Vincent Huang: On the Nature of Money

Lambert here: This should be fun!

By Vincent Huang*, a graduate student in the Economics Department at UMKC. Originally published at New Economic Perspectives.

I. Introduction

The discrepancy between the orthodox (primarily neoclassical) and the heterodox (Post Keynesian, Chartalism, MMT, etc.) schools of thought rests fundamentally in their different perception in the way the capitalist economy functions.  Such discrepancy can be described in the contrast between C – M – C’ and M – C – M’.  The orthodox school holds the former view that depicts a barter economy in which the end purpose of production is consumption.  Individuals innately engage in production because of the urge to truck and barter.  Money merely facilitates the exchange of goods and services and cannot affect production decisions.  The heterodox school, however, asserts the latter view that depicts a monetary production economy in which production is always financed through money and would not take place unless more money expects to be realized through sale of goods and services.  Hence, the orthodox school asserts money neutrality (at least in the long run) since money is simply the medium of exchange.  The heterodox school rejects money neutrality since money not only finances production but also serves as its end goal.  The distinction between the barter and the monetary economy, as discussed above, thus necessarily implies a very different understanding of the nature, origin, and role of money between the orthodox and the heterodox school of thought.  The purpose of this paper is, through examining the nature and origin of money in a historically grounded context, to demonstrate that the orthodox school of thought has completely mistaken the nature of money and consequently misinterpreted the nature of the capitalist economy.  Such theoretical misunderstanding is devastating because it manifests wrong policies that continually fail to address economic and social problems threatening a capitalist society.  Based on the heterodox theory of money, the paper also intends to shed light on alternative guiding principles behind monetary and fiscal policies.

II. Money in Orthodoxy

In the absence of any historical evidence that suggests the existence of a barter economy (Hudson, 2004; Graeber 2011), it is curious how the orthodox school can conclude that money originated from barter.  As Wray puts it, “in neoclassical theory, money is really added as an after thought to a model that is based on a barter paradigm” (2001).  Hence, the point of departure of the orthodox tale, however dubious it may be, has to begin with a pre-existing imaginary barter economy.  Case, Fair, Gartner, and Heather (1999) tell the typical orthodox story of the origin of money in Economics,

“Money is vital to the working of a market economy.  Imagine what life would be like without it.  The alternative to a monetary economy is barter, people exchanging goods and services for other goods and services directly instead of exchanging via the medium of money.

How does a barter system work?  Suppose you want croissants, eggs and orange juice for breakfast.  Instead of going to the grocer’s and buying these things with money, you would have to find someone who has these items and is willing to trade them.  You would also have to have something the baker, the orange juice purveyor and the egg vendor want.  Having pencils to trade will do you no good if the baker and the orange juicer and egg sellers do not want pencils.

A barter system requires a double coincidence of wants for trade to take place.  That is, to effect a trade, I need not only have to find someone who has what I want, but that person must also want what I have.  Where the range of traded goods is small, as it is in relatively unsophisticated economies, it is not difficult to find someone to trade with, and barter is often used.  In a complex society with many goods, barter exchanges involve an intolerable amount of effort.  Imagine trying to find people who offer for sale all the things you buy in a typical trip to the grocer’s, and who are willing to accept goods that you have to offer in exchange for their goods.

Some agreed-upon medium of exchange (or means of payment neatly eliminates the double coincidence of wants problem.”

Therefore, the orthodoxy holds that it was market complexity, which raised growing difficulty to match “double coincidence of wants,” that enabled market participants to “discover” and agree upon one particular commodity as a medium of exchange.  The nature, role, and origin of money are thus “uncovered”: 1) the nature of money is a medium of exchange that facilitates barter; 2) the role of money is to act as “lubricant” to minimize transaction costs in market exchanges; and 3) the origin of money was from a growingly complex barter system.  Therefore, if money is important at all (since it is only a veil), it is the form that matters.  The evolution of money thus reduces to a simple history of discovering a medium of exchange that possesses better physical characteristics to suffice market exchange.  Not surprisingly, some orthodox economists thus conflate the history of money with the history of coinage.

However, note that the orthodox theory about the nature and origin of money is essentially given by a thought experiment.  Without grounding its research on any anthropological evidence, the orthodox economists simply assume barter into existence by imagining an economy similar to the one we have today, except without money.  Then the argument is that surely people must have invented money for the sake of market efficiency.  Such method of inquiry is unscientific, as Graeber (2011) evaluates it, “this [barter] is not presented as something that actually happened, but as a purely imaginary exercise.”  However, failing to locate the fantasyland of barter in real historical time and space, mainstream economics textbooks still unanimously reproduce the myth of barter that has never been proved.

The problem is, not only is there a lack of evidence, but also that there is “an enormous amount of evidence suggesting that it [barter] did not [happen]” (Graeber, 2011).  While Innes rejects the orthodox tale of barter as historically false (1914), anthropologists like Graeber and Humphrey belie the “evidence” the orthodox economists cited as contradictory to anthropological findings.  Graeber’s critique of Adam Smith and Stanley Jevons’s fabled land of barter in aboriginal North America is as follows,

“In Smith’s time, at least it could be said that reliable information on Native American economic systems was unavailable in Scottish libraries.  But by mid-century, Lewis Henry Morgan’s descriptions of the Six Nations of the Iroquois, among others, were widely published – and they made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat.  Economists simply ignored this information…  Stanley Jevons, for example, who in 1871 wrote what has come to be considered the classic book on the origins of money, took his examples straight from Smith, with Indians swapping venison for elk and beaver hides, and made no use of actual description of Indian life that made it clear that Smith had simply made this up…  But to this day, no one has been able to locate a part of the world where the ordinary mode of economic transaction between neighbors takes the form of ‘I’ll give you twenty chickens for that cow.’”

Finally, Caroline Humphrey conducts an anthropological study on barter and gives a definitive conclusion, “no example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing” (Graeber, 2011).  Graeber, on the other hand, points out that historically barter did exist, but only between strangers or even enemies with whom one does not expect ongoing relations into the future.  In other words, barter never existed as a basic economic institution among neighbors or villagers in the same society.  Rather, barter took place where credit relations are almost entirely absent among strangers or enemies.  As Graeber concludes from his study of how the Gunwinngu and the Nambikwara people bartered with other tribes, “such a society [barter] could only be one in which everybody was an inch away from everybody else’s throat; but nonetheless hovering there, poised to strike but never actually striking, forever.”

The paper has demonstrated that the orthodox theory about the nature and origin of money is an unwarranted myth.  What then, is the rationale for the orthodox economists, to engage in such an unscientific inquiry to construct the myth of barter?  Readers may further wonder that to what extent, if any, would the abandonment of the myth of barter invalidate the orthodox theorizing.  Tackling these questions, the paper finds that some of the most essential components of the orthodox theorizing will be called into serious doubt if the myth of barter is demolished.

III. Policy Implications in Orthodoxy

Perhaps the most dangerous implication of barter is to believe that even in capitalist economies productions take place due to the urge to truck and barter.  In other words, individuals would naturally engage in production simply because they want to exchange for what others would have produced, not because they want to make a monetary profit.  In light of this, the classical dichotomy is legitimized.  Since money is a veil that hides the urge to truck and barter, removing it would not affect production except for some efficiency costs due to the “double coincidence of wants” problem.  Therefore, money is a neutral veil that only obscures the market relationships behind it.  Economists thus ought to conduct a “real”, as opposed to “monetary,” analysis.

Note that such conclusion is a “natural” manifestation only for economists believing in the barter relevancy for the present capitalist economy.  Since money is merely a medium of exchange, it is almost by assumption that it cannot possibly affect the real economy (Smithin, 2003).  This is evidently the case for the neo-Walrasian general equilibrium theory, real business cycle model, and neoclassical long-run growth model, etc.  The monetarists model (as represented by Friedman), though apparently argues for short-term money non-neutrality due to mistaken expectation, nevertheless holds that money does not have long-term impact on real variables in its long-term economic model.  Even in its short-run model, it is ambiguous whether the Monetarists truly recognize money non-neutrality since according to them what causes short-run fluctuations in real variables is actually “money illusion,” not money per se.  In order to explain growth and unemployment, “monetarists simply assumed that there exists ‘natural’ rate of growth and unemployment, which are determined in the long run only by real factors of production” (Smithin, 2003).

The implication of conducting a “real” analysis is powerful.  To great extent it justifies the Monetarist concept of exogenous money and allows the Monetarists to blame the central bank if there is ever any inflation.  Milton Friedman’s definitive statement, “inflation is always and everywhere a monetary phenomenon,” is widely considered the truth, grounding itself on the fact that inflation can only be produced by a more rapid change in the quantity of money supplied.  Again, the implicit logic is that since money only facilitates transactions, it must be powerless in affecting productions except when people are suffering from “money illusion” in the short-run.  People only need the right amount of money to make purchases.  But too much money printed by the central bank inevitably chases too few goods and bids up price levels.  Therefore, the general causality in the quantity theory of money must run from the left to the right: MV=PY, where money supply only affects inflation rate in the long run.  Hence, the best monetary policy, as the Monetarists further argue, is to target a stable money supply growth.  Till now, readers may have found the name, “Monetarism,” deceitful because it actually assigns no significant long-run role to money.  Money supply growth, as controlled by the central bank’s monetary policies, can only mess up the inflation rate while contributing nothing to the real economy in the long run.  Hence, Monetarism essentially performs an apparent monetary analysis predicated on a “real” analysis, which is ultimately backed by the truth of barter and money neutrality.

It is perhaps worthwhile to look deeper into the Monetarist analysis to see how exactly money is created in its model.  A typical Monetarist would tell a story about money and banking similar to the following.  The central bank determines money supply discretionarily via three operational tools: required reserve ratio, open market operation, and discount window.  The idea is that banks will automatically decide to create loans based on the availability of the reserves they possess at the central bank’s balance sheet.  Hence, open market operations and discount window set the “base money” by changing the level of reserves through interest rate targeting, and required reserve ratio (thus acts as a money multiplier) simply “leverages” such base money into a much larger pool of money that can then be used by the bank.  This is another reason why the causality must run from the left to the right in the quantity theory of money: MV=PY.  However, this exogenous money approach, as will be discussed later in contrast with endogenous money, suffers serious flaws.  Nonetheless, the essence is that the central bank does control money supply.

A disastrous implication from the exogenous money approach is money scarcity.  Since the quantity of money supplied affects inflation rate, it is assumed that money must be scarce enough to ensure price stability.  In other words, money scarcity is simply truism at any stable price level.  If we accept money scarcity, then it is only logical to believe in the loanable funds theory that fiscal spending only crowds out private investment by bidding up interest rate for a fixed pool of savings.  Therefore, the best fiscal policy is to limit the spending of the government to allow private businesses to invest more at a lower cost of financing.  Hence, the doctrine of sound finance is legitimized.

What is important for the paper is that the above analysis shows how intrinsically connected are the ideas of barter, money neutrality, “real” economic analysis, “exogenous money,” inflation, money scarcity, and “loanable funds theory.”  These theoretical tools then allow the orthodox economists to conduct “correct” monetary and fiscal policies.  To recapitulate, monetary policy determines price levels while fiscal policy negatively affects private investment.  Hence, the solution is to target a stable money supply and to run balanced government budget as long as possible.  It is therefore that the myth of barter is crucial in the orthodox theorizing.  With no evidence that suggests the existence of barter, one sees why the orthodox economists are eager to fabricate a fantasyland of barter for us.  The myth of barter is told not only because it is consistent with orthodox theorizing but also that by telling it, the orthodox theoretical and policy implications can make more intuitive sense and thus become the unquestionable truth.  To see so, one only needs to consider how dominant Monetarism remained even after the complete failure of its empirical experiment.  The Volcker Fed completely failed to hit money supply target for several consecutive years beginning in 1979, and as a result the “New Monetary Consensus” emerged as the recognition that the central bank cannot target money supply.  Yet, the idea that the central bank somehow controls the money supply and thus messes up inflation rate is still widely accepted.

If, however, the myth of barter is debunked, then the orthodox theoretical and policy implications suffer serious criticism.  For the abandonment of the myth of barter necessarily calls the orthodox notions of money neutrality, “real” economic analysis, “exogenous money,” money scarcity, and the “loanable funds theory” into question.  Furthermore, if barter never existed in the first place, then what is the reason to model today’s economy as barter when it is evident that modern production has to be financed by money and will not take place unless profit is foreseeable?  In other words, mainstream economists ought not to view the purpose of production as satisfying exchanges.  Moreover, removing the myth of barter also brings the problem of unemployment into the picture.  As barter describes production behaviors as largely voluntary (one produces more if s/he wants to exchange for more of other’s produce, and vice versa), involuntary unemployment simply does not exist in the imagined barter economy.  Abandoning the myth of barter thus gives at least the theoretical possibility for involuntary unemployment to occur, which is missing in the neoclassical theorizing.  Finally, the policy prescriptions that follow the mythical foundation of orthodox theorizing are also subject to a re-examination.

After all, the orthodox theory of the nature, role, and origin of money was engineered to be consistent with the orthodox/neoclassical theorizing of a barter economy.  Since neoclassical theorizing is asocial and ahistorical, its theory of money similarly lacks any social or historical context.  The paper now shifts to the heterodox theory of the nature, origin, and role of money.  By doing so, the paper prepares the background knowledge to debunk the orthodox theory of money and paves the way for rethinking the alternative guiding principles behind both monetary and fiscal policies.

IV. Money in Heterodoxy

According to heterodoxy, there are two plausible explanations for the origin of money.  Innes (1932) and Wray (2001) argue that money originated in ancient penal systems.  Tcherneva elaborates this in 2005,

“Wray (2001) posits that money originated in ancient penal systems which instituted compensation schedules of fines, similar to wergild, as a means of settling one’s debt for inflicted wrongdoing to the injured party. These debts were settled according to a complex system of disbursements, which were eventually centralized into payments to the state for crimes (see also Innes 1932). Subsequently, the public authority added various other fines, dues, fees, and taxes to the list of compulsory obligations of the population.”

According to this view, money is essentially an instrument that denominates and extinguishes social debt obligation.  It first quantifies debt obligation between individuals.  For example, Joshua has conducted wrongdoing to Henry; hence the public authority determines that Joshua owes to Henry one cattle.  In this case, that cattle is the “money” that effectively extinguishes Joshua’s liability/debt to Henry.  Observe that the need for a standardized money of account was not necessary since the redemption of debt between individuals can be determined case by case.  Money of account might be a cattle between Joshua and Henry, and then ten watermelons between Helen and Linda, etc.  However, when there emerges the need to denominate debt obligation between individuals and the “society”/central authority in various forms (such as fines, fees, taxes, etc.), a standard unit of account for money was needed to serve as the standard measure of value.  By choosing a unit of account as the only means for individuals to extinguish his/her liabilities to themselves, the central authorities “write the dictionary” (Keynes, 1930).  Hence, the power of the central authority (state, temple, tribe, etc.) to impose a debt liability (fines, fees, taxes, etc.) on its population gives the former the unique right to choose a particular unit of account as the only means of payment to the central authority.

In his study of colonial Africa, Forstater similarly concludes that by imposing a debt obligation (taxes) on colonial Africans denominated in foreign currency (British Pounds), the British were able to dismantle the pre-existing economic structure in Africa and to monetize its whole economy and population (2005).  In other words, the British government succeeded in creating a new money of account (British Pounds) in colonial Africa by coercively indebting the population and demanding British Pounds as the only means of payment to extinguish the Africans’ liabilities to the colonial government.  This effectively moved the African labor power to production desired by the British colonizer since the only means to acquire British Pounds were to work at British farms or mines (Forstater, 2005).  British Pounds immediately became the new money used by the colonial Africans.  Hence, levying a tax liability denominated in foreign currency was sufficient (though not necessary) not only to compel the population to use new money but also to move labor power to desirable areas.  Note that in this process the British Pounds must first be spent into the hands of the colonial Africans to allow for any tax payment.

While Hudson (2004) in his study of Mesopotamia offers the second explanation of the origin of money that money evolved as a standard accounting unit that keeps track of surplus and inputs of production, the two heterodox explanations need not be mutually exclusive (Tcherneva, 2005).  Henry links both explanations in his study of ancient Egypt.  In essence, Henry argues that: 1) money originated in ancient Egypt from the need of the ruling “engineers” class to establish accounting basis for agricultural products and social surpluses; and 2) money also served as a means of payment to settle debt obligations (fines, fees, foreign tribute, and tribal obligations) to the kings and priests (Henry, 2004).

The significance of the above social and historical research by Innes, Wray, Forstater, Henry, and Hudson cannot be underestimated.  They are important for the following reasons.  First, these research shows that money existed prior to market.  As Goodhart observes,

“… Money first arose as an acceptable way of resolving inter-communal debt obligations, and only subsequently (when money’s functions had thus become accepted and ratified as a unit of account and means of payment), became widely adopted in market transactions” (Goodhart, 2003).

Thus, since money is anything that denotes and extinguishes one’s debt/liability to another, it was not a product of market exchanges but rather a byproduct of social relations based on debt (Graeber, 2011).  In light of this, money originated as a mean to quantify and extinguish social debt obligations.  Hudson’s explanation therefore sheds more light on the origin of a standard money of account while Wray’s posits both the origin of money (as a debt relation) and the origin of a standard money of account.

