen is a jailor and a judge who are ready to deprive us of our rights and our freedom should we choose not to play by the rules of the game.

    Indeed, but if the government decides that it can apply these rules to one segment and not to another, is that not a

  15. Brooklin Bridge

    Where does the rule of law fit into this? I’m missing something, but power, or restraint, seems presented above (The fiat money system is an embodiment of arbitrary power) as something government enforces somewhat arbitrarily in only one direction – downward, but isn’t it also something the people expect government to enforce on itself through a contract of governance and to enforce equally on all it’s people (and systems)? Thus the notion of legitimacy? In the evolution of the whole thing, from the Magna Carta on (at least), wasn’t the Constitution a pivotal point and part of the scheme to make government a life enhancer rather than a life subtract-er?

    Lying behind every dollar, euro and yen is a jailer and a judge who are ready to deprive us of our rights and our freedom should we choose not to play by the rules of the game.

    Indeed, but if the government decides that it can apply these rules to one segment and not to another, has not government broken it’s life enhancing contract and thus relinquished it’s legitimate – and therefore not arbitrary – power?

  16. Brooklin Bridge

    Sorry about the double post. I keep forgetting to use an editor and then cut and past rather than to rely on the built in one always behaving properly.

  17. Nathanael

    Mr. Pilkington, your interpretation of Foucault’s understanding of history in this case is bogus, and frankly ahistorical. (Not having bothered to read Foucault, I can’t say whether he got it wrong or whether you did. From what I’ve read *about* him — he’s a pretentious idiot — I suspect he got it wrong.)

    I have been studying history properly. While kings *claimed* sovereign powers, and while serfs *claimed* to respect such sovereign powers, that was NEVER, NEVER, NEVER how it actually worked.

    In actual fact, there has *always* been a social contract.

    The ancient one: The king or lord is granted sovereign powers in exchange for, basically, giving people a consistent minimal standard of living. If he fails to do this, the “mandate of heaven” is withdrawn from him, in traditional mythological terms. Usually a new wannabe declares himself the true king and executes the previous king. If that doesn’t happen, eventually the people overthrow and kill the king… and some other wannabe moves into the power vacuum.

    This social contract is essential. Machiavelli understood it and discusses it. A key feature of it is, bluntly, *how little the common people demand* on their side of the social contract. He said that if the Prince left the common men their homes (which included farms, so also food) and their women, the common men would hand the Prince everything else.

    But note: he can’t take their homes, food, and familes, not on a large scale — if he does, they will destroy him.

    The post-Enlightenment period is therefore best understood as a period when people demanded more than usual on their side of the social contract.

    1. Philip Pilkington

      Yeah, you didn’t read Foucault — and you didn’t read the Foucault I quoted. Nor did you read what I wrote:

      Foucault: “In its modern form – relative and limited – as in its ancient and absolute form, the right of life and death is a dissymmetrical one.”

      This is a contract, but it is an imbalanced one. The sovereign has the right to the subject’s life, but not vice versa. That’s all that is really important. The interesting questions is what type of power arose out of this imbalance — and it was, of course, the negative sovereign power discussed in the piece.

      Take a deep breath before you reply with garbage like this next time:

      “From what I’ve read *about* him — he’s a pretentious idiot — I suspect he got it wrong.”

      Statements like this lead one to suspect that your opinions are biased.

      1. Lambert Strether

        For some reason parts of this thread reminds me of this passage from Parkinson’s Law:

        We are all familiar with the basic difference between English and French parliamentary institutions; copied respectively by such other assemblies as derive from each. We all realize that this main difference has nothing to do with national temperament, but stems from their seating plans. The British, being brought up on team games, enter their House of Commons in the spirit of those who would rather be doing something else. If they cannot be playing golf or tennis, they can at least pretend that politics is a game with very similar rules. But for this device, Parliament would arouse even less interest than it does. So the British instinct is to form two opposing teams, with referee and linesmen, and let them debate until they exhaust themselves. The House of Commons is so arranged that the individual Member is practically compelled to take one side or the other before he knows what the arguments are, or even (in some cases) before he knows the subject of the dispute. His training from birth has been to play for his side, and this saves him from any undue mental effort. Sliding into a seat toward the end of a speech, he knows exactly how to take up the argument from the point it has 14 reached. If the speaker is on his own side of the House, he will say “Hear, hear!” If he is on the opposite side, he can safely say “Shame!” or merely “Oh!” At some later stage he may have time to ask his neighbor what the debate is supposed to be about. Strictly speaking, however, there is no need for him to do this. He knows enough in any case not to kick into his own goal. The men who sit opposite are entirely wrong and all their arguments are so much drivel. The men on his own side are statesmanlike, by contrast, and their speeches a singular blend of wisdom, eloquence, and moderation. Nor does it make the slightest difference whether he learned his politics at Harrow or in following the fortunes of Aston Villa. In either school he will have learned when to cheer and when to groan. But the British system depends entirely on its seating plan. If the benches did not face each other, no one could tell truth from falsehood- wisdom from folly- unless indeed 15 by listening to it all. But to listen to it all would be ridiculous, for half the speeches must of necessity be nonsense.

        In France the initial mistake was made of seating the representatives in a semicircle, all facing the chair. The resulting confusion could be imagined if it were not notorious. No real opposing teams could be formed and no one could tell (without listening) which argument was the more cogent. There was the further handicap of all the proceedings being in French-an example the United States wisely refused to follow [This is the Foucault part]. But the French system is bad enough even when the linguistic difficulty does not arise. Instead of having two sides, one in the right and the other in the wrong- so that the issue is clear from the outset- the French form a multitude of teams facing in all directions. With the field in such confusion, the game cannot even begin. Basically their representatives are of the Right or of the Left, according to where they sit. This is a perfectly sound scheme. The French have not gone to the extreme of seating people in alphabetical order. But the semicircular chamber allows of subtle distinctions between the various degrees of tightness and leftness. There is none of the clear-cut British distinction between rightness and wrongness. One deputy is described, politically, as to the left of Monsieur Untel but well to the right of Monsieur Quelquechose. What is anyone to make of that? What should we make of it even in English? What do they make of it themselves? The answer is, “Nothing.”

  18. Susan the other

    Fiat is the currency of functional finance/public finance. We should have a government that uses only fiat. Only government can create money for its public purposes because the governed agree to it. And the private banksters should all be forced to use gold. This is F. Beard’s solution no? I think it would work beautifully. It would prevent the privateers from creating money that the public was ultimately responsible for. Long live fiat, as long as the banksters are not the ones fiating it. As Ann Pettifore says, it is crazy to let money be a commodity used by banks whose market restrictions do not exist because they can create as much credit (fiat) as they want. Fiat is great, but only for governments in behalf of social good.

  19. Schofield

    Emily says:
    February 21, 2013 at 2:44 am

    “I guess I’m just confused as to why those empowered to “point the gun” at others would be any less “stupid” than those who are having the gun pointed at them?”