Second, the nature of money is a credit-debt relationship that can only be understood in institutional and social contexts.  Since money is a credit-debt relationship, it necessarily follows that everyone can “issue” its own money/IOU (Minsky, 1986).  This suggests that private individuals may have different units of accounts (cattle, watermelon, etc.) that are difficult to be standardized.  That is, it is unlikely that any individual could have the sufficient power to induce others to hold its liabilities as a standard unit of account.  The liability of the central authority becomes the standard unit of account because the central authority has the sufficient power to impose liabilities on its population in the forms of fines and taxes.  This is the essence of Chartalism, “Modern Money,” “Tax-Driven Money,” and “Money as a Creature of the State” (Lerner 1947, Knapp 1973, Keynes 1930, Goodhart 1998, Wray 2001, Forstater 2006).

Third, the role of money was initially an abstract unit of account and means of final payment and later as medium of exchange.  This means that money as unit of account precedes its roles as medium of exchange and store of value.  Money as store of value also becomes important since one party’s debt is necessarily another’s wealth.  It thus follows that the physical manifestation of money (the “money things”) is not necessary since money as a debt relation needs not be physically tangible.  This has been demonstrated as early as in Mesopotamian (3100 BC) where crops and silver were used as standard units of account but not as a general medium of exchange (Hudson, 2004).  Exchanges simply took the form of credit and debit entries on clay tablets, similar to our electronic payment system today.

Therefore, money originated as a byproduct of social relations based on debt and realized its standard form through the need of the central authority, as opposed to private individuals, to establish a standard unit of account to measure debt obligations or production surplus.  Our analysis also implies a hierarchy of money (debt pyramid), with the liability of the state sits on the top and the liability of individuals sits on the bottom (Bell, 2001).  It should be clear that the entire debt pyramid is effectively money/IOUs.  The state simply decides a particular unit of account that measures the value of all liabilities.  Further, the paper demonstrates that the role of money as unit of account precedes its role as store of value and medium of exchange.  The works of the anthropologists and the heterodox economists thus equip us with a historically grounded understanding of the nature, origin, and role of money.  Based on such understanding, the paper now investigates the alternative guiding principles behind both monetary and fiscal policies.

V. Policy Implications in Heterodoxy

Recall the orthodox notions of money neutrality, “real” economic analysis, “exogenous money,” money scarcity, and the “loanable funds theory.”  While the abandonment of the myth of barter calls all of the above notions into serious question, the heterodox theory of money simply invalidates each of them.  Since money denominates and extinguishes debt obligations, it is not merely a medium of exchange.  The production process has to be financed by getting one’s IOUs/money accepted with the end goal of acquiring more IOUs/money through sale.  It implies that involuntary unemployment can occur when: 1) insufficient financing leads to an insufficient amount of production that results in unemployment; and 2) business expectation of profit is low and thus production is cut back to lay off workers.  Thus, money is not only non-neutral but also critical to the production process and the involuntary unemployment problem.  This therefore invalidates “real” economic analysis (which is based on the implication of barter) and calls for a monetary economic analysis.  Furthermore, the “exogenous money” approach is debunked since money, as a debt relation, must be endogenous to the economy.  To explain, we examine the endogenous money approach advocated by the Post Keynesians.

In short, the endogenous money approach reverses two causalities proposed by orthodoxy: 1) reserve creates deposits; and 2) deposits create loan.  On the contrary, the endogenous money holds that loans create deposits that then create the need for the central bank to accommodate with reserve.  In other words, banks first make loans, and then seek reserves to meet central bank regulations.  As Wray suggests, “privately created credit money can thus be thought of as a horizontal ‘leveraging’ of reserves (or, better, High Powered Money), although there is no fixed leverage ratio” (2001).  Hence, the endogenous money approach provides a justification for why the causality between M and PY in the quantity theory of money MV=PY should be from the right to the left.

Note that the above analysis not only debunks “exogenous money” but also invalidates “money scarcity” and consequently the “loanable funds theory.”  Suppose Henry decides to hire Joshua to build a condo.  In theory, Henry could issue his own money/IOU to Joshua in exchange for Joshua’s labor time.  The problem is, Joshua would probably not accept Henry’s own liability (Henry dollar) because Henry cannot sufficiently indebt the rest of the population to create a demand for his own IOU.  Instead, Joshua agrees to exchange his labor only for the liability of the state (U.S. dollars).  Therefore, Henry needs somehow to convert his own IOU to the state IOU in order to get Joshua’s labor.  Now Henry walks into a bank and asks for a loan, the loan officer does not check the bank’s reserves at the central bank and comes back to tell Henry, “sorry, we are out of money!”  If the bank thinks Henry’s project is good, it creates a Henry loan simply by crediting the Henry’s deposit account.  To meet the reserve requirement, the bank then borrows reserves from other banks that have excess reserves or directly from the central bank.  What distinguishes the bank’s IOUs and Henry’s IOUs is that the former is directly convertible to the central bank/state IOUs while the latter is not.

In other words, the production process can be viewed as a series of exchanging IOUs.  By signing a labor contract, Henry first has Joshua’s labor time as assets and Joshua’s wage as liabilities.  To convert his IOUs to the state IOUs, Henry takes a loan from the bank.  The bank then has Henry’s promise to repay the loan as its assets and Henry’s demand deposit as its liability.  Ultimately, the bank converts its IOUs to the central bank IOUs/reserves by borrowing reserves from other banks or directly from the central bank.  Money is created when Henry signs the labor contract with Joshua that denominates the debt obligation between them.  Such debt obligation is ultimately reflected at the central bank’s balance sheet as the private bank enables Henry’s IOUs to be denominated in the state money of account.  Therefore, the central bank is simply a scorekeeper of the economy (Mosler, 2010).  The reserves at the central bank, created by keystrokes, simply serve an accounting purpose for the economy.  Money/IOU is therefore endogenous.  In light of this, the orthodox notions of “money scarcity” and the “loanable funds theory” are simply wrong, just as Henry did not compete with the federal government for a fixed pool of savings.  Borrowing at the bank, Henry actually creates money, as opposed to reduces the amount of money available for the government to spend.  Hence, the central bank cannot control money supply to fight against inflation, and the federal government spending does not crowd out private investment.  This then leads us to investigate alternative principles behind monetary and fiscal policies.

A closer look at the actual operation of central bank and the treasury reveals that the government does not facilitate its spending through taxation or bond sales.  Although imposed by political/ideological constraints, the end result as shown on the central bank and the Treasury’s balance sheets are identical to that would be if none of the constraints exists (such as the government must sell bonds prior to deficit spending or the government can only write a check on its account at the central bank).  This implies that the federal government is not revenue constrained, as recapitulated by Tcherneva (2005),

“Governments do not need the public’s money to spend; rather the public needs the government’s money to pay taxes. Government spending always creates new money, while taxation always destroys it. Spending and taxing are two independent operations. Taxes are not stockpiled and cannot be respent in order to ‘finance’ future expenditures. Finally, bond sales are necessary to drain excess reserves generated by fiscal operations in order to maintain a positive interest rate. Neither taxes nor bond sales serve a financing purpose; the former generate demand for the currency and the latter are needed to hit interest rate targets, and thus government spending is not operationally constrained by either.”

If the role of the central bank is to hit interest rate targets, we then wonder whether the central bank, with its open market operations, can impact the real economy in any way.  This paper argues that the central bank’s impact is likely to be a minimum.  As demonstrated before, “when the demand for loans increases, banks normally make more loans and create more banking deposits, without worrying about the quantity of reserves on hand. Privately created credit money can thus be thought of as a horizontal ‘leveraging’ of reserves (or, better, High Powered Money)” (Wray, 2001).  Therefore, lowering interest rate by increasing reserves does not make banks more willing to lend to businesses.  As for businesses, they produce or invest if expected profit is at least positive.  They do not borrow to make a loss even if the interest rate is historic low.

Therefore, the central bank cannot fine-tune the economy because monetary operations are largely accommodating rather than stimulating.  In order to hit a target interest rate, the central bank engages in open market operations to buy or sell government bonds.  It is important to note that bond sales do not finance government spending.  Reserves and bonds are both the liability of the state.  The only difference is that bonds earn interests while reserves do not.  This also means that the myth of the national debt indebting our future generation should be abolished.  Government liabilities, including reserves and government bonds, are effectively private wealth by accounting identity.  Further, interests on government bonds (that are “paid” by keystrokes at the central bank) add additional income to the private sector.  Hence, a large national debt is actually not a burden but a bless.  In essence, (in a two-sector economy) government deficit is necessarily equivalent to private surplus that adds to private net financial wealth, as demonstrated by Wray in his “bathtub” analogy (2012).  Wray demonstrates that the private sector accumulates claims against the government as its financial wealth, and thus deficit spending is a flow variable that adds to the stock of private net financial wealth (2012).  Hence, that the public applauds for accumulating private financial wealth but agonizes over raising the debt ceiling is an indication of misunderstanding of the nature of state money.

Since the government is not revenue constrained, the paper argues that Lerner’s functional finance ought to serve as the guiding principle behind monetary and fiscal policies.  Following Keynes’s principle of effective demand, Abba Lerner developed functional finance (1943),

“The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound… The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance.

Lerner’s functional finance is thus in sharp contrast with sound finance.  While sound finance treats the federal government as a currency user like a household, functional finance rightly understands that the federal government faces no affordability issues since it is the monopoly issuer of the currency.  Moreover, Lerner argues that the federal government not only can spend but also should spend till full employment.  The concern, therefore, is not the affordability of full employment but the potential of inflation.  Limited by the scope of the paper, we do not tackle the issue of inflation in details here.  But the paper argues that before reaching full employment, it is unlikely that deficit spending would necessarily be inflationary.  In essence, involuntary unemployment indicates a permanent loss in production since the federal government could always have hired the unemployed to achieve public purposes.  Hence, the right to employment ought to become a basic human right guaranteed by any sovereign government.

VI. Conclusion

This paper begins by debunking the orthodox theory of money and its policy implications.  It has shown that the unwarranted myth of barter was an orthodox propaganda to justify its theories and policies.  With the heterodox theory of money, the paper demonstrates that the orthodox notions of money neutrality, money scarcity, “exogenous money,” “real” economic analysis, “loanable funds theory,” and “sound finance” should all be rejected.  This also means that the entire orthodox theorizing centered on C-M-C’ should be abolished because it is useless in understanding today’s economy (or any economy that had ever existed).  The paper also discusses the effectiveness of fiscal policy and monetary policy.  Monetary policy is accommodative in nature and thus cannot effectively elevate effective demand.  Even with the quantitative easing, the central bank is merely performing asset management as opposed to money creation.  Indeed, the heterodox theory of the nature of money implies that money creation has to be endogenous, which gives support for conducting expansionary fiscal policy till full employment.  This is consistent with Lerner’s functional finance approach and is based on the “Taxes-driven Money” approach.  While government deficit and national debt can be best understood as private surplus and private net financial wealth, the paper urges policymakers to focus on designing job creation programs that achieve public purposes, as opposed to agonize over affordability issues or some fictitious and scary moral arguments.  The paper ends by concluding that unemployment is a self-inflicted social ill that can only be cured after recognizing the utmost importance of aggregate spending and the nature of money.

*A Note:

This is one of several final essays written by MA students in my class this past Fall semester. I was very happy with the results—students indicated that they had a firm grasp of both the orthodox approach as well as the heterodox approach to the subject. Most of them also included some Modern Money Theory in their answers. I asked about half of the students in the class if they would like to contribute their essay to this series. Sometimes students are the best teachers because they see things with a fresh eye and cut to what is important. They are usually less concerned with esoteric academic debates than are their professors. Note that these contributions are voluntary and are written by Masters students. I told students they could choose to use their own names, or they could choose an alias. Comments are welcome, but please be nice—remember these are students.

L. Randall Wray

Works Cited

Bell, S. (2001), ‘The Role of the State and the Hierarchy of Money’, Cambridge Journal of Economics, 25.

Case, Karl E. (1999), ‘Economics.’ Prentice-Hall Europe, 1999. Print.

Forstater, M. (2005), ‘Taxation and Primitive Accumulation: The Case of Colonial Africa,’ Research in Political Economy, 22, 51-64.

Forstater, M. (2006), ‘Taxation: Additional Evidence from the History of Thought, Economic History, and Economic Policy,’ in M. Setterfield (ed.), Complexity,

Endogenous Money, and Exogenous Interest Rates, Chetlenham, UK: Edward Elgar.

Goodhart, C.A.E. (1998), ‘The Two Concepts of Money: Implications for the Analysis of

Optimal Currency Areas’, European Journal of Political Economy

Goodhart, C.A.E. (2003), ‘A Reply to the Contributors’, in S. Bell and E. Nell (eds.), The State, the Market and the Euro, Cheltenham, UK: Edward Elgar

Graeber, David. (2011), ‘Debt: The First 5,000 Years,’ Brooklyn, NY: Melville House, Print.

Henry J.F. (2004), ‘The Social Origins of Money: The Case of Egypt’, in L.R Wray (ed.),

Credit and State Theories of Money, Cheltenham, UK: Edward Elgar

Hudson, M. (2004), ‘The Archaeology of Money: Debt versus Barter Theories of Money’s Origins’, in L.R. Wray (ed.), Credit and State Theories of Money, Cheltenham, UK: Edward Elgar

Innes, A.M. (1913), ‘What is Money?’, Banking Law Journal, May

Keynes, J.M. (1930), A Treatise on Money, London, UK: Macmillan.

Knapp, G.F. (1973 [1924]), The State Theory of Money, Clifton, NY: Augustus M. Kelley.

Lerner, A.P. (1943), ‘Functional Finance and the Federal Debt’, Social Research, 10, February.

Lerner, A.P. (1947), ‘Money as a Creature of the State,’ The American Economic Review, 37, May.

Mosler, Warren. (2010), ‘The 7 Deadly Innocent Frauds of Economic Policy.’ [St. Croix, U.S.V.I.]: Valance. Print.

Smithin, John N. (2003) Controversies in Monetary Economics. Cheltenham: Edward Elgar, Print.

Tcherneva, Pavlina. (2005), “The Nature, Origins, and Role of Money: Broad and Specific Propositions and Their Implications for Policy.” n. pag. Web.

Wray, L. Randall. (2012), Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. New York: Palgrave Macmillan. Print. 

Wray, L. Randall. (2001), “The endogenous money approach”, CFEPS Working Paper 17, Aug 2001,

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About Lambert Strether

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


  1. Foy

    I had just read the above article at New Economic Perspectives and was about to mention it in the links comments and it here it is already. Beat me to it. Good to read those thoughts and concepts brought together succinctly.

  2. Nonanonymous

    Excellent paper and interesting read!

    Love the conclusion, “unemployment is a self-inflicted social ill”. Couldn’t agree more, except to add, and is a natural consequence of greed.

    1. F. Beard

      And when robots can do all but the most creative work more reliably and cheaply than humans then how will most NOT be involuntarily unemployed? We should focus on justice since when that day arrives most of would then be able to live lives of leisure where hard work is possible but not required.

      We should also focus on justice because God is just and commands that we also be just.

      1. Dan Kervick

        I think what history shows, in the long run, is that as technological improvements eliminated jobs that humans did previously, people begin specializing more in what were previously “leisure” activities and incorporate those activities into the economy of organized production and exchange, so that entirely new types of jobs are created.

        1. American Slave

          I dont get it. We have more technology than ever before yet there are no jobs. did you see the new human like robot NASA made, it can open and close valves and use human tools.

          1. Dan Kervick

            There are always periods of displacement during rapid change. But there is always something more to to, and eventually people figure out what to do next.

            1. F. Beard

              We can all figure out things to do IF we have the resources such as land and a BIG to do them with. But that’s the problem, wealth is becoming so concentrated that many do not have the resources to perform work that is meaningful to them. Farmers, for example, need land, land that in many cases was stolen by the banks.

              1. J Sterling

                Dan’s “people begin” and “people figure out” sound very innocuous until you remember what the alternative was: people starved to death. That happened a lot, until the population again had just as many workers as the employers felt like employing, at the so-called “market price for labor”.

                “Historically, there has always been just about exactly as much work as workers, give or take some temporary shocks” is tautologically true. That doesn’t make the loss of employment any less of an atrocity, or those temporary shocks any better to live through.

                1. Dan Kervick

                  People don’t have to starve to death. We can keep ongoing government employment and income policies in place as people transition from obsolete forms of employment to newer ones.

                  But in the modern world, the population has been rising continuously. Economic disruption is not, on the whole, dealt with by population destruction.

        2. Andrew Watts

          Marx thought that as machines replaced human labor capitalist profit margins would steadily decrease over time until the point was reached where new capital formation was non-existent. The increased mechanization of production eliminated competition and smaller capitalists. Thus further concentrating capital into fewer hands which in our day has reinforced the whole dynamic of replacing people with robots.

          This is one his brighter observations about capitalism. He might’ve been wrong about communism and his version of the end of history but how he saw the end of capitalism seems plausible enough.

          1. Dan Kervick

            Think of some widespread leisure activity, like golf or basketball. Think of all the people who are involved in the various services and industries that produce all of the stuff that makes all possible: the shoes, the greens, the balls, the venues, the tickets, the grass, the golf carts, the line painters, the net-makers.

            At an earlier of economic development, these activities, to the extent the existed at all, were smaller scale and not part of the economy. Now they are, and in a big way. The things we do with our leisure time expand, and become incorporated into the world of production and work as the earlier realms of the economy become more automated and and productive, and less labor-intensive.

            As human labor grows less necessary in the existing areas of the economy, the things people do for fun to fill in the more readily available time grow into more widespread and efficiently organized fun over time, and create new parts of the economy that convert that time back into part of our formal economic life. Think of the vast areas of human activity that are part of our contemporary economy and didn’t exist at all in the year 1500. Why is there any reason to think that process will ever stop? The economic sphere of life is not just about the efficient satisfaction of needs, but also of wants. Human beings are endlessly creative and experience -seeking. Once we are freed from old requirements, we move on to imagine, create and satisfy new kinds of enjoyments and challenges, and this creates the opportunity for new kinds of skills, goods professions and services.

            1. F. Beard

              There’s any number of things people can do IF they have an income. Where’s that income to come from when robots are doing all but the most creative work? From government-make work jobs? Why not simply give people fiat rather than pay them to waste thier time and morale?

              1. Calgacus

                And when robots can do all but the most creative work more reliably and cheaply than humans then how will most NOT be involuntarily unemployed? Employment, jobs is a human decision. Nothing to do with robots. All work for money is government make-work. There ain’t any other kind. The JG is just the concrete realization of this observation.

                We should focus on justice Right. The JG is justice. The restitution for the original sin of the creation of a monetary economy. The BIG is a sick joke, a way for plutocrats to create hyperinflation and continue to create poverty amidst plenty by preventing real justice = JG. Nothing wrong with your “framing” really – you bring a lot to the table that should be there. It’s your logic that has problems, unlike MMT.

                We are already far beyond the point where everybody should have a decent “basic income” guaranteed. The only thing preventing it is the morally depraved resistance to the minimally sane idea of the JG. It’s been around (and forgotten) for 200+ years.

                1. F. Beard

                  The JG is justice. Calgacus

                  No it isn’t. Since when should victims have to work for restitution?

                  The restitution for the original sin of the creation of a monetary economy. calgacus

                  More precisely, the sin of government backing for the banks, which should be 100% private businesses.

                  Hyperinflation threat? Then eliminate or greatly reduce the ability of the banks to create credit. Then the threat would be hyper-deflation as existing credit was repaid with little or no new credit to replace. So to counter that, have the monetary sovereign meter out new fiat equally to the population until all deposits are 100% backed by reserves. Then fully privatize the banks since the necessary reserves for most people to move into a Postal Savings Service would exist leaving only purely voluntarily depositors in the banks.

                  As for a BIG, I’ve decided a Living Wage is more appropriate.

                  1. Calgacus

                    A Living Wage is just a JG. That’s what the MMTers have been saying forever. The usual BIG is just instant hyperinflation, having nothing to do with side issues like banks or reserves.

                    The banks aren’t all that important. The original sin was not modern banking, but the state taxing and not giving people a way to pay the tax. Which is stark raving mad. A monetary economy without a JG is stark raving mad. Obscenely unjust.

                    However utopian a scenario one dreams of, if the state in it psychotically refuses ONE single person a way of getting its money, when HE or SHE says so = refuses a JG, the only result is to recreate a hell we’ve seen a million times. Imposing unpayable debts, making the “money” in any Beard utopia (which is debt in the appropriate sense) unobtainable is deranged behavior. That’s all the JG is. Give people a way to get money. If people do something good for society, they deserve something back.

                2. F. Beard

                  All work for money is government make-work. Calgacus

                  Only if you include the banking system as part of government. But it isn’t though it greatly relies on government privilege.

                  So a lot of work is financed by bank credit and could be financed with other forms of endogenous private money too. And that work is not make-work but rather the minimum necessary employment so as to maximize profit.

            2. Andrew Watts

              @Dan Kervick

              That picture is certainly appealing, but just how feasible it is?

              Whether anybody gets their burger and fries from a mom’n’pop vs McDonalds doesn’t matter from a production/consumption angle. The problem is now that McDonalds and it’s contemporaries have mostly eliminated the small capitalists in this case the further concentrating capital (profits) in this case in the hands of fewer hands. Widening the distribution of wealth which eventually leads to debt deflation and depression. Assuming that the Great Depression and our current economic quagmire have something in common.

              When robots start making hamburgers and becoming more involved in the material production up the supply chain until the hamburger is produced this will further the destructive process. This will also have a massive deflationary effect on an already anemic labor market and downtrodden economy.

              I wish I had more clarity concerning this because reiterating a proto-Marx / Marxist vision of the future would be repeating another huge mistake of history.

              @F. Beard

              The problem is the social-political system has not followed economic development. I mean Keynes thought we’d eventually reach a point where there would be no rentiers and technology would provide a labor-free existence for all. Even that doesn’t seem likely any time soon as desirable of an outcome that would be.

              1. Dan Kervick

                Why would widening the distribution of wealth cause deflation? I would think the opposite is true.

                Your just repeating the same claim over again about technology and work. But economies are never static. There is not some fixed quantity and kinds of jobs and human labor. We have been eliminating various kinds of jobs for hundreds of year. And yet in the late 90’s we had nearly full employment and very high labor force participation. We keep creating new kinds of work as old kinds pass away.

                We should be focusing more on a better distribution of the means of production. We also need to recognize the role that governments have played throughout the modern era in driving and organizing economic change and development, and then start thinking like a “developing country” again.

                1. F. Beard

                  We should be focusing more on a better distribution of the means of production Dan K

                  Agree. The common stock of all large corporations could be equally redistributed without affecting the operation of those corporations, or at least one would think so, at least with regard to non-financial corporations.

                  1. Dan Kervick

                    If ownership in productive enterprises is equally distributed among the people, then we have something like communism – at least initially before all the subsequent exchange starts taking place.

                    However, if stock shares are going to be allowed to fluctuate in price due to market factors and the changing fortunes of the firms in whose shares they are, just as they do now, then I don’t think they will make a very good form of money. They will be too volatile – almost as bad as bitcoins. We should be trying to reduce the ways in which our society resembles a casino, not increase them.

                    1. F. Beard

                      Common stock’s volatility in fiat is driven by our current money system, a government-privileged usury for credit cartel that allows, for example, the purchasing of stock with brand new purchasing power that is lent, not spent, into existence.

                      And then there is naked short-selling which should be punished with heavy failure to deliver fines.

                      Otherwise, the stock price of a sound, well established company should reflect the actual desire for its goods and services.

                      Casino? How about the wisdom of putting all our eggs in a single, government-enforced monopoly money supply for private debts?

                    2. Dan Kervick

                      I don’t think so. The volatility of common stock is based on the fact that a dynamic economy is inherently volatile, as are the valuations people give to the firms that it. Some business grow, others contract, others disappear. That’s a ceaseless process.

                2. Andrew Watts

                  “Why would widening the distribution of wealth cause deflation? I would think the opposite is true,”

                  When income growth is being captured by the top and is not distributed to the bottom half we see falling demand. This is a point Marriner Eccles made back during the Great Depression.

                  “As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth … to provide men with buying power. … Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. … The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

                  You seem to think that service economy jobs will be replaced with more desirable jobs. Yet the service economy itself replaced an industrial economy that facilitated labor’s higher standards of living. The full employment era of the 1990s also further expanded the gap between the rich and poor. The upper classes predominately gained more of the nation’s income growth as the stock market boomed.

                  My point is and remains that the manipulation of money cannot replaced the accumulation of capital. We’re living in a time period where capital is being cannibalized. This does not bode well either for the rich or the poor. I really should stop writing responses right before I go to bed.

    2. from Mexico

      Keynes called Irving Fisher the “great-grandparent” of his own theories on how monetary forces influenced the real economy, and with good reason:

      “Those who imagine that Roosevelt’s avowed reflation is not the cause of our recovery but that we had ‘reached the bottom anyway’ are very much mistaken….. Had no ‘artificial respiration’ been applied, we would soon have seen general bankruptcies of the mortgage guarantee companies, savings banks, life insurance companies, railways, municipalities, and states…. If even then our rulers should still have insisted on “leaving recovery to nature” and should still have refused to inflate in any way, should vainly have tried to balance the budget and discharge more government employees, to raise taxes, to float, or try to float, more loans, they would soon have ceased to be our rulers. For we would have insolvency of our national government itself, and probably some form of political revolution without waiting for the next legal election…..

      If all this is true, it would be as silly and immoral to ‘let nature take her course’ as for a physician to neglect a case of pneumonia. It would also be a libel on economic science, which has its therapeutics as truly as medical science.”

      –IRVING FISHER, “The debt-deflation theory of great depressions”

      1. Greenie43

        Thanks for an accurate historical notation on how these money skirmishes have played out in times past, and why Fisher’s ‘theoretical’ postulation remain far more relevant than those of modern seers on the inevitability of ‘secular stagnation’ in a debt-based system of money.
        It is for such reasons that modern money technocrats such as Adair Turner note the need to get back to the observations of Fisher and Simons, even early Friedman, in postulating his modern money solution of Overt Permanent Money Finance to achieve the fuller employment goals that we are all seeking.


        1. rob

          great video,
          Adair Turner’s ideas about sovereign money, seems like what in this country was thought of in the 1939 “Chicago plan”,,and more recently, by the “need act” HR 2990 112th congress.

  3. H. Alexander Ivey

    Just read the 1st paragraph (ha! someone who does have a clue) and then searched the rest for the key word “Marx”. Humm, no mention. Poor Marx, never a mention of, rarely a nod to, only occasionally a steal from, by main-stream economists. The C – M – C’, and M – C – M’ are from Marx, quite arguably the top economist analyst of the Capitalism Age.

    1. Ben Johannson

      Marx was an excellent descriptive diagnostician. As a prescriptive economist he was less than prescient.

      1. from Mexico

        But I’m not convinced that writing the aesthetic, symbolic and poetic — could we call it the spiritual? — aspect of human existence out of the equation is the solution either.

      2. H. Alexander Ivey

        Agreed. But I still stand by my critique, not citing Marx leads old cogers like me to shoot spit balls.

        But upon reading the paper in full, I will second Professor Wray’s assessment. The author did an excellent job recapping and contrasting the high points of “orthodox” and “heterodox” economic theory. And I raise a glass to his observation that “orthodox” theory is not only wrong, it is anti-social, a key reason why it is so beloved by certain elites and moneyed segments of society.

        1. diptherio

          Personally, I appreciate the fact that the author avoids use of the M-word. Marxism is a trigger word for a lot of people in the US (especially the old codgers) and they turn off as soon as you mention anything having to do with Marx. The knee-jerk reaction is unfortunate, but all too real; we can’t ignore it if we want to talk with anyone other than those already in our “in-group.”

          The unthinking rejection of anything Marx-related is less of a factor with younger generations who have no memory of the Cold War era, but I think it is still an important factor for older folks. So, as far as rhetorical method goes, I think leaving Marx’s name out is a good idea, as the man’s name is likely to distract from the analysis, which is the really important thing.

          1. from Mexico

            I disagree.

            Where have all these mealymouthed, “can’t we just all get along” rhethorical strategies gotten the so-called “left”?

            The right, on the other hand, took a very different tact, as Robert H. Nelson describes here:

            “Kuran’s analysis may shed some useful light on how Friedman and a few fellow economists in the Chicago school might have had such an extraordinary worldwide influence on public opinion and then on government policy over the past quarter of a century.

            Kuran begins with the observation that there are two kinds of opinion, private and public…. The overall result will be that people will commonly tell ‘public lies’ that in fact differ considerably from their ‘private truths.’

            Kuran also thinks, like Friedman, that the content of public opinion plays a major role in deciding public policy…. Kuran’s model can also help to explain why at some moments there may be surprisingly rapid shifts in public opinion and then in government policy. Once some people start to speak out, and thus the private costs of being honest in public begin to fall, more people will speak out, creating further new private incentives for public truthfulness, and all in all a ‘virtuous circle’ may ensue.

            Indeed, it may be just such a set of forces that can explain why Chicago economics has had so much impact on public opinion. The crucial element here is the strong tradition of public outspokenness at Chicago in the face of conventional wisdom, manifested since the days when Frank Knight made it a trademark of Chicago….

            Tobin on one occasion in the 1960s noted that ‘many controversies on monetary theory and policy pit Friedman and his followers against the rest of the profession.’ Most economists would have lacked the courage or force of will to stand up to the pressures of a virtual professional consensus in opposition to their views. Rose Friedman recently related how her husband required special security guards….

            The manner in which Friedman’s policy proposals have come to be adopted has often followed the general pattern described by Kuran for rapid shifts of public opinion. There is an initial strong negative reaction to Friedman’s ideas that may persist for some time. Friedman and his Chicago colleagues are likely to be derided for their unrealism and dismissed as out of touch. Other economists and policy makers are likely to keep any private agreement with Friedman to themselves. However, when the tide of public opinion begins to shift, aided by the presence of Friedman and other Chicago economists who have absorbed the heaviest blows at the forefront of controversy, large shifts can seemingly occur almost overnight.”

            –ROBERT H. NELSON, Economics as Religion

          2. from Mexico

            I would also offer in rebuttal to the exhortaiton that we use an invented history as opposed to real history this quote by James Baldwin:

            “To accept one’s past — one’s history — is not the same thing as drowning in it; it is learning how to use it. An invented past can never be used; it cracks and crumbles under the pressures of life like clay in a season of drought.”

            –JAMES BALDWIN, The Fire Next Time

          3. Greenie43

            shhhhh, don’t mention Marx or Friedman here.
            But if we mention Marx, I hope its OK to criticize his advancement of either reform or revolution to the bankers’ system of money.
            My Dad said Marx’ understanding of money was only surpassed by Adam Smith on the wrong side of a sovereign fiat money system.
            The Money System Common.
            And that what we should learn from Marx in our own efforts at reform was contained in an unsubstantiated quote: “”Revolution is ninety percent opportunity.””
            Maybe my Dad made that up.
            I would only add the need to know opportunity in its fullness of the day. Today is the day for money.
            Now is the time for money.
            A broken money system is the opportunity of a true progressive revolution in this country.
            Understanding money in its fullness remains the most important subject that intelligent persons can reflect upon.
            For the Money System Common.

    2. from Mexico

      But whether we use Smith’s C – M – C’ or Marx’s M – C – M’, aren’t both formulations based upon metaphysical materialism?

      Marx’s formulation is, in my opinion, a far more realistic description of how capitalism actually work’s than Smith’s. Smith posits the beginning and end of capitalism is to maximize the production of commodities. Marx, on the other hand, challenges this claim. He asserts the beginning and end of capitalism is to maximize the production of money, of profit, and not goods or services as capitalism’s champions claim.

      But in both cases, the alpha and the omega is materialism: either commodities or money.

      But anthropoligical studies of both 1) ancient man and 2) contemporary man living in primitive conditions reveal that man was and is far from being so thoughly materialistic. There is an aspect to human existence that is missing from both formulaitons. So whether we deem one or the other, or some mixture of the two, as being correct as far as they go, they both are nevertheless incomplete.

      1. from Mexico

        The way in which Richard F. Townsend puts it in Ancient West Mexico: Art and Archaeology of the Unknown Past is nothing short of poetic:

        “Today, a hundred years after the travels of Breton and Lumholtz, it is clear that aboriginal communities in West Mexico gave rise to a high socioeconomic, symbolic, and aesthetic achievement with distinctive, even singular features. The availability, management, and control of natural resources were certainly determining factors in the formation and development of ancient communities; but it is no less important to recognize that such a complex adaptive human experience is never simply an outcome of economic activity or utilitarian purposes. Day-to-day existence and the long process of cultural evolution are much more than relentless competitions for goods and material survival, for there are also other subtle patterns at work. The lift of the mountains, the path of the sun, the rebirth of seasons, the migration of animals, and the legends of earlier life provide many sources — seen and unseen — that inspire the creation of myths, the invention of symbols, and the rhythm of festivals, giving shape to basic patterns of thought. A sense of order and place is deeply interwoven with the human need to understand the beginning of things, explain the embracing design of nature, and conduct individual and collective activities in accord with the regular, predictive cycle of life, death, and renewal. The pragmatic business of obtaining food went hand in hand with the making of a culturally meaningful habitat. Here as in other pre-literature Amerindian socities, the old stories were told and retold and performed in ritual drama; humans and animals spoke with each other and with the ancestors and heroes, and through them to the deified spirits and life-and-death forces of the sky, the waters, and the mountains. In this sphere of imagination and expression, the people and the place became one.

        1. allcoppedout

          Very pretty Mexico. We have books, film and television that repeat much the same dross over and over. Whether the content is star-crossed lovers (read spoiled teenage brats) or the latest science (read school-level read by professor with comforting voice), the aim does not seem much different than the rituals you describe, though at least they might be in fresh air.

          I would suggest these are the means by which money and other control frauds are held together and really not pretty at all. This is how ideology works.

          Barter or not is just another academic fashion in money ideology. Science is too scary for most, so we are stuck with ideologies like money, hard work, meritocracy and other cosy dross as untrue as forest spirits (which we often used to control women). There is no longer any need for money, other than to hide crime and foreign policy manipulations. We could have transparent electronic accounting. I know of no system in science that designs itself to prevent evidence (except perhaps nature) and leave only interpretation in terms of pretty prose or the lies politicians tell.