    Sure we all get confused because human nature is ambivalent we like to dominate but hate to be dominated. We like to dominate because we’re hard-wired to survive by pursuing our own self-centered instincts. We are, however, also hard-wired to defend against individuals who try to bully us and free-ride on us by counter-dominating them on a mutual or collective basis. This is why we have developed moral consciences that have a culturally determined set of rules that change to some extent over time. The fact that we are the only animal to blush reveals the existence of our moral conscience.

    Currently at this stage of human history we are still struggling to adapt to the technologies we’ve developed particularly agriculture, animal husbandry, industrialization and money which allows asymetrical accumulation of wealth and power. Our growing insight into the way Nature balances our two opposing human instincts through work done in sociobiology and anthropology is making it very clear that we can only deal with our ambivalent instincts by focusing on balancing our societies to handle our technologies. It simply is no longer possible to invent utopian ideologies that are not built on a foundation of ambivalent human instincts. Communism and Neo-Liberalism have attempted to build themselves on just one of our instincts and failed miserably. Now we have to seek balance.

  20. Expat

    I find MMT theory refreshing. It jives with experience and is almost entirely self-evident. By naming the phenomena, we can move beyond wasted argument about facts and talk about issues that really matter. Most of the discussions that delayed progressive government action for the past 40 years are moot, given the actual nature of our monetary system. We have a class of people, bankers and whoever, who are like the slave-owners of the past tied to an immoral system that deprives millions of their basic inheritance to freedom, equality and the good life. It’s time for the modern equivalent of an abolition movement.

    Heavens, if you understand fiat money properly, you can have a basic income for everyone that would keep the productive economy humming without a single serious glitch (thanks, Milty). You can choose whether you want to keep a system where rich people (or pension funds) lend “money” to the government in return for interest, and you can choose whether people share in their common governance through the payment of taxes. These are all choices that we could make, if more of us understood MMT.

  21. Chris Engel

    The flow of ideas on NC works much the way that money is distributed throughout society.

    Without the state (in our case, Queen Yves), producing money to give to private entities to use as reserves to create even mor emoney, there is no monetary ststem.

    Just like Yves has to create a post on NC, and from that post, the mass of readers flood to use that as the basis of posting additional ideas in comments.

    Sometimes, a post is created that leads to some bad comments being made that aren’t helpful to the overall community. Just like bad loans are often created from reserves that the government makes, and don’t help the overall economy.

    And finally, if Yves ceases to create posts, ideas cease to flow on NC.

    Just my observation.

    1. Chris Engel

      Oh and great article as usual.

      As an econ guy who is playing catch-up on philosophy and history, I appreciate the references to various thhinkers which expand my reading lists.

      Soros has been selling gold and there’s other signals in the market indicating a prolonged “bear” route.

      Two scenarios I’m seeing in the near future:

      1) Somehow austerity is avoided in the US, stimulus is somehow passed, and economic growth becomes healthy and unemployment low, leading to a fleeing from the gold market into dollar-cash-flow assets like equities and bonds. The only issue here may be that inflation from the growht would lead people to be worried about gold, but i don’t see that as problematic. Fear and speculation seems to be driving hte price more than legitimate inflation hedges.

      2) We avoid austerity but still remain sideways economically and gold sort of limps down, as inflation becomes an obvious no-risker and fear slowly melts away

      3) austerity gets put into play and fear rules, where gold will probably continue to go up?

      Anyway, those are my more on-top thoughts on fiat currency.

  22. Lambert Strether

    I proffer this general observation on libertarian commenters and blogs:

    For the life of me, I can’t see why a serious libertarian would ever whine complain even remark about how comments are managed on a blog they themselves do not own.

    As I understand it: The blog owner is “at liberty” to do whatever they want with their property. If Yves wishes to delete every comment that contains the word “foo,” or is posted when the date and time roll over at 03:14:15, or is posted by a commenter whose handle begins with the letter “A” — no, I’m not talking about you — that is entirely her prerogative.

    It’s a big Internet, and you are 100% free to go elsewhere or start your own blog!

    UPDATE Hilariously, no response (except for more whinging elsewhere) from our libertarian friends, who, I am sure, would be the first to claim that their own blogs are property of which they are the owners, and yet demand that other blogs be “hosts,” treat their comments sections as a commons, and they as guests. “Your principles are consistent with each other.” BWA-HA-HA-HA!!!

    1. ebear

      There you have it, folks. The Private Enterprise model of political discourse.
      Question: do contributors (stakeholders?) have a right to difference of opinion, or are they simply paying tribute to the sovereign?

      1. Yves Smith Post author


        You’ve had goes at me on past posts. There is plenty of dissent on this one as there is on pretty much every post at NC. Go read the comments section at ProPublica for a contrast. This sort of insinuation is earning you troll points.

        If you think you are an oppressed peasant here, please go read another blog. It’s a big Internet.

        1. ebear

          Come and see the violence inherent in the system! Help, help, I’m being oppressed!

          Seriously though, I’ve made no secret of being a troll – I made an open declaration some time ago. Our definitions differ of course. Eliciting emotional reactions for the sake of it is the lowest form, but there are others. Taking a position contrary to popular opinion in order to gage reactions is one. Thus I’ve been labelled an Austrian (apparently the worst form of insult) a neo-liberal (close second), a gun… what was it, enthusiast… advocate? (Lambert will tell you). I don’t even own a gun. I guess I should add “Friend of Israel” to the list, at least by inference. I have no dog in that fight either – I’m not even Jewish.

          Alright then. Reactions gauged. Anything learned? Perhaps. I leave it to the reader to decide. Personally, I find it amusing how quickly some people expose their prejudices when challenged. The dismissive tone of your cabal towards anyone straying into alleged false doctrine speaks to that. I just pushed it a bit further by wearing funny hats.

          Of course it’s your party, and THAT is central to my thesis that genuine political discourse is not possible on private yachts. You seem to feel otherwise and point to an erudite crew, when all I see is a debate between like minds taking place on the head of a pin. Nothing very radical – just your typical gathering of smug academics convinced of the weight of their arguments.

          So yeah, consider yourself trolled, and punt at will. I’ve made my point already and there’s nothing worse than flogging a dead horse.


      2. Lambert Strether

        Normally, I avoid the “reading comprenhension” trope, but in your case it applies. There are multiple signals in that comment saying that I’m reasoning from libertarian premises. It’s not a generic argument, and I’m quite specifically not speaking for NC. I suppose I could have written “As I understand the libertarian worldview:” instead of “As I understand it:”….

  23. nobody

    There’s an interesting assessment of Foucault in this book:

    I’m not sure what to make of it, or the author’s other book, Conjuring Hitler: How Britain and America Made the Third Reich (which I think LeonovaBalletRusse would find of interest):

  24. Paul Jurczak

    Technically, MMT makes a lot of sense, but writing “allows governments to extend deficit-financing in order to keep economic activity stable” does not pass a simple truth-in-advertising test. Stable economic activity exists only in minds of some professors of economics – it was never observed in real world for any historically meaningful period of time. There were many false prophets of stable economy (or stable growth), but we are still waiting for the true one.

    The fear of MMT may not be a fear of government gun pointing to your head, but a fear of another naive and oversimplified economic model applied to real world with disastrous consequences.

    1. Detroit Dan

      Paul– I agree that it’s good to separate the “modern monetary operations” aspect of MMT from the ideas on how we can use modern money to improve society. Both are important.

      Personally, I think MMT does have good ideas about using money to improve society…

    2. Ben Johannson

      While on the gold-standard we had six depressions during the 19th century.

      While off the gold-standard we had none in the 20th century.

      There’s a difference in the stability. Some monetary systems are more resistant to wild swings than others.

  25. Brendan

    Foucault has not the faintest idea why ancient monarchies possessed their power. For a serious study of traditional monarchy see “Sacred Royalty: From the Pharaoh to the Most Christian King,” by Jean Hani. Likewise, the ideas concerning feaudalism in the article are essentially caricatural and do no more than mouth conventional bias, and hardly reflect serious scholarhip. One sees this kind of sloppiness and demagoguery all too often in print.

  26. frago

    A few terms to feed to the google

    open source society
    maker movement
    new economy

    maybe things are starting to change

  27. steelhead23

    Philip, I am becoming a fan. I think it is great fun to begin a discussion on sovereign power with a quote from a book about sex (cue Peter Gabriel) . But, your references and arguments are all arguments of a rational (if ignorant) mind. I don’t think this is an adequate frame. Historically speaking, rather than a post-Enlightenment post-modern world, I see a great tent revival ala the Great Awakening in which many are attracted by the sonorous preacher. This revival was led by elite aristocrats and their champion, Ronald Reagan. Its primary tenet is that government is evil. It captured American consiousness like Billy Graham never could. And this tent is huge – global in fact with its sound system owned and operated by the likes of Rupert Murdoch with the basic meme that the sovereign, rather than a necessary collectivization of individual wills, is itself a self-interested entity – or a collection of self-interested individuals determined to better themselves at the expense of mere citizens. And of course, ignorance plays a huge role in this anti-government revival, much as it did in the Great Awakening. Were governments to do what so many of these true-believers wish and base all money on a gold standard and set the price of gold, these folks (many are goldbugs) would come unglued. All I am saying is: there is a religious (belief system) aspect to this; and, propaganda enlarges ignorance.

  28. Chris

    Yves and Philip. Wow yet again. NC’s posts about money and where it comes from certainly bring out the crazies and those with passioned but uninformed views.

    Us economists have come in for a bashing of late, particularly those who fail to properly explain how money is created and that governments have given this power to private banks. That governments continue to lie to the people that they have no power to create money, or that it is inflationary etc.

    Keep plugging away as more and more of us are listening to the truth.

  29. Roland

    Pilkington misses the point.

    Many dislike fiat money for the same reasons they dislike any other sort of arbitrary, wholly discretionary, exercise of other people’s power over them.

    This is especially true with money since its effect on other social relations is so pervasive. The power to buy is pretty much the power to do most other things. Many people are disturbed by the prospect of an enormous buying power which can be generated purely at will.

    They don’t trust other people with that sort of power, and with good reason. The claim will always be made that the government which exercises discretionary power over the medium of exchange will do so only in the interests of the people. That claim has been made by most sovereigns, and it is only fleetingly true at best.

    The democratic tradition in the Anglo world, such as it is, is closely linked to people’s desire to check the arbitrary spending power of those who claim the right to govern them. That was true with the Magna Carta, with the English Revolution, and with the American Revolution.

    When a government can simply create its own revenue at will (as I have read MMT’ers enthuse), it undermines the democratic process at least as most people in the Anglo world understand it.

    1. Ben Johannson

      And yet tou have once again demonstrated you have not a basic understanding of MMT. So far you aren’t even scratching the surface of understanding it. All you’ve done is make moral objections to a politically agnostic framework for economic analysis.

      Very strange that austrians/libertarians so vehemently object to a toolset which can empower their ideas, but consistency has rarely been an atteibute I associate with that partiicular faction.

      1. EmiIy

        We are consistent in that we refuse to use violence to achieve our goals, even if that would be expeditious.

        Peace – When interacting with another person, you will never be the one who initiates force, violence, or physical aggression against the other.

        Integrity – Your principles are consistent with each other. Your positions are consistent with your principles. Your decisions, actions, and inactions are consistent with your principles. Your life is consistent with your principles. You make personal sacrifices to live consistently with your principles. If you discover your position is out of sync with your principles, then you change your position. The end does not justify the means, which means that you do not violate your principles to promote your principles.

        And you speak of our inconsistency? Absurd.

        1. skippy

          The universe is violent…. even before we popped up… the environment is violent… Sandy – Katrina WTF are you going to do about that?

          Skippy… consult the – Free Market – for an fix[?], yeah if there’s money in it.

        2. AbyNormal

          Absurd is your inability to recognize your volatile inciting argument(s). You need rest, Emily.

          Who looks outside, dreams; who looks inside, awakes. jung

    2. skippy


      Von Mises writes that action axiom is the basis of all praxeology, and it is the basic proposition that all specimens of the species Homo sapiens, the homo agens, purposefully utilize means over a period of time in order to achieve desired ends. In his magnum opus Human Action, Von Mises defined “action” in the sense of the action axiom by elucidating:[14]

      Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.

      Von Mises argues that praxeology is not concerned with the individual’s definition of end satisfaction, just the way he sought that satisfaction and that individual’s increase of their satisfaction by removing sources of dissatisfaction or “uneasiness”. In his theory, an acting man is defined as one capable of voluntary and conscious behaviour—to be otherwise would be to make one a mere creature who simply reacts to stimuli by instinct. Similarly, an acting man must have a source of dissatisfaction which he believes can be changed, otherwise he cannot act.

      Von Mises writes that economics, the study of human choice under conditions of scarcity, can be treated as a specialization of praxeology, the study of all human action. Like other members of the Austrian School, von Mises rejected the standard scientific approach of relying upon empirical observation in the study of economics, and instead, favored the use of logical analysis, a logic which is influenced by Immanuel Kant’s analytic–synthetic distinction. Von Mises writes that the empirical methods used in the natural sciences cannot be applied to the social sciences because the principle of induction does not apply. In essence, he believed that a theory constructed to predict how humans will act (what ends they will seek) in a “complex” situation could not arise from studying how they acted in “simple” situations. Furthermore, there are limits to how much can be learned from even a “simple situation”. As a criticism to empirical studies seeking to find justification in the economic action of individuals, von Mises proposed that only the human actor knows the ends toward which he acts.