        2. Doug Terpstra

          Thanks, fM. The search for meaning, connection, beauty, truth, and love is far more rewarding and fulfilling than the relentless pursuit of power and profit. This is self-evident.

      2. Fair Economist

        Materialistic descriptions of people in general are quite imcomplete; but for the kind of borderline or outright sociopaths who run large companies it’s pretty close. And for them Marx’s formulation is correct – they’re working to maximize their net worth, not production for consumers. Smith (the actual writer, not the prophet of capitalism imagined by the right-wingers) actually would agree. He just pointed out that, absent things like fraud and monopoly power, those sociopaths would have to do something useful to get their money. He did think those came out to relatively minor issues, but he would certainly recognize that the modern multinational corporation can lie, exploit, and cheat on a scale unimaginable with the small shopkeepers he was thinking about.

        1. from Mexico

          Even though I would argue that the thinking of Smith, Marx and Keynes had a strong materialistic bent, none of them completely neglected man’s spiritual life. The chore of slandering these men, and the misrepresentation of their teachings, as well as their problems, was left up to their followers: the neo-Marxists, neoclassicists and neo-Keynesians.

          The fact is “that the position Smith took in Moral Sentiments is not easily reconcilable with the one he took in The Wealth of Nations,” Amitai Etzioni notes in The Moral Dimension.

          And how often does one hear this side of Keynes?

          “The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems — the problems of life and of human relations, of creation and behaviour and religion.”

          –JOHN MAYNARD KEYNES, “First Annual Report of the Arts Council” (1945-1946)

          But the person who has really been slandered and misrepresented is Marx, as Susan Neiman explains:

          ***beginning of quote***
          Metaphors have long lives, and Marx’s description of religion as the opium of the people helped mislead us all. In fact, though Marx was the first thinker to show how deeply our worldviews may be shaped by material needs, his views of religion are more complex, and less condescending, than most leftist critics who followed. Far from reducing religious needs to economic ones, Marx called the criticism of religion the first premise of all other criticism because he understood its power. Here’s what he actually says in the passage leading up to the one-liner about opium:

          “Religion is the general theory of the world, its encyclopedia, its logic in popular form, its spiritualistic point d’honneur, its enthusiasm, its moral sanction, its solemn complement, and general ground for the consummation and justification of this world….Religious suffering is at once the expression of real suffering and the protest against real suffering.Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of spiritless conditions. It is the opium of the people.”

          Sitting in the British Library, Marx may have got his drugs wrong. On his account, religion is anything but a sedative; in fact it sounds more like cocaine. In Marx’s description, religion is the force that keeps the world awake. Heart of a heartless world calls up love as well as courage; hearts are also sometimes seats of purity, another quality one longs for when one longs for faith. But saccharin allegories aside: anatomically speaking, the heart is the organ that keeps us alive.

          Marx’s judgment of the forces arrayed against religion was just as savvy as his judgment of its power. His description of what capitalism did to the world it found might, with few changes, have been written by believers in Afghanistan—or Arkansas.

          “The bourgeois…drowned the most heavenly ecstasies of religious fervor in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom—free trade…All that is solid, melts into air, all that is holy is profaned.”

          Of course this is irony, and verbal acrobatics, but it’s also ambivalence. Marx’s attitude towards the religious standpoint is hardly one of scorn. Something fateful was lost when bourgeois calculation replaced religious devotion, and we are right to feel bereaved. Marx’s ambivalence towards the holy is echoed in contemporary critics of globalization from the left as well as from fundamentalist forces on the right. As the freedom to buy cellphones or sneakers expands from Boston to Beijing, something within us contracts; the price of this world is an absence of soul. You don’t need to have a political direction to view the process with disgust, and yearning. Whether out of disgust for principles preached but not practiced, or for principles one would rather not practice at all, the cry for a heart for this heartless world grows louder every day.
          It’s at this point that religion and morality meet and join hands. Theirs need not be a cynical alliance. Some crude critics suggest that religion handles morality like a prod or a whip, producing the behavior it seeks through a series of bribes and threats. But this is the abuse of morality, not the essence. However often priests of one sort or another may have mobilized their flocks with promises about heaven and warnings about hell, such manipulation is political, and therefore incidental to the realms of both religion and morality. Nor does religion make moral choice transparent. Even in the ages when some faith or another was a matter of course, everyday moral decisions were never automatic. Which faith, and how it was to be applied to daily decisions, was anything but clear; people burned each other alive over the differences. Whatever pictures may be colored by nostalgia and longing, religion makes life neither safe nor easy.

    3. don

      I had the same thought and did the search as well, though I wasn’t surprised with the result. Moreover, the writer failed to take it the next step as Marx did: M – M. Thats where it gets real interesting and reveals the origins of a financial and speculation dominated economy.

      To go into this in depth, listen to this lecture:

      1. JTFaraday

        Excellent. A way to read Marx with someone who really knows the text, all while boycotting both the higher education extraction machine and the on-line Massive Open Over-enrollment Courses that the likes of Goldman Sachs and Rupert Murdoch (Fox News!) seek to monetize next.

        This David Harvey knows what he’s doing.

  4. Ben Johannson

    The paper demonstrates a pleasant writing style in that it flows well. Never did I have to go back to re-read a sentence or paragraph to make sense of a later one.

    Nice work.

    1. Greenie43

      This is indeed a well-written explanation of why the heterodox economists of the MMT school think themselves superior to, and hold themselves in higher regard than, those of orthodox economic thinking. While simplistic in its approach thereto, it fails to recognize that there will be no real challenge to MMT from those old-schoolers, but rather from true progressive currency- and money- schoolers; from traditions like Greenback-Labor to Progressive, to Farmer-Democrats to various socially-advanced populist money pioneers, and today those will come from the Nouveau Greenbackers, and from advanced thinkers from the true monetary literati like Adair Turner and Benes and Kumhof of the IMF, and Dr. Kaoru Yamaguchi of Japan.
      Their work shows that the progressive leaders of the FDR era have long ago proposed truly workable systemic reforms that need not advance such irrational money paradigms as “The government neither has, nor doesn’t have, any dollars”. Nor the equally paradoxical “The government does not need taxes or debt-proceeds as revenues in order to spend”.
      The findings of Dr. Joseph Huber that MMT is not ‘monetary’ theory but ‘banking’ theory does help to explain why its outcome is to support the present system of having money created in capital markets via debt issuance, rather than by public issuance of $-denominated social equity.
      ‘Money’ is indeed the coming political-economic discourse. It will be debated around the central issue of whether the private powers or the public will be the future issuers of the national currency. A theory that advances both concepts via double-speak will not long survive in that debate.

      1. from Mexico

        Fascinating link.

        It looks to me like NCT calls for far, far more radical reform of the finance sector than MMT.

        These guys are serious about clipping the banksters’ wings.

      2. 4D

        Thanks for this. Dr Joseph Huber sounds like my kind of guy. I will read him shortly.

        I have written numerous times here that my biggest problem with MMT is that it simply entrenches the status quo which obviously favours the capitalists.

      3. JTFaraday

        Oh, so that’s what “Greenie” signifies in your name. And here I thought you were another neo-primitivist lover of flora and fauna.

        How do you answer Yves’ contention on this other thread that the American Monetary Institute people promote austerian public policy, (despite no apparent need to do so):

        “And to make this worse, their “debt free money” construct is austerian without them even understanding it. 2/3 to 3/4 of their ideas are the same as MMT, but the balance are completely incorrect (for instance, one legislative proposal they are still pushing hard calls for the paying down Federal debt, which is both extremely destructive and unnecessary). So they confuse people who have learned a bit about MMT and use it to propose policies that are massively favorable to the 1%, while pretending the reverse.”

        1. Greenie43

          Definitely related to the flora and fauna just as well.
          Ecological economics, or none.

          First, thanks to Yves for letting me answer.

          It isn’t really possible to answer the ‘austerian’ reference, which stands with neither explanation nor support in anything else written. However, I agree that whether and how any reform proposal affects any real economic factor should be a baseline discussion.
          My real explanation would be that Yves has connected well with the MMT dialect. MMTers have no understanding of monetary reform proposals. They are sometimes dismissed as conservative, even Austrian, because early reform proposals included specifically full-reserve banking, along with 100 Percent Money.
          Monetary reformers had this full-reserve banking in common with most Austrian proposals as a backdoor reference to ending fractional-reserve banking, the practice by which private bankers create all of the money in this country (c.e.) by issuing debt. Both reformers and Austrians(mostly) are against that – issuing debt-based money. (for different reasons)
          Because Austrian money philosophy includes a gold-based currency supply, a commodity both naturally restricted and, thus, scarce, a common and valid attack on Austrian-ism is that it is somewhat openly deflationary in its market orientation. Too little money is a good thing to some. Obviously, not to reformers.
          Bill Mitchell was the first I saw to cast the Austrian-like cloak of ‘recessionary’ to the reform identity. But he did it by a gold-era association that has no validity. I have explained this in a video. Jan Kregel did somewhat the same in a Levy Institute policy brief, ostensibly in response to IMF researchers Benes and Kumhof Revisit of the Chicago Plan.
          Ironically, Hyman Minsky late in his work saw the wisdom of Fisher’s 100 Percent Money proposal, calling for a new National Monetary Commission, but MMT is more caught up in ‘monetary base’ accounting.

          As to Yves overall contentions, if I may….
          Yves: “”No, it’s that the folks from American Monetary Institute(who are the source of the “debt free money” coinage) were lobbying Occupy, showing up at various Occupy working groups and trying to hijack them. They would have pre-printed fliers and wanted to talk ONLY about their issues, they had absolutely no interest in anything on the working groups’ agenda (I saw them do this consistently at AlternativeBanking and I heard reports of the same at other Occupy groups). They did that for a good year and a half. Their manner was polite, but they were were disruptive and insistent.””

          Reply: So, the crime of the AMI folks, and others, is they were showing up at Occupy groups and lobbying for a hearing on debt-free money (which was apparently denied). They even had some printed stuff. They wanted to talk about their issue and did not care what else was on the agenda, as long as they were too. They were persistent, consistent and insistent, in a polite, but also (somehow) disruptive manner.
          You would think they were trying to make some kind of ‘money’ revolution. What is wrong with these people that they don’t accept some MMT’s tenets?
          Yves: “”And to make this worse, their “debt free money” construct is austerian without them even understanding it. 2/3 to 3/4 of their ideas are the same as MMT, but the balance are completely incorrect(for instance, one legislative proposal they are still pushing hard calls for the paying down Federal debt, which is both extremely destructive and unnecessary). So they confuse people who have learned a bit about MMT and use it to propose policies that are massively favorable to the 1%, while pretending the reverse.””
          Reply: So, I guess there was no need to make any effort to engage, explain help these lost souls understand the ‘austerian’ nature of the debt-free money construct (not sure what that means, BTW, but Adair Turner has taken over the Senior Research Fellow position at INET on the basis of ENDING austerity with debt-free, publicly-issued money. [Permanent Overt Money Finance.] )
          Being 2/3’s in agreement with MMT means there is only one-third we need to clear up. And the bogeyman issue here raised is that of paying off the public debt when it comes due. Whether it is ‘necessary’ from a public policy perspective or not, no explanation is offered as to why it must be “extremely destructive’, or to whom. Modeling of this option using both standard(DSGE+) and advanced (systems dynamics) modeling tools shows no such destructive outcomes…. quite the opposite.
          We agree that it is a good idea to clarify whatever ‘confusion’ might exist for those ‘who have learned a bit about MMT’. That’s why we’re here.
          And as to the ‘proposed policies’ by the debt free money(at issuance)folks, …Restoring the money power to the people( as demanded by progressives and populists for over a century), and preventing the debt merchants from issuing what serves as the nation’s money, sound like something that would be wildly popular among EITHER the one-percent, or the ninety-nine percent of The Restofus. You figure it out.
          But we’re all on the same side here.

  5. The Dork of Cork

    What is striking about MMT like money debates is the almost complete absence of the role of capital in the debate.
    Be it physical capital or accumulated knowledge.

    If we look at village life we can see over generations that the knowledge of where water holes are , plants growing in certain places and certain times of year , movement of animals etc etc is collected over time and shared among the village community.
    This is the capital of the village which is shared via non monetary exchanges.

    The real & vital advantage of such knowledge is that it saves time and wasteful calories expended.
    I believe this is the advantage of having a large brain and such.
    The MMTers seem to want to negate this by forcing us out to do pointless work projects as in a debt money system all money has a tendency to move upwards to a apex

    Ancient villages did not have jobs programmes.

    It is quite striking that the MMters are comfortable with free banks destroying human and physical capital (creating artificial scarcity) as they do not hope to subtract the production &role of private credit from their models. and are comfortable with the filling of the money void with state tokens within a debt based system which makes the previous destruction of wealth manifest via the process of inflation rather then delflation.

    On no account do they wish to give equity like tokens to the masses.
    To give the money back to the people so they can do with it as they wish be it spending more time with their family or whatever.
    Through this process of interest & inflation the guys on top can control all human consumption and activity in general.
    Given its compound nature It is very different from the state money of the pre Tudor English kings where they engaged in a binding contract with the various Lords of the Kingdom before money was created & tax could be paid

    So in reality in the modern debt state it is not so much that production is centralized as we have come to think of Industry – it is consumption which is centralized.
    Destroying all human freedom.

    1. Ben Johannson

      I keep hoping that someday you’ll realize not everything is about everything. You might as well complain the paper doesn’t mention liver spots and garden gnomes, as they aren’t the topics either. Not one sentence you’ve written actually addresses points and arguments made; in fact you have a consistent pattern of simply trying to tear everything you see down into rubble.

      It’s old. Stop obsessing and move on.

      1. The Dork of Cork

        A world without capital awaits……………

        Bring on the hamsters and their cheerleaders.

        What do yee yanks call it again ?
        A crapshoot or something to that effect.
        In Ireland we call it Bollox.

        1. susan the other

          It confuses me Dork, because on the one hand you do have a good understanding of what austerity has done to Ireland and the periphery yet you say things like your above comment. I couldn’t find anything rational in it at all.

    2. Fair Economist

      Ancient villages did not have jobs programmes.
      Yes they did. If somebody was hungry but had nothing to do they’d feed them and then apply social pressure to get them to do something for somebody else. That works out to exactly the same thing as a jobs program. It’s just that in a modern society you’re going to need the government and money to get something chosen and to get it done.

      1. squasha

        our ancient village glows more golden with each passing year, Whoville theory posits the existence of Whos, who are not, and likely never have been.

      2. The Dork of Cork

        @Fair economist
        Again – you miss the capital angle.
        The village chief / shamen did not deprive the people of their hinterland / knowledge to the advantage of others or maybe he did via the mystery of religion ……but I imagine it would have been a tad difficult to eat deer that others have caught – the village system was just too small for that.
        Who knows for sure
        Anyway what we do know for a fact is that hunter gatherers do not work so hard in general – especially in a capital rich /protein rich hinterland of big game – they just sit around and talk of other things.
        The more modern but still very primitive high carbo / low protein agricultural settlement fools us into thinking life was a drudgery for our more ancient bushman ancestors – it was not.
        Once you could escape disease life was good and more importantly full.

        In a industrial society capital overpowers labour every time – so its a bit like neolithic times in that respect.
        But modern peoples jobs are in the main pointless so as to access credit tokens,
        I imagine there was few pointless jobs in the ancient pre agri village.
        It was either art / drugs or proper mans (hunting) or womans work.

        in the modern world we work / consume to forget more important things which were part of the everyday village system – for instance death is something the modern world does not want to deal with very well.
        In old irish wakes death can be a sort of happy occasion where we remember all that was good and funny about times past past.
        Pointless work now becomes a vehicle to escape the reality of our terrible modern existence.

        1. from Mexico

          I’m not sure how much of your concept of village life is some Rousseauian fantasy and how much is fantasy.

          In a way you remind me of what Diane Kelder wrote of Gauguin. His pictures of the South Seas “are probably his best-known works,” she writes, in which he “was able to find a sense of mystery” with his “strong, unmoulded colors and simplified, elemental forms.” These “add to the unearhtly, magical aura of these works.”

          “Gaughin’s artistic output in Tahiti and later in the more remote Marquesas Islands was enormous, but there were few buyers for the works he sent back to Paris,” Kelder continues. “Suffering from poverty, malnutrition, and syphilis, he contemplated suicide in 1897. Yet somewhere he found the inspiration and strength to work on this oversized composition [D’où venons-nous ? Que sommes-nous ? Où allons-nous ?] which he clearly viewed as both a personal testament and a new interpretation of the traditional religious and philosophic view of human destiny. Using a rough-textured sackcloth, he created a friezelike composition whose flat but monumental forms and exotic color create visual equivalents of the peace and harmony he had admired among the Polynesian natives.”

          However, anthropolotists do not describe primitive life as being so pristine:

          –Hillard Kaplan & Michael Gurven, “The Natural History of Human Food Sharing and Cooperation: A Review and a New Multi-Individual Approach to the Negotiation of Norms”

          1. from Mexico

            That should have read:

            I’m not sure how much of your concept of village life is some Rousseauian fantasy and how much is reality.

        2. from Mexico

          As Michael Hudson noted the other day, Marx asserted “the foundation of industrial capitalism…was driving people off the land into the cities where they had to work for wages.”

          But that’s a done deal, and I’m not sure how you plan to put the spilled milk back in the bottle.

          But as Arundhati Roy and others have pointed out, those tribal peoples who still live in traditional societies in the “emerging” economies of the “developing” world, who have still not been “driven off the land into the cities where they have to work for wages,” are demonstrating a willingness to fight to the death in order to preserve their traditional ways of life:

          –Arundhati Roy, “Walking with the Comrades”

          This sets up a schism within the left in the “developing” world as two factions of the left — the progressive developmentalists on the one side and the environmentalists and defenders of the tribal peoples on the other — battle it out.

      3. American Slave

        “It’s just that in a modern society you’re going to need the government and money to get something chosen and to get it done.”

        Sounds like a modern gulag system to me as far as forcing people to work non stop goes, that means no time away ever from the dehumanizing always making people feel inadequate workplace. Just go from job to job without any break of which most employees suffer from Stockholm syndrome and sympathize with their abuser.

        In this day and age it takes a hell of a lot of time and energy to find a job and take tests etc. I couldn’t imagine being stuck at a crap paying jobs guarantee work regime and having the time and energy to look for a real job.

        And what about babysitting family members children. does that not have value in itself? I think people should be free to do as they choose and not forced into a gulag jobs system as most work can me mechanized and automated away even planting trees can be done with machines and one American farmer can feed over 10,000 people at today’s farm production rate.

        So why cant a person grow food for the community for a year and then the next year someone else take over and then someone else take over after that etc. Why do I need to build a house every year. whats with this obsession with endless work? let people be free without forced labor.

        Its worth mentioning that the Soviet Union had free unlimited and unquestioned welfare but people would still work to make extra money and get ahead but at least they could take a break every now and then compared to today’s Russia that looks like the old capitalist Russia with homeless people wearing beanies gathered around burning trashcans desperately trying to stay warm.

        And lets also not forget that while the Soviet Union had its unlimited welfare they also had a damn good space program as some scientists but not all had time to visit the library everyday before they started working.

        1. Fair Economist

          I’m not sure where you found that strawman to thrash. Jobs guarantee programs are not coercive in the democratic world and are not likely to become coercive either. They aren’t remotely gulags. Sure our society has issues with undervaluing non-commercial activities and an inadequate safety net but a jobs program doesn’t worsen either and actually tends to provide a lot of support for non-commercial activities just by given a lot of people more of a cushion and improving the economic situation.

          1. American Slave

            For people who work a somewhat temporary field like construction or engineering just getting a unemployment check more than works.

    3. Dan Kervick

      I don’t think most MMTers want work projects that are “pointless”.

      Personally, it seems to me that we have enormous challenges facing our planet and our societies, and that meeting these challenges is going to require a vast amount of human labor. And there is no reason to expect the private sector to organize these projects because the kinds of goods they will produce are not the kinds of personal consumption goods that free markets are good at handling on our own. It’s hard for me to understand the philosophy that says we can’t employ everyone without creating make-work jobs.

      1. F. Beard

        It’s hard for me to understand the philosophy that says we can’t employ everyone without creating make-work jobs. Dan K

        When robots can do all but the most creative jobs more cheaply and reliably than humans, what then? Shall the human race finally be allowed to retire to a life of leisure and voluntary work or will it be forced to work on Dan Kervick’s version of the Egyptian Pyramids?

        You JG folks have no end game. Utopia will NEVER arrive with you guys, not even in principle because you ignore justice.

        1. Calgacus

          No endgame? Whatever.
          You have no middlegame. Show me these magic robots, right now! Why do you want to force people, right now, to not work, not work to help society, and thereby deprive them of income that THEY, not some a-hole BIG bureaucrat think they need? Why force homeless people to be homeless right now – because there is some cockamamie dream that would solve everything? The JG is all about justice, and is much more moral and just than Beardian proposals. Because it is real, can and has worked spectacularly well, which is why it is what the plutocracy fears and hates it above all.

          1. F. Beard

            Nothing about a Living Wage precludes work; it would just eliminate the NEED for people to work for wages. But hey, if you want government to organize PURELY voluntary work projects, then go ahead. But what we really need is land reform and the equal redistribution of the common stock of all large corporations so that the means of production are much more broadly owned. Those corporations are very likely to have been built with the population’s stolen purchasing power anyway.

            1. F. Beard

              Excuse me. Make that “Nothing about a Living Income precludes work.” Indeed, one must live in order to work.

          2. bob goodwin

            We are seeing the undoing of materialism. I don’t mean that evil materialism is being rejected, it is not. It is the great religion right now. I mean that information is moving too fast for materialism to control. Materialism will decline from 95% to 30% of the economy. What will the other 70% do? Some will be teachers and warriors. But there will still be another 40%. They will be idealists: writers, and adventurers and researchers and artists.

            Where will the money come from? I already said that. Only 30% of the economy will be money based. The other 70% will be just like the longhouse Indians. This is not Marxism. It just isn’t entirely materialism either. It is information based, and much more spiritual. with just enough materialism to manage resources.

            Living Wage is a materialist solution, but the same concept.

    4. Min

      “What is striking about MMT like money debates is the almost complete absence of the role of capital in the debate.”

      Debunking the bullshit we are fed everyday is enough.

      1. Dan Kervick

        I’m not sure what that means exactly. Randall Wray was a Minsky student, and the central role of capital formation in Minsky’s economic thinking was obvious.

  6. The Dork of Cork

    Dork :”The MMTers seem to want to negate this by forcing us out to do pointless work projects as in a debt money system all money has a tendency to move upwards to a apex”

    So what is really happening in a world living under a hot MMT Sun.
    These guys are trying to make a flawed debt system work.
    To distribute devalued tokens back down to the African slaves so as to complete & reconnect the extraction loop.
    No thanks.

    1. skippy

      Ancient villages did not have jobs programmes. – Dork

      And your point is relative with 7 billion people on the planet how[?], lets not even start with the blatant romanticism. Sure things are going to manifest themselves contrary to a lot of ideologues predictions, its in those moments that meaningful change can occur, reduction of ground cover makes it imposable for dogma to function. In the meanwhile it might be prudent to stabilize society, so as these events occur we don’t revisit nasty’s like Rwanda et al, which devolve into payback opportunity’s under the cover of tribalism. An ultimate form of deflation imo.

      skippy… thoroughly enjoy your technical analysis, yet, you have not provided a working proscriptive, save pointing in the rear view mirror.

    2. susan the other

      Capital as money is a fiction. Capital comes from everything else associated with some human enterprise, social enterprise. MMT goes further along this line of thinking than every other theory because it acknowledges that money comes first, then production; and money comes only from the sovereign. So doesn’t that discount traditional thinking that says “capital” should be valued separately when capital is simply money. You’re right that expertise is capital. It should be both cultivated with good schools and rewarded by society – it is a form of labor not accumulated money. But I think capital is like sovereign money – it doesn’t work to hoard it and then speculate on the future with it. MMT agrees with you that expertise is capital. It calls for a full employment economy. What kind of employment is the question.

      1. Greenie43

        “MMT goes further along this line of thinking than every other theory because it acknowledges that money comes first, then production; and money comes only from the sovereign”
        Except for the very pregnant fact that in the year 2013, and the hundred years precedent, EVERY increase in the supply of money was created and/or issued by the private bankers (c.e.) in the endogenous money system.
        The money, therefore, come first, last and always, from the the private banks, and NEVER from the government.
        Any attempt at proof otherwise would be most appreciated.

  7. F. Beard

    “According to this view, money is essentially an instrument that denominates and extinguishes social debt obligation. “

    Private money can also be shares in Equity (common stock) which has no necessary debt unless one includes “debt” that is essentially mere bookkeeping so that the remaining assets are distributed properly in the event the company liquidates.

    But why share when one can legally steal purchasing power via the government-backed banking cartel (assuming one is deemed able to return that stolen purchasing power plus interest to the original thieves, said government-backed banking cartel)?

    1. F. Beard

      Common stock as private money is also Biblical since it requires no usury nor profit-taking (the profit can accumulate in the share price and number of shares without the need for dividends, a form of profit-taking).

      1. skippy

        “Justin Martyr, the early Christian apologist, observed, “We who valued above all things the acquisition of wealth and possessions, now bring what we have to a common stock, and communicate to every one in need” (Apology 1.14:2-3). This is where the common life begins, with the heart and soul and a mindset (see Lk 9:24; 12:19, 22; 14:26; 12:34; Acts 2:46).Mission: Context of Caring (4:33)

        The caring fellowship continues to be a witnessing fellowship. The apostles bear witness to the resurrection of the Lord Jesus (1:8, 22; 3:15; 5:32). They do so with great power, not miracles (as Bruce 1990:160) or the new life of the believing community (as Longenecker 1981:311), but effectiveness: their “utterances cannot be ignored by the hearers but force them to decision either for or against the gospel” (Marshall 1980:108). On all (the whole congregation, not just the apostles; this comment prepares for v. 34) there is much grace, God’s sustaining favor (Haenchen 1971:231; compare Lk 2:40; not the favor of the people, as Kistemaker 1990:174, nor a spirit of generosity, see Stott 1990:106). Then and now it is God’s power that makes the church effective in witness and in depth of fellowship.Voluntary, Equitable Sharing: Method of Caring (4:34-35)

        Luke begins with the end result: There were no needy persons among them–an allusion to Deuteronomy 15:4. God’s fulfillment of this covenant promise in the church demonstrates not only his faithfulness but also the fact that the church is the true Israel. In a voluntary, periodic fashion those with means sell real estate or houses, bring the proceeds and lay them at the apostles’ feet.

        Does this point to a customary practice in property transfer (Lake and Cadbury 1979:49), to an educational context (compare 22:3; Williams 1985:79) or to a political context (compare 2:35)? Whatever the background, it is clear that the apostles have full authority over the fund. As a development of the ad hoc arrangements of Acts 2:45 (see comment there), a common fund for the poor has been created, and the rich in the congregation keep it continuously supplied.” – snip

        Skippy… ahhh… theocracy

        Oops favorite part for last … “”Admirable but impractical”–that’s what human beings through the ages have said about the communal ideal. Still, we wonder, Is there a way we can live together in harmony which at the same time liberates us from selfishness and assures us of support when we need it? Luke says a resounding “Yes!” and points us to a – ****corporate salvation**** – blessing: the church’s common life.Unity: Motive for Caring (4:32)” – snip

        ****corporate salvation**** oxymoron of the epoch methinks.

      2. Eeyores enigma

        Profit by definition is an exponential therefor, will by definition, will eventually consume all if maintained which is always the goal though for some darn reason never achieved, hmmmmmm?.

        What no “MT” can seem to stomach is the concept of steady state. Lord NO!

        1. F. Beard

          What no “MT” can seem to stomach is the concept of steady state.

          Again, common stock to the rescue since common stock as private money ALLOWS but does not REQUIRE growth. It would abolish the rat race and the boom-bust cycle, too, btw.

        2. Greenie43

          Assuming you do not include that MT advanced by Herman Daly and John Cobb’s “Afterword: Money, Debt and Wealth” from the Second Edition of their “For The Common Good” publication.
          It definitely still works for steady-state guidance.

    2. Fair Economist

      Common stock is very much debt. Buy it all and you can make the company do anything you want. Not only is it debt, it’s an extra-intense form of debt.

      1. F. Beard

        Well duh! If one owns all the common stock of a company then he owns the company!

        And no, common stock isn’t debt, common stock is shares in the ownership of the company. People who try to force common stock to be debt essentially say: “The company the shareholders own owes the shareholders the company they own.” That’s a tautology and is used to obfuscate since the “money must be debt” crowd was caught flat-footed by the notion of common stock money.

        But yeah, the government-backed counterfeiting cartel, the banking system, does allow the rich and other so-called creditworthiness to finance leveraged hostile takeovers with what is essentially counterfeit money, the only difference is the banks are legal and they lend their counterfeit money into existence. But spend or lend makes no difference with regard to what is counterfeit.

        1. Fair Economist

          It’s no tautology, as demonstrated by the power stock ownership gives over the company. The reality is identical to the accounting model – it’s an obligation (debt) the company owes to the shareholders.

          Non-debt money is meaningless. Money is something that lets you get something from other people. That’s exactly the same as a favor obligation or a debt. Non-negotiable assets aren’t money, because you can’t count on getting something for them. Compared to fiat, common stock is *more* of a debt (because of the absolute power it can be used for) and *less* of money (because it’s far less readily spent). It’s not non-debt money, it’s hyper-debt non-money.

          1. Calgacus

            Nice to see someone who really gets it, Fair Economist. I think you & Yves are saying much the same thing, contradictions only apparent.

      2. Yves Smith

        No, you have that completely wrong.

        Common stock is a residual claim. And for public companies, it is a very weak and ambiguous claim. It means you might get dividends if the company shows a net profit and the board is in the mood to pay them, and you have a vote that they can dilute at any time.

        The right of common stock is to maybe if you are lucky get some cash flow after the obligations to everyone else have been satisfied: suppliers, which included employees, legal liabilities, taxes, payments to all creditors and any preferred dividends.

        1. F. Beard

          it’s an obligation (debt) the company owes to the shareholders. Fair Economist

          The shareholders OWN the company; there is no debt to shareholders because they already have what they purchased – a share in the ownership of the company.

          But let’s simplify to illustrate. Suppose a company is entirely owned by a single person, A. So what does A’s company owe A that he doesn’t already have, .i.e. ownership of his company?

          And look at a balance sheet and note that shareholder equity is not listed under Liabilities(debt) but (duh) under Equity.

          Money is something that lets you get something from other people. That’s exactly the same as a favor obligation or a debt. Fair Economist

          Fiat is a debt of the monetary sovereign but that’s it; no one in the private sector owes me anything simply because I have $20 in my wallet. Otoh, businesses would usually like to SELL stuff in exchange for fiat but that’s NOT a debt of the business since if the business folded I could not claim any of the remaining inventory simply because I had $20.

          1. Greenie43

            “Fiat is a debt of the monetary sovereign but that’s it”
            Perhaps your view of a ‘debt’ is different from the sovereign issuer who takes care of the realm.
            For 2500 years, coins were issued by the sovereign to serve as exchange media, and nothing like a ‘debt’ was ever associated therewith.
            I hope you are not confusing money-is-debt speak with the reality that all of that non-debt money issued for 2500 years actually represented the wealth-equity of the realm.

              1. Greenie43

                Great, that is an agreed obligation in return for the issuing right of of the sovereign. But why, in discussing things money-like do we conflate an ‘agreement’ with some thing that requires money to settle via payment by a borrower?
                The money thus issued is neither debt nor carrying any obligation for repayment, merely again reflective of the issuance of purchasing power to effect free enterprise in the realm.
                Contrast that with today’s debt-based money that requires both perennial re-issuance as debt, and a permanent tax on the people using it for exchange.
                For some unexplained reason, the MMT progs see NO PROBLEM with such a system.

                  1. Greenie43

                    Yes, very well so. Dr. Bill brings both conscience and soul to the MMT school, but this post is replete with pseudo-justifications for the continuance of every possible debt issuance, as usual by dismissing public debt via its counter-identity of private wealth. Isn’t that functional finance just so cool once you get the stylized essence?
                    Collective debt-saturation is merely concentrated private wealth once you get the whole picture.
                    An endogenous, debt-based money system, based as it is on capital markets for a money supply, is nothing but corporate welfare. That’s my point.

        2. F. Beard

          It means you might get dividends if the company shows a net profit and the board is in the mood to pay them, and you have a vote that they can dilute at any time Yves Smith

          I would not accept a common stock money UNLESS I knew that a majority of the shareholders had to approve any new stock issuance. That, of course, would be a major selling point for any common stock money hoping to compete.

          Also, dividends are dumb since the purpose of a common stock company is to consolidate capital for economies of scale, not dissipate it.

  8. Moneta

    Barter has existed and still does.

    “Its first century of operation found Hbc firmly ensconced in a few forts and posts around the shores of James and Hudson Bays. Natives brought furs annually to these locations to barter for manufactured goods such as knives, kettles, beads, needles, and blankets. By the late 18th c. competition forced Hbc to expand into the interior. A string of posts grew up along the great river networks of the west foreshadowing the modern cities that would succeed them: Winnipeg, Calgary, Edmonton.”

    “The early Canadian banking system (British North America and New France until 1763; then renamed Upper and Lower Canada) was regulated entirely by the colonial government. Primitive forms of banking emerged early in the colonial period to solve the drain of wealth caused by the application of mercantilist theory. The drain of wealth translated into a complete lack of gold or silver bullion in the colonies, and thus, a complete lack of forms of economic exchange and payment.”

    Barter, cards, promissory notes, etc.

    1. Moneta

      When I was in University, our prof explained the concept of money using the example of Canada… from the fur trades to promissory notes to national currencies.

      There could be an evolution or these could function in parallel but at the end of the day, it’s a conceptual framework.

    2. Fair Economist

      Did you read the paper? The paper mentioned that barter occurred between members of different societies. But it *never* played a significant role within societies and money did not arise to simplify barter, but to manage intrasocietal debt obligations. Real human societies without money run on favor-obligation systems, not barter.

      1. Moneta

        Most of the activities in our daily lives are barter. There is more trade going on that is not accounted for in our national economies than that which is accounted for. We work on a kind of moral balance sheet. So to say that barter is irrelevant is farcical because it is going on around us every minute of every day.