      Another conclusion that von Mises reached was that decisions are made on an ordinal basis. That is, it is impossible to carry out more than one action at once, the conscious mind being capable of only one decision at a time—even if those decisions can be made in rapid order. Thus man will act to remove the most pressing source of dissatisfaction first and then move to the next most pressing source of dissatisfaction. Additionally, von Mises dismissed the notion that subjective values could be calculated mathematically; man can not treat his values with cardinal numbers, e.g., “I prefer owning a television 2.5 times as much as owning a DVD player.” As a person satisfies his first most important goal and after that his second most important goal, then his second most important goal is always less important than his first most important goal. Thus, the satisfaction, or utility, that he derives from every further goal attained is less than that from the preceding goal. This assumes, of course, that the goals are independent, which is not always the case—for example, acquiring the television may enable one to pursue the goal of watching a documentary on biology, which may make one decide to study biology, which opens the goal of writing a research paper, and so on. In human society, many actions will be trading activities where one person regards a possession of another person as more desirable than one of his own possessions, and the other person has a similar higher regard for his colleague’s possession than he does for his own. This assertion modifies the classical economic view about exchange, which posits that individuals exchange goods and services that they both appraise as being equal in value. This subject of praxeology is known as catallactics. – wiki

      Skip here… O’tay… out of all that bum cavity inspection it all boils down too catallactics see:

      Catallactics is the praxeological theory of the way the free market system reaches exchange ratios and prices. It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices. It explains prices as they are and not as they should be. The laws of catallactics are not value judgments, but aim to be exact, objective and of universal validity. It was first used extensively by the Austrian School economist Ludwig von Mises.[citation needed]
      Friedrich Hayek used the term catallaxy to describe “the order brought about by the mutual adjustment of many individual economies in a market.”[1]

      He was dissatisfied with the usage of the word “economy” because its Greek root, which translates as “household management”, implies that economic agents in a market economy possess shared goals. Hayek derived the word “Catallaxy” (Hayek’s suggested Greek construction would be rendered καταλλαξία) from the Greek verb katallasso (καταλλάσσω) which meant not only “to exchange” but also “to admit in the community” and “to change from enemy into friend.”[2]

      According to Mises (Human Action, page 3) and Hayek[3] it was Richard Whately who coined the term “catallactics”. Whately’s Introductory Lectures on Political Economy (1831) reads:[4]

      It is with a view to put you on your guard against prejudices thus created, (and you will meet probably with many instances of persons influenced by them,) that I have stated my objections to the name of Political-Economy. It is now, I conceive, too late to think of changing it. A. Smith, indeed, has designated his work a treatise on the “Wealth of Nations;” but this supplies a name only for the subject-matter, not for the science itself. The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the “Science of Exchanges.”

      Also, in a footnote to these sentences, he continues:
      It is perhaps hardly necessary to observe, that I do not pretend to have classical authority for this use of the word Catallactics; nor do I deem it necessary to make any apology for using it without such authority. It would be thought, I conceive, an absurd pedantry to find fault with such words as “thermometer,” “telescope,” “pneumatics,” “hydraulics,” “geology,” &c. on the ground that classical Greek writers have not employed them, or have taken them in a different sense. In the present instance, however, I am not sure that, if Aristotle had had occasion to express my meaning, he would not have used the very same word. In fact I may say he has used another part of the same verb in the sense of “exchanging;” (for the Verbals in are, to all practical purposes, to be regarded as parts of the verbs they are formed from) in the third book of the Nicom. Ethics he speaks of men who hold their lives so cheap, that they risked them in exchange for the most trifling gain []. The employment of this and kindred words in the sense of “reconcilement,” is evidently secondary, reconciliation being commonly effected by a compensation; something accepted as an equivalent for loss or injury. – wiki

      Skip here… Emily you grok all that[?], you have any ability to splaine that stuff[?] and provide forensic historical – anthropological evidence to support these claims… or do you just embrace them… for what ever reason…

      Skippy… Burning bushes… shezzzz.

      PS. If you can show a modicum of actual – knowledge based – understanding of the opines of Austrian theory… cough thunkit… I will splain for you. The back slapping trollary is quite tiring imo…

        1. bob

          At the risk of adding *something* to this comment shit show-

          “OWS is acting in the tradition of non-violent civil disobedience. The Tea Party was not. That means OWS (a) does not feel bound to obey laws they believe are fundamentally unjust – for instance, those limiting freedom or public speech or assembly, and (b) does not use violence or encourage anyone else to, which means, does not work through the government, which they consider a violent institution. The Tea Party in contrast (a) obeys all legalities scrupulously, applying for permits for all their events, etc, and (b) has no essential problem with violence, as a result – that is, they wish to act through the government and ultimately employ the apparatus of government (legislation, enforced by police and judges) to attain their political aims.

          Isn’t it obvious which government forces are more likely to attack?”

          From this very good reddit thread…

          1. Lambert Strether

            Also too, funding by right wing billionaires is always a help. Just saying.

            If by OWS you mean Occupy generally, that’s an over-generalization. Many Occupations were quite scrupulous about permitting.

  30. Jack Hepler

    I appreciate erudition as much as the next retired carpenter. But I get lost in much of the free-floating arcana.

    And I’ve appreciated Phil’s posts, mostly from a distance…
    But this one looks like classic bait-and-switch. Entitiled “Why are we scared of fiat money”– the post barely touches on this— at least by my hillbilly reading of it.

    Yes, the concept of fiat money is not a problem except in one sense. A learned guy with whom I discuss refers to Lincoln’s old gov’t issued, debt-free greenbacks as “fiat money”, which I think is factually correct. But our today’s Federal Reserve notes are obviously also fiat money…..
    So we have a very general term that sometimes is used specifically.

    I just wish someone could explain to me: Why isn’t the issue of private-bankers cartel/Fed vs direct US Govt control of money creation an issue of great significance? Especially on the 100th anniversary of the creation of the Fed. Is it a huge issue or not? [And when one of your commenters avers that the Fed gives all its “profits” back to the US Treasury– $500 billion in last 5 years= 100 billion per year, while we have the privilege of paying $500 billion EVERY YEAR in interest on the money “loaned” to us taxpayers……… And growing]

    The HVPCS discussion touched on this but it seems to me that no one but Ellen Brown is grabbing the underlying issue one by the horns. She sounds fine but I have no basis for assessment. I count on you, our Dear Leaders, to open this up.

    And get good, agreed-upon nomenclature out there before the propagandists try totake control.

    And yes, I’ve asked this before……. I appreciate all of you in any case

    1. David

      I can’t claim to answer you question authoritatively, but I think on the question of government (deficit) spending the MMT folks say that it doesn’t matter functionally whether bonds are issued or currency directly. My opinion is that it matters a good deal politically because the outstanding treasuries including the large proportion owned by the Fed constitute the debt. MMT says if the right hand (Treasury) owes money to the left hand (Fed) it’s not really a debt in the ordinary sense of the term. Since our whole domestic debate seems to hinge on this little technicality, which the platinum coin brought some light to, it’s hard to say it doesn’t matter from that standpoint.

      On the issue of the relation of the Fed to the banking system as a whole, the MMTers like the flexibility of “endogenous money” (loans create deposits) with the Fed standing ready to provide reserves as needed. They call for more effective regulation of the existing system, as a means of preventing systematic failures.