        Trade is trade is trade. Closing the deal is another issue.

        Trade can be impacted by the nature of what is being exchanged, timing, geography, etc. And if you stick to the here, now and only if I know you, then you get limited specialization.

        1. Fair Economist

          If you’re talking about the interactions that go on with friends and family those are favor-obligation arrangements. Actual barter is very rare – only for things like Magic: the Gathering card trading and the like.

          1. Moneta

            When I was working outside the home, we used to have a nanny, a housecleaner and a gardener. Now that I am working from home, I do it all. If I were to kick the bucket, my spouse would have to hire someone else to do these jobs… which would raise GDP …or find another person with whom he would need to barter (i.e. return “favor obligations”).

            Barter is simply the exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange. Favor obligations arrangements fall neatly into that. Every single exchange we have with another person fits into a balance sheet, be it mental or dollar denominated.

            So what is the fool proof rule that determines which jobs get paid in “favors” vs. those paid in dollars? Because I haven’t figured it out.

            1. bob

              The word “barter” has a definition. Part of that definition is immediate exchange. 10 chickens for a pig, for example.
              If the exchange is not immediate, or close to it, it is, strictly speaking, a credit/debt exchange. 10 chickens today for 1 pig tomorrow is credit based.
              David graeber wrote an entire book called “debt”. Read it, or a dictionary, before you argue against yourself, yet again.

              1. Moneta

                Graeber seems to have invented his own definition. The standard definitions do not specify time and space.

                It seems to me that you are the one who did not look up barter in the dictionary.

                From Webster:
                barter noun
                : a system in which goods or services are exchanged for other goods or services instead of for money
                : goods or services that are exchanged for other goods or services
                From Oxford:
                [with object]
                exchange (goods or services) for other goods or services without using money

              2. Moneta

                I chicken today for 1 pig tomorrow is barter AND debt.
                Debt automatically happens when the 2 parties don’t trade at the exact same time.

                1. bob

                  Barter and debt? But it involves no money, it has to be only barter according to your often repeated, and very simple definition. “not including money” Definitions in the negative are usually of very little use.

                  Day- Not night.

                  Graeber did not introduce his own definition, you did. He has a book. You don’t. He’s right, you’re wrong.

                  And on your final point, which is showing you have a few gears moving upstairs-

                  “Debt automatically happens when the 2 parties don’t trade at the exact same time.”

                  Debt and CREDIT automatically happen when two parties don’t trade at the same time. You can’t separate the two.

      2. Moneta

        While many are still trying to explain what money is I’m scratching my head trying to figure out why some work gets paid with national currency and other not…

        Over the last decade, I’ve done enough volunteer work to wonder what the meaning of volunteer work is. In many cases, it is close to slavery.

  9. The Dork of Cork

    “It would have been recognised that the
    dividend is the logical successor to the wage,
    carrying with it privileges which the wage
    never had and never can have, whether
    it be rechristened pay, salary, or any
    other alias; because the nature of all these
    is a dole of -purchasing-power revocable by
    authority, whereas a dividend is a payment,
    absolute and unconditional, of something
    due.The first is servitude , however disguised the second is the primary step to
    economic emancipation.It would then
    have forced itself on the general attention
    that all purchasing-power comes out of
    credit, and that the economic life of
    the community is controlled by its distribution.”

    CH Douglas – credit power and democracy chapter IV

    Dork : it should be noted that the banks who control the national debt destroy capital by whatever means necessary be it war time Keynesian programmes , neo keynesian free banking systems , dole and work programmes etc etc. so as to MAINTAIN THE RELATIVE WEALTH GAP BETWEEN THEMSELVES AND THE PROLES / OUTER PARTY.

    For how long will we continue to work (and / or be destroyed) for the special people ?

    The true function of economic blogs such as this new economic perspective thingy is to channel naive progressive thoughts into a continuation of the debt money system.

    I guess people will continue to buy Goldsteins book in its various different modern guises.

    1. TimR

      I suspect you are right, on some level, about what NEP aims at (not sure how consciously though.) All the same, I at least appreciate their insights into how things really work, given a system of centralized power. Their 3 or 4 key points are revelatory, in letting one see through the giant myths that 99%(?) of the pop. believes about our economic system.

      An aside — I’m still not sure on the point of govt debt equalling private wealth — does that really balance out to the penny, or does it leave out esoteric financial instruments, shadow banking, etc? I haven’t yet come across a full treatment of that claim.

      1. financial matters

        Basic MMT is just explanatory of the system as it is (descriptive) and uses the sector approach of 3 sectors 1) government, 2) private (domestic), and 3) private (foreign) (trade)

        So it really doesn’t deal with fraud, ‘misuse of funds’ etc. Its goal is more to try and take the mystery out of how money is created and gets into the general economy.

        It sometimes seems to get lost by trying to unwind the unnecessarily complicated Fed/Treasury system we currently have. Stephanie Kelton has tried to deal with this by coming up with simpler explanations.

        They hope that equipped with this knowledge we can make more informed decisions on how to use this money in the best way.

        1. from Mexico

          financial matters said:

          “Basic MMT is just explanatory of the system as it is (descriptive)…”

          I do not believe that is true.

          For instance, Huang argues:

          “Moreover, Lerner argues that the federal government not only can spend but also should spend till full employment…. In essence, involuntary unemployment indicates a permanent loss in production since the federal government could always have hired the unemployed to achieve public purposes. Hence, the right to employment ought to become a basic human right guaranteed by any sovereign government.

          “Should” and “ought” are prescriptive words, not descriptive words. The moral imperative Huang is homilizing is utilitarianism, and this is where I think Huang (and MMT more generally) clash with The Dork of Cork and another frequent commenter on NC, Malmo.

          Of the many empirical and theoretical claims which Huang makes, the only one I dispute is this one:

          “If the role of the central bank is to hit interest rate targets, we then wonder whether the central bank, with its open market operations, can impact the real economy in any way. This paper argues that the central bank’s impact is likely to be a minimum.”

          In order to legitimate that claim, Warren Mosler concocts a completely fictious account of the late 1970s and early 1980s:

          “Arthur Burns had the Fed funds rate up to maybe 6%. Miller took over and quickly fell out of favor, followed by tall Paul in maybe 1979 who put on what might be the largest display of gross ignorance of monetary operations with his borrowed reserve targeting policy. However, a year or so after the price of oil broke as did inflation giving tall Paul the spin of being the man who courageously broke inflation. Overlooked was that Jimmy Carter had allowed the deregulation of natural gas in 1978, triggering a massive increase in supply, with our electric utilities shifting from oil to nat gas, and OPEC desperately cutting production by maybe 15 million barrels/day in what turned out to be an unsuccessful effort to hold price above $30, as the supply shock was too large for them and they drowned in the flood of no longer needed oil, with prices falling to maybe the $10 range where they stayed for almost 20 years, until climbing demand again put the Saudis in the catbird seat. Meanwhile, Greenspan got credit for that goldilocks period that again was the product of stable oil prices, not the Fed (at least in my story.)”

          One graph is all that is needed to disprove Mosler’s ficticious account.

          Here’s a graph of US natural gas supply, and one can see that from 1972 to 1986 US natural gas production was in constant decline, and there was no “massive increase in supply” as Mosler claims:

          Interest rates reached 16.4% in 1981. This triggered a collapse of the economies of Argentina, Brazil and Mexico as all the hot money flowed back to the US. The banking sector in the US, led by the behemoth First Illinois Bank, was on the verge of collapse. The crisis triggered what was to be the first of many waves of serial bailouts of the US banking sector, which began in 1982 and are still going on to this day. This first wave lasted from 1982 to 1992 as the Federal Reserve and U.S. Treasury threw various lifelines to the U.S. financial sector to save it from its loan losses in emerging economies. Because of tall Paul’s hard-on for labor — his pathological hatred of and need to punish labor — he threw the U.S. and world economies deep into recession and/or depression (especially in Latin America), which destroyed the demand for natural gas in the U.S. and the demand for oil worldwide, as this graph shows:

          MMT, however, doesn’t do emerging economies. It is insular and parochial, and essentially concerned with local transactions in the developed world betweeen capital and labor.

          1. financial matters

            MMT does do emerging economies. Randy Wray discusses it in his MMT primer. Also it ties in well with this discussion on Egypt

            Shock Doctrine also deals with this as political victories in places such as South Africa, Poland and Russia didn’t follow through with financial independence.

            There is a tendency to blur the descriptive and prescriptive aspects but the Job Guarantee Program is usually considered prescriptive.

            1. from Mexico

              @ financial matters,

              The piece by Fadhel Kaboub you linked is a perfect example of the unreality I’m speaking of.

              Kaboub is correct when he speaks of “the neoliberal reforms that were implemented by Mubarak (and later continued by Mursi).” But notice how he skips over the part about why Mubarak and Mursi implemented those reforms.

              Then he proposes “a series of 5-year plans” which include the following two features:

              2. Renegotiate dollar-denominated debt: Convert loans into bonds and allow investors to use bonds to pay taxes and fees owed to the government (i.e. convert foreign debt into domestic debt).

              7. Cancel Egypt’s odious debt.

              But here’s the rub: the people who own that debt, who are on the other side of that debt, take those debt obligations very seriously. And if they don’t have guns themselves, they have governments standing behind them that do have guns.

              Kaboub exhibits no comprehension of how the world really works, of how extensively the instruments of state violence — the military and the police — are used to bring about economic ends.

              Maybe this will give some indication of what I’m talking about:

              ****beginning of quote****

              “A Princeton-produced report from two years ago suggested that from 1976-2007, the U.S. military spent $7.3 trillion guarding oil resources in the Middle East with fleets of destroyers and aircraft carriers, not to note the inevitable chains of supply vessels…..

              ….Down to its last card, the American empire is doubling down on war. It’s the only remaining advantage we can claim over our rivals. China has a better economy, Brazil a better democracy, and India has cheaper labor. But we are superior warmongers. And we hope that force of arms can rejuvenate our terminal capitalist enterprise, keep the dollar in reserve, and the hydrocarbons under our thumb. Either it will, or we’ll die trying. Resources are the ulterior motive that actuate imperial violence. Not democracy. Not peace. Not self-defense. Not humanitarian empathies. Resources can be hawked for money and then money can be used to make money on money. (See the financialization of everything and the history of IMF loans for more on the latter.) So when it comes to fossil fuels, the character of our demise reveals itself—capitalist in origin, extractive in character, and violent in execution.”


          2. Yves Smith

            You are confusing money and credit, which in fairness, virtually all accounts of Volcker’s “experiment” did as well.

            If you read Greider’s account (Masters of the Temple) carefully, you realize that Volcker had decided he didn’t want to use an interest rate target. He had an objective, which was breaking inflation expectations. The way to do that was to induce a recession that was sufficiently deep so that, as he said at the time, “the unions would get the message.”

            Volcker actually does not look to be a monetarist. He didn’t talk in Friedmanite terms before or after his tenure at the Fed. It looks as if instead that he used money supply targeting as an excuse to experiment, and that that would also free him of having to manage interest rate expectations. My God, he drove short term rates to 22%! Banks were hemorrhaging on their credit card portfolios. and pretty much everything else they had on their balance sheet. He clamped down on CREDIT, even though it was done through the cover of money supply targeting.

            Both Volcker’s and Thatcher’s experiments with money supply targeting showed it was utterly useless for managing the economy. The relationship between money supply growth and any macroeconomic variable considered important to economist proved to be non-existant.

            But yes, Volcker nearly killed Latin America, and it was the effect on Latin America and the heavily exposed US banks (of course, the biggest was Citibank) forced him to relent. By all accounts, he would have gone even further if he could have.

            1. bob goodwin

              Didn’t he break inflation? Not arguing, I just had thought that was the goal and was successful.

              1. Moneta

                Actually, we could argue that this credit crisis was instigated by him. He created an extreme market environment which gave us 30 years of bond gains and multiple expansions. If rates had not gone so high, Greenspan would have had to find a new rabbit to pull out of his hat. Just sayin’….

            2. from Mexico

              Isn’t the debate over whether Volcker targeted money supply, credit or interest rates missing the forest for the trees? Isn’t it a distinction without a difference? Whichever way the causality ran, the ultimate outcome was the same: high interest rates.

              And it was the high interest rates that wrecked the world economy and destroyed the demand for oil and natural gas. This in turn, through the workings of the laws of supply and demand, destroyed the price of oil.

              The simple truth is this: the low oil prices had nothing to do with the fiction which Mosler invents — his fairytale about how deregulating natural gas markets resulted in a “massive increase in supply,” that there was then substitution of natural gas for oil, and that it was the “massive increase in supply” that led to the lower price of oil.

              So back to Huang’s original claim, which was as follows:

              “If the role of the central bank is to hit interest rate targets, we then wonder whether the central bank, with its open market operations, can impact the real economy in any way. This paper argues that the central bank’s impact is likely to be a minimum.”

              You essentially reiterate the same thing here:

              “Both Volcker’s and Thatcher’s experiments with money supply targeting showed it was utterly useless for managing the economy. The relationship between money supply growth and any macroeconomic variable considered important to economist proved to be non-existant.”

              To which I must say I respectfully disagree. I certainly do agree that, under some circumstances, monetary policy can be ineffective in stimulating the real economy. But what Volcker’s and Thatcher’s experiments demonstrate is that there are no circumstances under which monetary policy is “useless” in destroying an economy.

              1. from Mexico

                And my observation is only strengthened by the fact that Reagan was running up unprecedented deficits, as this graph shows:


                As Andrew Bacevich said: “Reagan portrayed himself as conservative. He was, in fact, the modern prophet of profligacy.”

                In my theortical handbook, deficits tend to be stimulative. So the cratering of the economy occurred even despite the fact that Reagan more than doubled the deficit, which should have had a stimulative effect.

                1. from Mexico

                  So at the same time Volcker was conducting his jihad on labor, thanks to Reagan’s fiscal policies the “wealthy were enjoying a state-subsidized renaissance,” as Michael Parenti puts it.

                  We also know that Reagan threw the banks and S&Ls a lifeline by encouraging regulatory forebearance and by gutting the banking regulatory apparatus, as is discussed at length here:


                  Then there’s the issue of the fiction which Volcker created, the “disingenuous stance of monetary directives” that “changing quantities of borrowing activity through the New York Open Market Desk” was not “equivalent in every way to changing federal funds rates,” which Jeffrey Snider discusses at length here:


                  The Volcker Fed, according to Snider, created this fiction in its drive to throw business “stimulus” while at the same time managing “inflation expectations” (can we say of labor?) through its manipulation of “perceptions about ‘money supply’ growth.”

                  As part of this deception, the Volcker Fed also embraced the shadow banking system, says Snider, “if only in secret at first.” Thus “Money growth through traditional banking, M1 and M2 channels, were being replaced at the margins by the first rumbles of what would become the shadow system.”

                  The end result of all the clandestine maneuvering of the Volcker Fed was to fan the growth of the shadow banking system, which has now grown to monstrous proportions, as fiancial matters explains here:

                  “…this seems to be leading to a slippery slope if the Fed is going to support more assets of even more dubious quality. At first blush supporting money market funds seems like a good idea. But what if these money market funds are supporting a liquidity pyramid of ‘cotton candy’.

                  ((In his book ‘Extreme Money: Masters of the Universe and the Cult of Risk’ (2011) Satyajit Das talks about the ‘Liquidity Factory’.

                  On an inverse pyramid at the bottom little pinnacle are the central banks, 2%, then there are bank loans, 19%, then securitized debt, 38% and then derivatives 41%.

                  This is all considered liquidity ie the lubricant that allows the global economy to run. And 79% of it is derivatives and securitized debt which are largely unregulated and full of fraud. And the $16 trillion of US Treasuries used as collateral to back it all up is a small little fraction.

                  This is financialization run amok and what he calls ‘cotton candy’ which is spun sugar composed mostly of air.”


              2. rob

                as far as the fall of oil prices in the early eighties,
                This just being a story,but here goes.
                In cl sulzbergers book “long row of candles”,
                He describes the forces that led to the drop in oil prices came from “pressure” the fellow establishmentarians, like himself, put on the Saudi royals and their allies in opec(remembering that these “royal families were the beneficiaries of colonial “grants” of these kingdoms,in perpetuity, as long as they were making money.Look at aramaco, a mostly anglo board, directs the “Saudi oil”.Over generations, the board skin color is getting darker, but their family ties remain the same) to drop the price, which was to destabilize the soviet bloc.He describes a trip he was on with several others having “secret” meetings with the Saudi royals,to coordinate the precipitous drop in oil prices from @$40/barrel to @$10/barrel, in order to “kick the feet out from under the overextended soviets.Who were comfortable with their incomes from oil production and prices and were resultingly spending on the arms race,and afghanistani occupation
                So much for the story, Reagan brought down communism…. that story says, it was the eastern liberal establishment. Not that we can thank them for anything.after all as Anthony c Sutton describes in his many works, the eastern establishment co-ordinated the creation and the ongoing financing of the soviets for decades. The west provide the majority of their infrastructure and technology before WWII, and then benefitted from fighting the monster they created, then in the nineties benefited from the liquidation of the assets, look at Bof NY and all the rest who were enjoying a prosperous decade while Clinton was around because of a super power fire sale…since then we have a few bubbles and an world wide war on freedom, while the .01% take ownership of everything that isn’t nailed down. and whatever can be pried up ,isn’t nailed down.
                and for the fools who think Reagan did anything against communism, need to wonder why china is still around.

                1. from Mexico

                  These tales that give Reagan or whoever a pat on the back for “bringing down communism” are far too generous in giving credit.

                  World oil demand plunged from 66.973 million bopd in 1979 to 57,934 bopd in 1983. That’s what happens when you throw the world into recession/depression and try to maintain oil prices constant. It works that way every time.

                  The Saudis tried to defend the price by cutting production drastically, which this graph illustrates:


                  The Saudis cut production from over 10 million bopd to below 4 million bopd. In August of 1985 they tired of this role and linked their oil prices to the spot market and in early 1986 increased production from 2 MMBPD to 5 MMBPD.

                  Prices plunged immediately, from an average of $26.50 in 1985 to $11.00 a barrel in July, 1986.


      2. Greenie43

        It really depends on your stylized definitions. If there are only two sectors, the privates fund and own the GUV debt (because the privates create and issue the money). UNLESS, some of that debt, once issued, is bought by other sub-national public bodies, like the state of Vermont. In which case Vermont must join the private sector as a surrogate to make this work.
        What MUST happen is for the public GUV to SELL its debt through private primary dealers. In that case, temporally the GUV issues and the private sector holds the public debt…… all of it… the penny.
        And once we open the stylized economy to include the other nations, it is also obvious that OTHER public entities own the public GUV-debt issued.
        But none of this is either a big deal or important to anything monetarily speaking.
        Its just one way to analyze economic ‘happenings’ in a modern economy.

    2. Greenie43

      “”The true function of economic blogs such as this new economic perspective thingy is to channel naive progressive thoughts into a continuation of the debt money system.””
      Truer words were never spoken on these pages, as to the outcome.
      That the nouveau monetary intelligencia are aware of, or care about these outcomes escapes me.

  10. Banger

    Great paper and glad it brings up Graeber’s work.

    My take-away is that money is a means of social oppression through removing deep social interaction. Since I’ve been around societies that had a heavy dose of “social debt” i.e., people take responsibility for other people and achieve status in that society for being able to provide for members of the community without expectation of recompense. This creates a rich social fabric and strong loyalties that made institutions like the Sicilian mafia so powerful for a time. If you were part of the tribe you ate no matter if you muttered in your food and talked to ghosts or you could cook a wonderful dinner–you ate just because you were part of the family/clan/tribe. This form of social arrangement is fairly normal and seems to exist around the world.

    When members of these tribes whether Sicilian or African encounter the money economy social cohesion tends to, eventually, dissolve. Eventually, money will seduce the weaker members of the community through dreams of wealth and self-indulgence. My own thesis is that Western Christianity in its efforts to keep the Roman model of central authority and its involvement with corruption and debauchery (my own family comes from Papal nobility on my mother’s side) and its severe repression of dissent was not a satisfactory basis for society as, say, Islam, Hinduism, Confucianism which all offered a stable and satisfactory way of life. European society was a mess and thus people searched for the new, the exciting, and the hope that somewhere over the rainbow some kind of decent life away from constant conflict could be found. This “failure” of Christianity was what fueled experimentation, exploration, and eventually the birth of capitalism which fueled the technological world we live in today. But the cost has been high though necessary in my view.

    We now, in the words of that prescient song from my youth, “need to get back to the Garden” in the sense that we need to get back to a more natural way to live. The West has done its work, capitalism has matured and been a stunningly dynamic force in the lives of everyone–it has for good and ill brought our world into close contact. Without the failure of Christianity and the birth of modernism and its attendant alienation there would be no feminism, no gay-rights and no interest in understanding alien cultures. Now we need to get back to sane social interactions not moderated by money but by love or what Confucius called “ren” which emphasize connection that is the foundation for human society. We should be creating islands of ren in our lives which will heal our alienation, stress, depression and most diseases (since they are caused by stress).

    This week I’ve heard several people talk about either “hating” money or being indifferent to it among young people as young as 11. Money is oppression made visible. It did probably originate as a penal system. One could say, with some logical basis, that the “Anti-Christ” may well be money and markets since so many of us have embraced money as the ultimate arbiter of value. We were faced with a decision of choosing between making money or attending a community event–my wife always chooses community over money–in fact will give her last dollar to anyone who asks–I hesitated despite my theoretical ideas about anarchism and communitarian values I claim. Interesting.

    1. Dan Kervick

      Money is a practical convenience that every economically sophisticated and complex society has employed. It is neither inherently oppressive nor non-oppressive. Only whole social and economic systems are oppressive – or rather oppressive for some people and not others.

      When people say they “hate money”, what they usually mean is they hate the kinds of things they have to go through to earn it. And all that means is that they hate the kinds of things they have to go through to earn the goods and services that they want, and that we use money to buy. If there were no money, and we worked for wages paid in the form of bread, meat, televisions and plumbing services, then we would “hate” bread, meat, televisions and plumbing services. But we would go on working for them anyway. And in an economy in which people instead work for wages paid in money – or coupons, or trading stamps or vouchers or whatever – which they then trade for bread, meat, televisions and plumbing services, people might say they hate money, but almost all of them will keep working for it.

      Money is the chief medium through which people interact with the economy. They thus tend to overrate its significance when thinking about what they either like or dislike about the economic order, and they tend to interpret non-monetary economic subsystems, power rations and institutions in monetary terms. That’s called “money illusion”.

      In some way we all hate the economy. What we all want is to be children again, and live a life consisting of abundant play, where the sustenance and luxuries of life are scraped into existence by the hard work of the adult world, and then deposited in our laps, in our drawers, on our toy shelves and on our plates.

      1. F. Beard

        What we all want is to be children again, and live a life consisting of abundant play, where the sustenance and luxuries of life are scraped into existence by the hard work of the adult world, and then deposited in our laps, in our drawers, on our toy shelves and on our plates. Dan K

        Now you’re talking about bankers. Ever hear of bankers’ hours, for instance?

        But when robots can do all but the most creative jobs why shouldn’t sustenance and luxuries be dumped in our lap?

      2. Lambert Strether Post author

        Hmm. The child-adult metaphor seems to imply that the economy is like household. Seems odd.

        I’m with Beard. I don’t regard “the hard work of the adult world” as necessarily a virtue; much of it is misdirected (for example, ObamaCare in its totality); and even more is drudgery, which at a minimum should be far more evenly distributed. I don’t really see much point in generating surplus value for people who hate me so they can put it to bad use. Co-ops, edible forests, play all seem like far more adult pre-occupations than whatever smug dreariness is contemplated by “the hard work of the adult world.” Suffering isn’t virtuous. It’s just suffering.

        So, on “we” speak for yourself.

        1. Dan Kervick

          Of course its not “necessarily” a virtue. If I work really, really hard at torturing grandmas to extort their Social Security checks from them, that’s not virtuous. And if we have to develop whole new areas of health service aimed at setting the broken bones of the tortured grandmas, then while that service is good in itself, it is something that only exists because some bad exists, something that should be eliminated.

          But I do think most work is virtuous, that people have a ceaseless drive to improve their world, and that we see from history that people are constantly and creatively devising new forms of organized effort to fill their days as old forms pass away.

          The world gets better because people are constantly willing to do things that are by no means fun in themselves, but which produce results that they judge to be worth the pain. It’s not for nothing that we extol a work ethic.

      3. Banger

        Money is not neutral. It creates a medium of exchange that replaces the natural flow of social interactions. It becomes, as it has now, a religion or social orgering system. I see money as an occupying force–I can’t argue with it because it has, behind it, physical force. Since we have been brought up in a money dominated world we don’t see it. If you have lived in societies where money is not the dominant force you would see the power of social cohesion in a light you would never forget.

    2. Gaianne

      Banger, nicely put!

      “Eventually, money will seduce the weaker members of the community through dreams of wealth and self-indulgence.”

      In my reading of imperial conquest (pick your era, pick your empire) this is key. The empire applies pressure from the outside (military force, destruction of the community’s resources) while seeking out vulnerabilities within (literally the weaker members). Sometimes the community contributes to its own weakness by creating perceived internal injustice. Those suffering the apparent injustice then become the target of the empire. But also, if the empire just pushes hard enough from the outside, people can be made to doubt that their community has sufficient strength, and again the weaker members will pull away.

      Those who have grown up in the West exhibit all the signs of deep dissatisfaction, and sometimes say so explicitly, but have no idea how to assuage their feelings. But folk even from other, non-western, empires can see and name the problem–the inherent alienation and loneliness in the West is shocking. How much more shocking for those from living communities!

      However, for those who are Westernized, rebuilding community is almost impossible, because understanding of non-Western ways is lacking. In addition, rebuilding community takes tremendous commitment, energy, and patience–and most people do not have it. Certainly the hippies found out the hard way that they lacked these qualities, and that their mere good intentions were not an adequate substitute. This is a trap that is not easily escaped!

      Back to the topic at hand, of course money is a tool for oppression. (Though not the only tool, certainly.) What else would it be for?


  11. craazyman

    I hope Professor Wray gave you an “A” for this! It looks like a lot of work. The background reading alone must have taken months, that could have been spent on Youtube.

    (Seriously, it’s very well done, a well-structured and well-written summary).

    Maybe if these MMTers think hard enough they can figure out what came first, the chicken or the egg. Now that would be an earth-shaking break-through and it might change the way think of everything from scrambled eggs to Chicken McNuggets. bwwwaaaaak.

  12. BITFU

    Methinks that Student Huang and Professor Wray have established their own system of barter: In exchange for pandering to the Professor’s monetary ideology, the student gets an ‘A’ Grade. It don’t get more basic that that, now does it?

    Hilarious. Hell, I get that the student didn’t take the time to actually read Caroline Humphrey’s paper, but the Professor in his zealto consummate the exchange didn’t bother to read it either!

    Yes Humphrey stated that “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests there has never been such a thing.”

    But there was so much more to her work. In the very same paper that you did not read, she also says:

    1. The idea that barter is an ancient prototype of capitalist commercial exchange is not yet laid to rest.

    2. This means that the attempt to establish a universal model of barter…is not really very useful.

    3. One reason for the elusiveness of the sort of activities which could be described as barter…is their capacity to incorporate different meanings held by the two sides. [The two sides essentially being Smith or Marx]

    Here you go, fellas–cause you damn sure didn’t bother the first time around

    Final Grades:

    Student Huang gets his ‘A’ for his paper and an ‘F’ for economic stupidity. Sure the paper is generally a waste of time, but he didn’t write it for my benefit– or yours’. He wrote it for the benefit of Professor Wray. Specifically, he wrote it to make Professor Wray feel good. And feel good Professor Wray does! And that explains the ‘A’.

    The ‘F’, results from Huang’s poor judgement in actually shelling out thousands of dollars in exchange for a class on The Propaganda of Professor Randal Wray. If you are that devoid of common sense in Life, then you have no business pursuing career in economics.

    Professor Wray gets an ‘F’. Are you f*cking kidding me?! The kid is clearly is just pandering to you and pushing all your MMT buttons. Even more ridiculous is your little blurb at the end of the post: sometimes students make the best teachers.

    So let me see if I got this straight: The student uses your prior work as part of his “Works Cited” and here you are with this nauseating false humility of We teachers often learn so much more from our students!

    Absolutely hilarious.

    1. craazyman

      that’s a little harsh. :( everybody needs to start somewhere, with some framework of order, and build perception, and then they go where they will and where they can. It’s a strong start to have these concepts in mind, but then what to do with them and how to arrange them and how to understand their essential energies and formal relations and how to advance and cultivate a strong perception that’s the real idea.

      I think of how bad my first photographs were, and most of them are still pretty bad even now, partly from time constraints and not being able to be there in the right light, but I have insight now into what I’m looking for, so I don’t waste time as much.

      1. skippy

        Reminds me more of that poor lady having a cognitive melt down in congress chambers not so long ago.

        The foamfest above over matinee tickets, bread, and coitus, gots to be some extraordinary deep economic social political metaphysical monkey goo radiating out that stuff. More than enough to challenge the entire thrust of the post.

        Reminds me of a comment I have in holding pastern, in response to another commenter.

        “Admirable but impractical”–that’s what human beings through the ages have said about the communal ideal. Still, we wonder, Is there a way we can live together in harmony which at the same time liberates us from selfishness and assures us of support when we need it? Luke says a resounding “Yes!” and points us to a corporate salvation blessing: the church’s common life.Unity: Motive for Caring (4:32)

        Skip here…. but in the end its the same old thingy – Whatever the background, it is clear that the apostles have full authority over the fund. As a development of the ad hoc arrangements of Acts 2:45 (see comment there), a common fund for the poor has been created, and the rich in the congregation keep it continuously supplied.

        skippy… who new apostles were CEO level self appointed bankers too… ***corporate salvation blessing*** – just in time for Christmas… eh… ripper holiday greeting card meme.

        1. F. Beard

          There’d be far less need for the rich to share with the poor if the banks and so-called creditworthy* were not allowed to steal in the first place. An ounce of prevention is worth a pound of cure, tis said.

          Btw, the Old Testament has provisions for the poor too such as the right to glean agricultural field immediately after the harvest. And farmers were commanded: ‘When you reap the harvest of your land, moreover, you shall not reap to the very corners of your field nor gather the gleaning of your harvest; you are to leave them for the needy and the alien. I am the Lord your God.’” Leviticus 23:22

          * With government-backed banks, no one is creditworthy else Equal Protection under the Law is violated since government is supposed to be for the general welfare, not the welfare of banks and those with land or other collateral. Purely private banks are ethical but conversely can’t create much credit because of the danger of reserve drains to the only proper provider of a risk-free fiat storage and transaction service, the monetary sovereign itself (e.g. US Treasury).

        2. F. Beard

          Oh, I left out this from the greatest tear-jerker in the Bible, The Book of Ruth:

          When she rose to glean, Boaz commanded his servants, saying, “Let her glean even among the sheaves, and do not insult her. Also you shall purposely pull out for her some grain from the bundles and leave it that she may glean, and do not rebuke her.” Ruth 2:15-16

          1. skippy

            Sorry, but, the “human nature” espoused in your political document from dark antiquity is all completely derived from horrible assumptions.

            There is zero reason for poverty at all, poverty is not a learning tool utilized by divinity, nor is it self inflicted, it has always been a distribution problem related to population to landmass and ownership of the land.

            Skippy… when you marry the land… you become a jealous husband…. that jealousy seemingly has infected everything.

            1. F. Beard

              In ancient Israel, the agricultural land could NOT be permanently sold but had to return to the original family owner every 50 years (Jubilee) so the average wait was 25 years. And the land could be redeemed even earlier by paying the equivalent to the number of crops till Jubilee. See Leviticus 25.

              You should drop your bigoted attacks on the Bible and actually read it. You will not be judged on what scholars say about the Bible but what the Bible ITSELF says. Btw, both you and conservatives have a problem with the Bible. Conservatives find it too liberal (especially the Old Testament, I’d bet). Examples are numerous but I was just reading this today: Isaiah 58

              As for dark antiquity:

              Then Jesus again spoke to them, saying, “I am the Light of the world; he who follows Me will not walk in the darkness, but will have the Light of life.” John 8:12 [After giving sight to a man BLIND FROM BIRTH]

              1. F. Beard

                Pardon me, He healed the man blind from birth in chapter 9 of John.

                My, my, I do get bit when I trust my memory wrt Scripture. I should be more humble by now.

                1. skippy

                  He healed the man blind from birth in chapter 9 of John.

                  No as its physically impossible unless the issue was purely psychosomatic, doubtful if from birth, and a full medical examination would be required to validate any of it.

                  skippy… people waiting for magic to fix things are going to be a bit disappointed with the waiting thingy.

                  1. F. Beard

                    No as its physically impossible …

                    I’m surprised anyone who has grown up with our advances in technology would even say such a thing.

                    people waiting for magic to fix things are going to be a bit disappointed with the waiting thingy. skippy

                    Our problems are not lack of technology or physical resources – they are spiritual – such as the lack of faith, hope and love.

              2. skippy

                As you your self has commented, that I do posses a high level of biblical knowledge, so lets dispense with that canard. So when has refuting an assertion an act of bigotry.

                Biblical Jubilee is the well spring of the Boom and Bust economic theory to begin with, lets shit get out of hand and then lets the courts decide the winnars and lousers are, push the big reset button and start all over a gain. What part of repetitious fail is so divine or knowledgeable about human nature, look at the state of the planet for factual data.

                “ancient Israel” – my point exactly.

                skippy… corporate salvation blessing… that’s some messed up stuff… perpetrating the poor myth is down right evil imo.

                PS. gone fishing today… knock yourself out…

                1. F. Beard

                  lets shit get out of hand and then lets the courts decide the winnars and lousers are, push the big reset button and start all over a gain.

                  No since usury from fellow Hebrews was forbidden by Deuteronomy 23:19-20 and because even interest-free loans were to be forgiven every 7 years, see Deuteronomy 15.