      The traditional monetary reform community doesn’t like endogenous money and would set up a banking system where banks can only make loans from funds on hand. They would not be allowed to “lend money into existence” in the act of making a loan. Although I am probably not doing justice to it, this is the basic idea of the Simons-Fisher 100% reserve school, as I understand it. These folks would also give the government explicit power to spend money into existence “debt free.” They think that making a clear distinction between money and debt is critical

  31. ATV

    This is a reply to ‘fresno dan’ near the top of the comments (my replies up there are not showing up for some reason)

    You say “How do you distinguish the private sector from the government? Does the government control Goldman Sachs, or does Goldman Sachs control the government?”

    The first question to consider is why does their incestuous relationship even bother you? The answer is that the government forces its policies and its dodgy wheeling and dealing onto everyone at gunpoint. If they didn’t have the legal right to do this we wouldn’t care how corrupt they were, because it wouldn’t really affect us. We’d all just take our custom elsewhere and let them sink.

    That also answers the other question (who is controlling who?) Obviously the government is the one with all the guns. All businesses seek to partner with and invest in those who will benefit them the most. It’s only natural (we ALL behave this way in our business and private lives).

    When society allows one group (such as a government) to have a monopoly on the legal right to initiate force against everyone else they become the most powerful and influential group in society. And guess what? Big business chooses to invest in and partner with them, rather than investing in and partnering directly with consumers. The logic goes like this : government has guns – let’s make friends with government by giving them money and loyalty! Then they can use their guns to enforce rules which benefit us, benefit them and hinder competition and pepper spray the faces of the peasants when they get upset.

    The problem here is obviously the government’s monopolistic legal right to point guns at everyone. The problem is NOT our natural tendency to seek out partnerships which benefit us the most.

    This fundamental misunderstanding of the problem is why so many people end up calling for more ‘regulation’ (bigger guns for government) and even calling for socialism / communism (bigger guns for government), which only makes the problem worse. Government/ big business WANTS the people to get mad and call for more ‘regulation’. It suits them just fine.

    1. skippy

      If you can not address my fundamental issues I brought up with your ideological collectivist… take a shower.

      1. ATV

        I wrote you a long reply but it never materialised for some reason (too long perhaps?)

        RE: ideological collectivism

        To clarify … rejecting the current system (which is based on a central agency with the monopolistic legal right to initiate force against everyone else) is not the same as advocating for collectivism. Far from it. I don’t understand how you can make that connection.

        ‘Money’ is just a useful service. Just as batteries conveniently transfer electrical energy, money conveniently transfers value. It saves us having trade in beans of work directly for apple for a month to get an ipad.

        Some batteries are cheaper, longer lasting, more lightweight, more durable, more reliable than others. Currencies are very much the same.

        All goods and services benefit from NOT being controlled by a single group who use coercion and violence against everyone else. The violent monopolisation of the battery industry would not be good news for the consumer….. the same is true of currencies.

        Logic and evidence (including all history as well as the current financial situation) all support this conclusion.

        1. bob

          You are attempting to respond to an argument. This is evidenced by your commenting on a post about MMT.

          “Logic and evidence (including all history as well as the current financial situation) all support this conclusion.”

          What conclusion? All I see is vapid critisism, none related to MMT or its concepts.

          1. Chris

            Go Skip, you’ve got more patience than this Aussie. I could spend days replying to the fuckwits who come on here thinking they know shit. My mum used to say only open your mouth if you’ve got something good to say…

        2. skippy


          Ok. Firstly, all you have submitted is the same parroting of non violence meme with the bumper sticker:

          “Logic and evidence (including all history as well as the current financial situation) all support this conclusion.”

          As a proclamation in empiric fact just cuz you say so. Please provide your evidence to make such a massive observation, because i can not find the logic or the evidence you so casually proclaim – libertarian habit IMO.

          Please address the issue put to you ie provide forensic historical – anthropological evidence to support these claims with Catallactics or any other opine contained in my comment – to the now missing – Emily. Its just theory mate… theory[!]… the fact that you breathers treat it – as divine – is not indicative applying logic or evidence based opinion.

          Skippy… BTW the Chicago school has been the forerunner of this economic shite show, which bring me to this question, is hunger violent, is living with out shelter, is having your savings or investments fraudulently handled, has deregulation been non violent, et al.

          Oh and libertarians remind me of an Amway convention, you would rank about a ruby member in my observations, you know, the ones that sleep in their cars in the parking lot and get ready for the conference in toilets. All waiting for the manna upgrade showered down from above… snicker…

  32. ATV

    @yves smith

    (Your comment near top has no reply button so I will reply down here)

    “…Legal is an artificial distinction. Powerful private players can also use violence and coercion….”

    Yes I agree. A ‘law’ is just an opinion backed by violence. A law is not a rule. Statism has no rules, only laws. THAT IS THE PROBLEM. An example of a rule would be “It’s wrong to initiate force”. If enough of us accepted this rule then we could easily deal with those who tried to violate it (including anyone claiming to be acting on behalf of a ‘government’).

    Granting one group the legal right to initiate force does not solve the problem of people initiating force…. just as granting one group the legal right to commit rape does not solve the problem of people committing rape. Governments do not enforce rules, they enforce their own monopoly on the legal right to VIOLATE those rules.

    I read your linked article. Powerful players can indeed use violence and coercion (initiation of force) but it only works when the government legalises it ….. OR when the government refuses to enforce the laws which forbid it (perhaps turning a blind eye because it has been lobbied and bribed to do so) ….OR when the government lacks the resources to enforce the law (for example during economic collapses – which is also when most of these coercive and violent disputes happen).

    Either way the problem boils down to same thing: the government’s monopoly on the legal use of force. This takes the power to enforce RULES out of everyone’s hands. When governments become incompetent, corrupted, tyrannical, fascistic or in too much debt (all of which are guaranteed, as deduced by logic and shown by history) the general population ends up starving, getting beaten up, losing their jobs/homes/freedoms, getting put in cages, turning on each other and often getting slaughtered en masse like cattle.

    Giving one group a monopoly on the legal right to initiate force ALWAYS ends in total disaster along those lines. Always. Statism is the most naive, insane, utopian and above all DANGEROUS superstition there is.

    We all agree it’s crazy to give other people the legal right to initiate force against us and nobody does this in everyday life…… yet we make one catastrophic exception – government.

  33. Henry

    Decentralization Hidden in the Dark Ages

    by Jonathan Goodwin

    Examples of decentralized society in history are often hidden. They are hidden because those in decentralized societies never bothered to keep records. They are also hidden for the purposes of the current state. I have previously written about anarchy in the Southeast Asian Highlands as one example. Here, I will present the time of the Middle Ages as another.

    This time offered a system of private law. A law not based on the edicts of the king, but based on local tradition and culture. The king was not above the law, but equally subject to it. For law to be law, it must be both old and good. Each lord had a veto power over the king and over each other law (I will use the term “lord” for those landed free men. Even the serfs could not be denied their right without adjudication. Land was not held as a favor from the king; title was allodial. A man’s home truly was his castle.

    Although the term has fallen out of use in the academic community, for many this period is known as the Dark Ages – with all of the associated stereotypes: barbarians, boorish behavior, and the uncivilized society that came to Europe with the fall of the much more civilized Rome.

    From Wikipedia:

    The Dark Ages is a historical period used for the first part of the Middle Ages. The term emphasizes the cultural and economic deterioration that supposedly occurred in Europe following the decline of the Roman Empire. The label employs traditional light-versus-darkness imagery to contrast the “darkness” of the period with earlier and later periods of “light”.

    The (Not So) Dark Ages

    How did people live absent a strong central power (Rome)? In what manners was governance achieved? How did such a society evolve over the centuries into the nation-states of Europe? From whose perspective were these ages “dark”?

    Hans-Hermann Hoppe, in his essay entitled “On the Impossibility of Limited Government and the Prospects for a Second American Revolution,” makes reference to certain aspects of this time period in history:

    Feudal lords and kings did not typically fulfill the requirements of a state; they could only “tax” with the consent of the taxed, and on his own land every free man was as much a sovereign (ultimate decision maker) as the feudal king was on his.

    Tax payments were voluntary. On his land, each free man was as sovereign as the king. This doesn’t seem so “dark.”

    Hoppe quotes Robert Nisbet:

    The subordination of king to law was one of the most important of principles under feudalism.

    The king was below the law. This might be one factor as to why the time period is kept “dark.”

    Hoppe references a book by Fritz Kern, Kingship and Law in the Middle Ages. The book was originally written in German in 1914, and is a thorough and eye-opening examination of the relationship of king and lord during this time period, as well as the relationship of both king and lord to the law. I will rely upon, and will quote extensively, from this book throughout this essay. Except as noted, all quoted items will be from this book.

    During the early Middle Ages, there was no concept of a Divine Right of Kings, nor did the earlier period hold to the idea of kingship by birthright. These ideas developed over the centuries and only took shape in the late Middle Ages. Contrary to these, in the early Middle Ages…

    …an act of popular will was an essential element in the foundation of government….

    To become king required consent of those doing the choosing. Additionally, the king did not hold absolute power:

    …even the rudiments of an absolutist doctrine had scarcely appeared.

    Both the king and the people were subservient to the law – and not an arbitrary law, but a law based on custom, “the laws of one’s fathers.”

    All well-founded private rights were protected from arbitrary change….

    Germanic and ecclesiastical opinion were firmly agreed on the principle, which met with no opposition until the age of Machiavelli, that the State exists for the realization of the Law; the power of the State is the means, the Law is the end-in-itself; the monarch is dependent on the Law, which is superior to him, and upon which his own existence is based.

    The king and the people were not bound to each other, but each was bound to the Law, giving all parties responsibility to see that the integrity of the Law is maintained. A breech by one imposed an obligation on the other to correct the breech. The relationship of each party (king and lord) was to the Law, not to the other party, and each had duty to protect it.

    Contrast this to the situation today: whereas today it is an illegal act for the people to resist the government authority, during this period after the fall of Rome the lords had a duty to resist the king who overstepped his authority. This is not to say that such challenges went unopposed by the king –physical enforcement by the lords was occasionally required – however, the act of resistance in and of itself was not considered illegal. It was a duty respected by king and people alike.

    A Decentralized Society: Church Towers Bear Witness

    The variety and conformity, through different times and in different places, of church towers throughout Europe and European history bear witness to first the centralizing control of Rome, and then the decentralization of the Germanic period. Here I make reference to A History of Medieval Europe: From Constantine to Saint Louis (3rd Edition), by R.H.C. Davis

    Davis uses the architectural styling of various church towers built throughout Europe to illustrate the decentralization of society that began with the decrease in Roman influence. He begins with a review of monumental architecture during the time of general Roman rule, preceding the early Middle Ages:

    Under Roman rule the general style of monumental architecture had been recognizably uniform in all the provinces of the Empire, from Britain to Africa and from Spain to Syria. In the Dark Ages, something of that uniformity had been maintained…the buildings of the Ostrogoths, Visigoths, Lombards, and Franks were built as imitations (though sometimes poor imitations) of the Roman or Byzantine style. But in the period from 900 to 1250 this uniformity ceased completely…in the Latin West there was a whole medley of different styles.

    Davis then goes on to describe the differences: from Saxony, to the Rhineland, to Lombardy, to Rome, and France:

    They stand as monuments to the intense localism of the High Middle Ages, when every man’s ‘country’ (patria) was not the kingdom, duchy, or county in which he lived, but his own town or village. An echo of this sentiment may still be caught by the French peasant who refers to his village as mon pays [my country], but in the Middle Ages it was all pervading.

    The distinctions, region by region, extending to the area of law:

    Even the law might change from village to village; a thirteenth-century judge pointed out that in the various counties, cities, boroughs, and townships of England he had always to ask what was the local customary law and how it was employed before he could successfully try a case. The legal uniformity of the Roman Empire had disappeared completely, and law, like the architectural style of the church-towers, varied from parish to parish.

    Davis describes medieval civilization as “firmly rooted. It grew out of the earth, as it were.”

    The Road from Serfdom

    Before going further into Kern’s work, it might be worthwhile to spend a few minutes on the topic of serfdom. Kern spends much time on the relationship between the lords and the king, what about those on the lower rungs of society’s ladder?

    The term serfdom comes with a tremendously negative connotation. However, when considering this institution of social structure it might be good to keep in mind:

    Taxes levied by the state took the place of labour dues levied by the lord….Serfdom is an institution that has always been commonplace for human society; however, it has not always been of the same nature.

    I mention this not to justify, compare, or romanticize. However it might be beneficial to start with a cleaner sheet of mental paper when considering historical serfdom. The serfs paid a tax in labor. Today we pay a tax in currency units usually earned by our labor, and at rates often far higher than the rates experienced by the serfs. At least the serfs had no misplaced views about their lot in life.

    Serfs who occupied a plot of land were required to work for the Lord of the Manor who owned that land, and in return were entitled to protection, justice and the right to exploit certain fields within the manor to maintain their own subsistence. Serfs were often required not only to work on the lord’s fields, but also his mines, forests and roads. The manor formed the basic unit of feudal society and the Lord of the Manor and his serfs were bound legally, economically, and socially. Serfs formed the lowest social class of feudal society.

    Other than the constraints on the serf regarding relocation, what about the above paragraph is not applicable to today?

    A hint at the relationship between serf and lord is offered in the following 7th century Anglo Saxon “Oath of Fealty”:

    “By the Lord before whom this sanctuary is holy, I will to N. be true and faithful, and love all which he loves and shun all which he shuns, according to the laws of God and the order of the world. Nor will I ever with will or action, through word or deed, do anything which is unpleasing to him, on condition that he will hold to me as I shall deserve it, and that he will perform everything as it was in our agreement when I submitted myself to him and chose his will.”

    The serf pledged his loyalty to a lord who acted “according to the laws of God and the order of the world.” His loyalty was conditional: as long as the lord acted in accordance with “our agreement when I submitted myself to him,” the serf was obliged to remain loyal to his oath.

    There were remedies if the lord did not keep up his end of the bargain. A serf was afforded several social and legal protections:

    The landlord could not dispossess his serfs without legal cause and was supposed to protect them from the depredations of robbers or other lords, and he was expected to support them by charity in times of famine. Many such rights were enforceable by the serf in the manorial court.

    Presumably being a serf was better than many other alternatives available at the time – why would a serf insist on “legal cause” before being dispossessed by the lord? Why not simply rejoice at being set free?

    The Law (No, Not THAT One)

    Here I do not refer to Frederic Bastiat’s classic work, but the law as understood in mediaeval times after and absent Rome, and before development of anything even modestly resembling today’s nation-state.

    Kern contrasts this mediaeval law with what is referred to as law today:

    For us law needs only one attribute in order to give it validity; it must, directly or indirectly, be sanctioned by the State. But in the Middle Ages, different attributes altogether were essential; mediaeval law must be “old” law and must be “good” law….If law were not old and good law, it was not law at all, even though it were formally enacted by the State.

    Consider how pathetic our society would seem to someone coming from this past time that Kern describes. He comes from a place that held that law was grounded in something more than the whims of the king. He comes to a place where law is defined as anything goes as long as the state says it does. And he sees a society beholden to this.

    This mediaeval time traveler looks back to his time, and considers that for law to be law, it must be “old”:

    Law was in fact custom. Immemorial usage, testified to by the eldest and most credible people; the leges patrum, sometime but not necessarily proven by external aids to memory, such as charters, boundaries, law-books, or anything else that outlived human beings: this was objective law. And if any particular subjective right was in dispute, the fact that it was in harmony with an ancient custom had much the same importance as would be given today to the fact that it was derived from a valid law of the State.

    Further, he considers that the law to be law must be “good”:

    Where we moderns have erected three separate alters, to Law, to Politics, and to Conscience, and have sacrificed to each of them as sovereign godheads, for the mediaeval mind the goddess of Justice is enthroned, with only God and Faith above her, and no one beside her.

    The mediaeval mind did not separate justice from law – the law was to serve no other purpose, no other objective, no other god.

    The monarch remained free to bestow privileges…

    …so long as no one thereby suffers wrong. He can, for example, make grants from his own possessions, so long as the community does not thereby suffer.

    Consider the simplicity and justice of this, and how foreign and corrupt today’s law would appear to our time traveler.

    The law was always there, either discovered or waiting to be discovered. That bad practice at times overtook the law did not change or replace the underlying “good” law. This did not require passing another, new law. It only required the discovery of the old law – discovery in its most simple and direct sense; something that previously existed, waiting to be found. “The old law is the true law, and the true law is the old law.” One cannot be separated from the other.

    But not today. Kern offers further views on today’s law:

    For us, the actually valid or positive law is not immoral but amoral; its origin is not in conscience, God, nature, ideals, ideas, equity or the like, but simply in the will of the State, and its sanction is the coercive power of the State. On the other hand, the State for us is something holier than for mediaeval people….

    What a miserable concept we live under. Imagine our poor time traveler, the pity he feels for this miserable lot.

    For us, the heirs of scholastic jurisprudence, law is only secondary; the State is primary. To the Middle Ages, law was an end in itself, because the term “law” stood at one and the same time for moral sentiment, the spiritual basis of human society, for the Good, and therefore for the axiomatic basis of the State. For the Middle Ages, therefore, the law is primary, and the State only secondary….the State exists for the law and through the law, not the law through the State.

    By this time, our time traveler must be rolling his eyes, wondering what mysterious potion has overtaken this pathetic society. He is not naïve – he knows that the law was not held perfectly in his time, that there were abuses and attempted abuses that required a man to stand.

    In that regard, Kern offers an example of a lord standing for the law and in opposition to the king. King Clovis wished to retain a costly vase over and above his due, in order to donate it to the church. All agreed to this except one, who ended up enforcing his objection by smashing the vase. Certainly, the king was not pleased. As neither the king nor the majority had authority to punish this act directly, the king found an indirect manner to exact revenge; this had to wait one year, and was based on an equally exaggerated instance where the king’s opponent stumbled in his duty and obligation.

    Where was this old and good law to be found?

    It will be found, in the first place, where all morality resides – in Conscience. And, indeed, since all law comprises all the rights of the community, it will be found in the common conscience of the people….

    …in the second place, the law will be found in old tradition.

    The people themselves hold the law. They know the good law because it is in their conscience – the keeper of their moral sense. They know the old law, because it is passed down to them. These two are combined, always tested and testing. Each individual had a duty to this.

    The moral tone of the Middle Ages scorned considerations of expediency, and always took right and wrong seriously, no matter how big or small the question at issue.

    The idea of destroying a village to save it, or abrogating property rights to preserve them, or stealing from one to help another in more need would be quite foreign to the mediaeval mind – or to our poor time traveler, who would likely have a reaction to this sad tale similar to this.

    Kern summarizes what has been gained and what has been lost via this transition from customary law to statutory law.

    For a simple person, in whom something of the mediaeval spirit survives, it is a strange thing that all law should exist in books, and not where God has planted it…. The positive written law brings with it learned lawyers and scholars, cut off from the people. Although in fact statute law is more accurate and certain, unlearned persons become less and less sure what the law is.

    How often are we reminded: ignorance of the law is no excuse? This saying probably has roots in the concept of law as understood in the Middle Ages – law based on conscious, law based on a common understanding of justice. Today, that saying is useless, given the thousands of miniscule yet intrusive laws and regulations passed every year by various government agencies.

    But it is in technical progress alone, not in progress in ideals, that the modern concept of law is superior to the mediaeval.

    Our time traveler would certainly agree, as do I.

    Every Individual Vested with Veto Power

    Imagine the liberty in such a world if every individual, or even legislator, had such power. Imagine no more: there was a time and place where this was quite true! And no, the outcome was not chaos, but a true check on kingly abuse. Kern explores this further:

    The relationship between monarch and subject in all Germanic communities was expressed by the idea of mutual fealty, not by that of unilateral obedience.

    Especially in the time of the early Middle Ages, there was no concept of the king as sovereign. There was also no concept of each individual as sovereign.

    The king is below the law….if the monarch failed in these duties [to the law] – and the decision of this question rested with the conscience of every individual member of the community – then every subject, every section of the people, and even the whole community was free to resist him, to abandon him, and to seek out a new monarch.

    As time passed, the right of each individual to veto evolved into the right of the community. But in no way did this change the fact that the king was held to be below the law. Imagine if a single congressional representative (for example Ron Paul) had the authority to stop any proposed legislation! While not the authority of the individual, still the idea that it takes complete unanimity for the state to act is a powerful idea.

    There was no final arbiter other than the law. Both king and community owed a duty to respect and defend the law:

    To the early mediaeval mind, king and people together, welded into a unity which theoretical analysis can scarcely divide, formed the State. Sovereignty, if it existed at all, resided in the law which ruled over both king and community. But any description of the law as sovereign is useful only because it emphasizes the contrast with later political ideas; otherwise it is better avoided. The blunt “either-or” of later times – either the king is unlimited or the people is sovereign – is an impossible dilemma from the standpoint of the early Middle Ages.

    The Power of the Oath

    A significant ceremony was performed in 842, cementing the bonds between the brothers Louis the German and Charles the Bald (sons of Louis the Pious) and against their oldest brother, Lothar. Of importance, this oath demonstrates the power of the lords and the power of the oath. Each brother took a solemn oath in front of the army of the other, and in the language of the other’s army – Louis, giving his oath in Old French, and Charles giving his oath in Old High German. The text of the oath is quite revealing (from A History of Medieval Europe: From Constantine to Saint Louis (3rd Edition), by R.H.C. Davis.):

    For the love of God and for the Christian people and for our common salvation, from this day forward, so long as God give me knowledge and power, I will help this my brother [both with my aid and everything] as by right one ought to help one’s brother, on condition that he does the same for me, and I will not hold any court with Lothar, which, of my own will, might cause [my brother] harm.

    Then, the people of both armies took an oath:

    If Louis [or Charles] observes the oath which he has sworn to his brother Charles [or Louis] and if Charles [or Louis], my lord on his part does not keep it, if I cannot turn him away (from his wickedness), neither I nor any of those whom I will have been able to turn away, will give him any help against Louis [or Charles].

    The lords of Louis pledged to Charles that they will not support Louis if he breaks his oath (an act of “wickedness”) to Charles (and the other way around, of course)! The kings had no power absent their lords. And it was the oath given by the lords that bound, not a decree by the king.

    A Written Constitution: Protecting the State from the People

    Kern examines the impact of a written constitution on the relationship of state, people and law:

    In modern usage we mean by the term “Constitution” that part of the general legal order of a State which controls the powers of government and the mutual relations between the government and the subjects.

    Was there such a thing as a “constitution” in the early Middle Ages?

    The monarch was subject not to a specific constitutional check, but to the law in general, which is all-powerful and almost boundless in its lack of definition; he is limited by this law and bound to this law.

    In mediaeval law, the law was above both king and people. Both were subordinate to it, and all (king and people) were bound to protect it. Such an environment (without a written constitution), while somewhat unstable for the people, was even more unstable for the king. He was one man, equal to the others under the law. He was controlled by the law, not controller of it:

    From the point of view of constitutional machinery, the control exercised in this way by the law will presumably be very incomplete and insecure – the very breadth of the mediaeval idea of law allows us to guess this. But in theory there resulted a complete control of the monarch, a subjection to law so thorough that political considerations and reason of State were excluded and out of the question.

    That the monarch faced an equal insecurity and instability in the law as did the people was the most remarkable check on any potential abuse. As opposed to modern, constitutionally defined states where it evolves that it is only the people that have to fear the law, in the mediaeval time all were equally subject to and therefore controlled by the law.

    The Magna Carta stands as the shining example in western history. From Wikipedia:

    The 1215 charter required King John of England to proclaim certain liberties and accept that his will was not arbitrary, for example by explicitly accepting that no “freeman” (in the sense of non-serf) could be punished except through the law of the land, a right which is still in existence today.

    Magna Carta was the first document forced onto a King of England by a group of his subjects, the feudal barons, in an attempt to limit his powers by law and protect their privileges. It was preceded and directly influenced by the Charter of Liberties in 1100, in which King Henry I had specified particular areas wherein his powers would be limited.

    Given my understanding based on Kern’s scholarship, I don’t believe this document represented a step forward for liberty, but a step back – at least when compared to the early Middle Ages, when the king’s powers did not have to be limited, as his powers under the law were no greater than those held by the lords.

    The constitutional form has protected the monarch from the people much more than it has protected the people from the monarch – certainly when compared to earlier mediaeval times. At the same time, the constitutional form has provided virtually no protection of limiting the actions of the monarch – even for those constitutions with some form of rights embedded – for example, the U.S. Constitution with its Bill of Rights.

    It seems, instead of the pinnacle of governance and protection of liberty, the constitutional form represents a significant step back from the liberties afforded to even the lowliest members of early mediaeval society.

    For this reason the modern state feels free to create laws that run roughshod over private rights. No list need be created to demonstrate this reality of every modern state. This was not possible in the Germanic tradition of the Middle Ages: “Nieman ist so here, so daz reht zware,” or “No one is so much lord that he may coerce the law.”

    The limitations thus placed on the mediaeval prince were, in theory, much greater than limitations placed on any constitutionally-enabled monarch or president:

    For the latter can establish new law in conjunction with the other supreme constitutional organs, but the mediaeval monarch existed for the purpose of applying and protecting the good old law in the strictest imaginable sense.

    No one was “legislating” in the sense we understand that term today.

    The mediaeval State, as a mere institution for the preservation of the law, is not allowed to interfere for the benefit of the community with private rights.

    There was no concept of the public good.

    The State itself had no rights….It can, for example, raise no taxes, for according to the mediaeval view, taxation is a sequestration of property.

    It was only by preserving this good, old law that the king guaranteed security in his position and dominion.

    The written constitution has placed the state above the law – the state self-defines and self-interprets the constitution; the state has a monopoly on the adjudication of its dictates. This places the state in a position to decide what law is, and how law is applied. The only hope one has to influence this is to turn a minority into a majority. Such a concept was unknown to the mediaeval mind – each individual held a form of veto. No majority was necessary, and minority rights were fully protected – even for the minority of one.

    The Beginning of the End

    What changed, that brought man from an unwritten law, one that kept the king in check, to a written law, captured in a constitution? I do not know with certainty, however I present the following for thought: the change was grounded in the change from allodial land title to fee simple title. This happened in England first, and preceded the much-heralded written constitution, the Magna Carta, by 150 years.

    This change occurred as a result of William the Conqueror’s defeat of Harold Godwinsson at the Battle of Hastings in 1066. As a result of this, William claimed that he had won the whole country by right of conquest. Every inch of land was to be his, and he would dispose of it as he thought fit.

    All land was thereafter owned by the crown. Perhaps in this can be found the seeds of the desire by the lords for the Magna Carta.


    The Dark Ages were not so dark. In this time, law was custom. King and lord were under the law and were bound to serve and defend the law. Each individual had veto power if he could demonstrate the validity of his veto in the law, the old and good law. That the law was not written was not a detriment to the people, but a check on the king. The king was as uncertain in the law as were the lords.

    The early Middle Ages offer an example in history of political organization different than what we today understand as government, or the state. One need not romanticize the period to take away from it valuable examples of how life might function in a more decentralized condition.

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