                  1. skippy

                    Every time you present a homily from some mishmash of of regional mythology’s, all cobbled together for political purposes, over thousands of years, my skin crawls. What part about the son of gawd validating slavery – did you miss – in a comment no so long ago. That and all the other horrors ensconced with in it.

                    skippy… “corporate salvation blessing” with – “Whatever the background, it is clear that the apostles have full authority over the fund. As a development of the ad hoc arrangements of Acts 2:45 (see comment there), a common fund for the poor has been created, and the rich in the congregation keep it continuously supplied.” – over my dead body. Do you grok that you dishonest and devious libertarian – your entire theory is a complete sham, all built up on lies and deceit. who the hell is that going to provide a foundation to move humanity forward, 5000 years of death not enough for your mob.

                    1. F. Beard

                      What part about the son of gawd validating slavery – did you miss – in a comment no so long ago.

                      Jesus answered them, “Truly, truly, I say to you, everyone who commits sin is the slave of sin. The slave does not remain in the house forever; the son does remain forever. So if the Son makes you free, you will be free indeed. John 8:34-36

                      That and all the other horrors ensconced with in it.

                      Hebrew slaves had to be released after 6 years and were to be well treated and well provisioned when they were released. Non-Hebrew slaves were a different matter but even then they had some legal protections.

                      Your problem is you expect an instant solution to the problem of evil. I’ll simply point out that it was Christendom that eventually abolished chattel slavery though the problem of wage slavery remains.

                2. F. Beard

                  Seriously, if you really knew the Bible, you’d love or at least have much more respect and sympathy for the Lord:

                  Thus says the Lord, “Let not a wise man boast of his wisdom, and let not the mighty man boast of his might, let not a rich man boast of his riches; but let him who boasts boast of this, that he understands and knows Me, that I am the Lord who exercises lovingkindness, justice and righteousness on earth; for I delight in these things,” declares the Lord. Jeremiah 9:23-24

                  Yes, the Lord gets angry but for reasons you should sympathize with:

                  For wicked men are found among My people,
                  They watch like fowlers lying in wait;
                  They set a trap,
                  They catch men.
                  ‘Like a cage full of birds,
                  So their houses are full of deceit;
                  Therefore they have become great and rich.
                  ‘They are fat, they are sleek,
                  They also excel in deeds of wickedness;
                  They do not plead the cause,
                  The cause of the orphan, that they may prosper;
                  And they do not defend the rights of the poor.
                  ‘Shall I not punish these people?’ declares the Lord,
                  ‘On a nation such as this
                  Shall I not avenge Myself?’
                  Jeremiah 5:26-29

                  1. c

                    Very funny your make belief
                    punishments are far away and the victims well …
                    are you the spokesman of this imaginary and composed by many character?
                    a quote will also do
                    best wishes

      2. craazyboy

        I’ve decided they should just rename macro-economics to “The Science of Losing Information”.

        Then everybody would realize that, at best, it’s like watching a cheap cartoon. But not quite up to the standards of watching an old Walt Disney cartoon.

        BTW: I must have been in the private sector working world too long, but I just assumed that everyone knew that all CEOs are Marxists. I had to read economics to find out that some economists didn’t know this.

    2. Salty

      So, what was the purpose of your complaint? Was it to say that the analysis provided was incorrect? It actually seemed pretty well done to me.
      Was it that one of several research papers quoted was not analyzed to your satisfaction? There were quite a few research papers on display here, including the work by Graeber and Hudson in addition to that of Humphrey. In this case, our author used the fact that Humphrey noted that barter is not used in the way neoclassical economists proposed it, which was a part of the paper’s thesis, to support his conclusion. He then amplified Humphrey’s analysis with others to demonstrate pretty effectively that the neoclassical belief in barter was incorrect.

      So, what’s the issue? What prompts the grade of F? Is it that you disagree with the theory? Because, lacking anything substantive, that’s all that I can pick out of your ad hominem attacks.

    3. ReaderOfTeaLeaves

      The student demolished the myth of barter economies that underlies the false assumption that money is ‘neutral’ and inert. The student then details the very grim consequences that result from these false assumptions.

      The student made a strong case that because monetarists view money as ‘neutral’, they are prone to a cluster of other falsehoods: believing that economies can achieve equilibrium, that there is a ‘real business cycle’, that there is some ‘natural’ rate of employment, and that central banks – by controlling money supply – can control inflation. In other words, attributing the origins of money to fairy tales about bartering creates a host of bad – but related – ideas. But these bad ideas form the basis of bad policies, which means the sooner these falsehoods are exposed, the better chance we have of creating better policies.

      Dangerously, this myth of a barter economy leads to a host of spurious notions, leading up to the droll assumption that money is ‘scarce’. Consequently, people who believe that money originated from barter have convinced themselves that government expenditure will always crowd out private investment — in this economic narrative, the only avenue to economic growth and prosperity is ‘cut government, and no new taxes’.

      However, any perceptive American can see that this line of economic thinking produces poor results for the economy, and for society.

      This student has shown plenty of insight by asking: why are we modeling economic policies on false ideas about money originating from bartering, given the fact that we now know barter never existed in this way?
      It’s a good question.

      Why anyone would make such an insulting comment about a student’s effort to synthesize a great number of complex ideas, and then examine the legitimacy of the underlying economic assumptions – and spot the flaws – escapes my understanding. You may be wise to re-read this student’s work and cogitate a bit on its implications.

      Frankly, your rude comment incensed me to such a degree that I am spending an inordinate amount of time to attempt a courteous, yet on-topic, response.

      The image that came to my mind as I finished this post was of the earliest reports from New Orleans after Katrina, before they realized the levies had been breached. Initially, things in NOLA seemed to have weathered the storm. Things were calm, and they thought they’d escaped danger. It took a day or more for the impacts to become obvious. This paper, it seems to me, is ‘breeching the levees’ of conventional economic thought and monetarist dogma. The exposé of the underlying problems with monetarism is a breech in the levees – the first result may be a mere trickle that occurs quietly,, but if students are this perceptive, thoughtful, and diligent, they’ll have a wonderful impact on the world.

      And, FWIW, any faculty that gets students thinking this critically is doing something right.

      1. Moneta

        Every single exchange you do with someone without a currency is a form of barter. Money is what you need when you can’t close the trade in real time and you can’t trust a mental account.

        What explains the fine line between sharing tools with your neighbor and charging eachother?

        I am amazed that so many people dismiss barter when it is an integral part of our daily lives. Nobody seems to ask why some tasks are remunerated and millions of others are not.

        1. J Sterling

          Graeber calls most of what you’re calling ‘barter’, ‘credit’, and I think he’s right to. He himself spends every second sentence of his book saying “I’m not saying there’s no such thing as barter”, before continuing to insist there’s no such thing as barter.

          I think the real value of his book was demonstrating that credit was not some fancy invention of renaissance Italians, but antedates money. It was credit first, then money, not money first, then credit. But his need to go hunting the Barter Snark weakened his message.

          1. Moneta

            The economy is made of trade. It’s as simple as that. We all trade to get what we want in life. Every single thing we do impacts the wealth generation of an economy whether there is a dollar value assigned to it or not.

            Some trades have a dollar value attached to them. Others not. Every interaction with have with others is a trade. However, only some have a dollar attached to them. The others go into our mental balance sheet that monitors fairness.

            If someone shovels your driveway so you can drive their mom to her Dr. appointment, that’s barter. The driveway needs to get shoveled first. And you could decide not to keep your end of the bargain. So yes, there is an element of credit but it is still barter.

            You can keep track of your balance sheet mentally or you can write notes. That’s what a currency is, an IOU. When the other side of the deal is kept, then that note can be ripped up. Currency comes into existence when a trade does not close in real time because one party has not executed their side of the deal.

            So all those dollars floating around globally physically and electronically, are promises that Americans will do work or offer some good to the holders of those $$$$.

            1. Moneta

              The irony is that many holders of these dollars do not yet realize that they owe work to themselves because over the last few decades their work was of a Sisyphean nature or in other words, malinvestment.

              1. F. Beard

                Our money system could, in theory, destroy EVERY investment since if the banks quit lending and deficit spending by the monetary sovereign was not sufficient to compensate, our money supply would soon be destroyed by existing credit repayment.

                So you should fear that you are slandering otherwise sound investment were it not for our insane money system.

            2. bob

              Work on the basics first- word definitions and reading comprehension.

              “If someone shovels your driveway so you can drive their mom to her Dr. appointment, that’s barter.”

              No, it’s not. You can’t just make up the definitions to words.

              1. Moneta

                Did you actually look up the definition of barter in recognized dictionaries?

                :exchange (goods or services) for other goods or services without using money,

                As simple as that. Case closed.

                1. bob

                  Simple as that. You make up your own words and definitions. Very simple.

                  Just, for a moment, consider that 99% of what you call barter is not barter, but a debt/credit exchange. No money involved. Just debt and credit.

                  It’s a very important point, and well understood as such by the people who use these words to form arguments based on commonly understood defintions, as well as some that are written down-


                  “Barter is a system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.[1] It is distinguishable from gift economies in that the reciprocal exchange is immediate and not delayed in time”

                  If you can’t even begin to consider the difference between Barter and credit/debt, you are very simple.

                  For instance, a bond repo is barter in your world? You could make millions sharing this information with Walls St.

                  1. Moneta

                    A case of Wiki vs. Oxford and Webster.

                    I’ll remain a simpleton and opt for Oxford and Webster to determine the common usage and read Wiki to see how the bright people extrapolate during their moments of intellectual stimulation.

      2. Moneta

        I believe that this refusal to accept the existence and importance of barter in everyday life is at the root of our undervaluation of people and their work.

        If we started to put a $ value on EVERY SINGLE exchange we have with everyone around us, maybe more of us would understand what money really is.

        1. Calgacus

          IMHO, these comments are very agreeable to MMT, and I agree with your sentiments, Moneta. But your terminology is not usual. Most writers would call the driveway shoveling contract one on credit, and don’t use “barter” that way, as synonymous with trade, exchange. In any case, one can & should analyze “barter” always as (multiple) credit transactions. That’s the way the IRS does. :-)

          Currency comes into existence when a trade does not close in real time because one party has not executed their side of the deal. No, credit comes into existence. Often the trade does not close immediately – whatever that means – because it cannot close immediately . Products involving the division of labor necessarily presuppose credit. Credit is necessarily part of production, not just something tacked on afterwards for purposes of trade between discrete entities.

          MMT & other good economists consider the value of unpaid household work & its relation with the monetary economy, but it is by its nature a difficult subject & one that TPTB don’t like explored, other than putting it in a Procrustean neoclassical framework, thereby ridiculing it.

          1. bob

            He’s been backed into a corner and has no other response than to lash out. Reconsider his well known word? Blasphemy.

          2. Moneta

            If I rang the door bell ad asked each one of my neighbors their definition of barter, I am pretty sure they would cite the Oxford or Webster definition:

            : to exchange things (such as products or services) for other things instead of for money.

            Some neighbors would probably need to buy a dictionary.

            If 2 neighbors lent each other a ladder for a cup of sugar, I am pretty sure they would call it barter. Maybe not before I ask them their definition of barter, but right after framing it, I’m fairly confident they would call it barter. Of course, they would see an element of credit if these 2 exchanges were not done simultaneously. But credit is another element altogether. Some decide to include the concept of credit in the definition of barter and that’s when we fall into semantics.

            If I asked them if a kiss or hug fit in the barter definition, they would probably be appalled at first. But considering these fit in the definition, they’d have to agree.

            The reality is that we all want things and services to make our lives better. We find ways of getting what we want, from smiling, complimenting, to holding hands, exchanging a cup of sugar for a ladder. All these things have a price. You are attracted to specific people because of the life of goods and services they can bring you. Every exchange has a price. We have a mental balance sheet going on at all times. We get hurt when we perceive unfairness according to our mental balance sheet; when an asset gets written down and shrinks our mental equity.

            For some odd reason, some goods and services stay in our mental balance sheet for which we don’t consciously attribute a dollar amount and others get settled with a dollar denominated value.

            This is something I have been thinking about now that I am trying to determine the children’s chores that get compensated or not. And it is interesting to see the visceral reaction against putting a dollar amount on emotional stuff. It is evident that many people do not see money as simply another tool to get what we want from a kiss to a house. Some people use a smile and a kiss to get their house; some others find work that pays them dollars.

            1. Moneta

              I met a client a few months ago whom I found really intriguing. She is in her mid 40s and planning for retirement. She does not trust the pension system so her goal is to pay off the house and live for free. She is finding ways of volunteering through her hobbies and getting everything she needs for free through these exchanges.

              She might call it living for free but in reality it is barter.

    4. allcoppedout

      I tend to agree with you BITFU, even though I dislike the barter basis. Students quickly learn how to get their grades. The education system, especially higher education is shot through with such followership. We regularly set questions to which the answer is ‘chapter 13’ knowing its content is rubbish. I do not understand how we can teach economics without reference to foreign policy, or how money is made in crime, looting, tax stealing and the rest.

      The Marxists had their sinecures and drove Volvos to holiday cottages in ‘Wales’ along with the rest in a bent system. I doubt any clever, academic system for living because only an elite would understand it. It’s hard enough to teach where the £3 for a Starbrats’ goes.

      1. from Mexico

        allcoppedout said:

        “I do not understand how we can teach economics without reference to foreign policy…”

        You can say that again.

  13. Banger

    Great paper and good food for thought.

    We could say that money is, in a way, anti-social in that it depends on the breakdown of communitarian society. With money we can all, theoretically, become laws unto ourselves since we have moved to a social ethic where money tends to be the final arbiter of value.

    Traditionally status came from being able to take care of others, today it comes from taking care of yourself.

  14. TarheelDem

    Excellent work.

    Some observations:
    There is a common conflation of “inflation” with “rising prices”. This is problematic when analyzing the stagflation of the 1970s because it privileges monetary assumptions and ignores (1) politically created resource shocks; (2) debt overhang from Vietnam War and continued Cold War defense spending; (3) the appearance of more-or-less uncontrollable money supplies like the Eurodollar; (4) the debt crisis of the developing world that almost sank the global economy.

    Graeber looks at gift economies as obligation economies. When monetary economies fail, people survive by reinstituting obligation economies, which are easily misconstrued as barter economies. Analysis of how country doctors were paid in-kind by patients and country parsons were paid in-kind by parishioners shows that this was not a barter economy. What was considered sufficient payment was very personalized–and in similar situations of involuntary unemployment still is.

    1. susan the other

      The thought that always occurs to me re MMT is How will it control military expenditures? Today the military is virtually unaccountable, a virtual black ops machine. I’m not of the opinion that we do not need a military; I just think we should put it to better purposes. That’s gonna be a tough one.

      1. Lil'D

        “MMT” has nothing to say specifically about defense except for MMT ability to do the accounting.

        There is a real economy, the production and consumption of goods and services.
        There are ~7billion people engaged in this
        Some of them form private enterprises, often called “corporations”
        Over the course of history, groups have formed for public purposes, often called “the state”.
        It’s not unreasonable to abstract these sets into “households”, “firms”, “government”, and perhaps look only within the current political borders, treating exchanges across borders as “foreign”.

        Q: Anyone want to have a tank or bomber? Hire some soldiers?

        1. Susan the other

          I’ve always assumed that the private banks are in deep with the military. Back channels, etc. So if MMT makes private banks strictly private and MMT takes over spending the nation’s money directly for the nation’s business, there is a gray area and it could lead to all sorts of distortions – like private militias, etc. Which we already have but not to any large degree. Of course what do we know?

  15. Nell

    Interesting read. I was left with a question though. Towards the end there is a sentence beginning “If the role of the central bank is to hit interest rate targets” and it made me wonder why? Why do we need the central bamk to hit interest rates? Is it necessary or is it one of those left overs from the gold standard?

      1. Greenie43

        Susan and Nell
        “IF the role of the central bank is to hit interest rate targets…..” as postulated as a tenet of MMT, is true or not, should be debatable.
        There is no mandate to hit interest rate targets, but to “maintain monetary aggregates” sufficient to achieve GDP potential and support full-employment and price stability.
        The great ‘money’ theory being postulated, without a grain of proof, is that the government DOES issue money……thus CREATING the monetary aggregates….. when it spends.
        If the GUV is issuing the money, then there is NO REASON to hit interest rate targets.
        Only if the GUV is “not” issuing the money when it spends can interest rate policy logically enter national monetary operations.
        The GUV should be issuing the money….. but they are not.
        Extensive, well-written shoe-horning still does not supplant monetary science.

        1. rob

          That does seem to be a fatal flaw in the MMT description. There is the discrepancy between the notion of a purely descriptive framework, which describes the government as issuing its own currency. The whole notion that the gov’t is monetarily sovereign, when the united states gov’t, allows the federal reserve banking system to issue its currency, while the government is accumulating debt, for use of that money.

          1. F. Beard

            Yes, it’s rather suspect that the MMT crowd does not want to eliminate the ability of central banks to create fiat. But there’s no end of people who wish to save banking from itself so it can live to loot another day.

            “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863. from

        2. Susan the other

          Well a good experiment to convince you would be to restrict the big banks to dealing only in Bitcoin. Then “interest rates” will be built in! And volatility will make logic one big whirlpool of zeroes and ones. On any given day.

  16. IFisher

    The post merely outlines what the authoer thinks to be the case. It does not go into how to resolve the economic issues we have today with these “policy tools”.

    A simple logic test tells me there is something wrong with this paper. If national debt is a blessing – than why does it seem like the more the debt grows, the worst off society is. The US economy, from an invidiual perspective, is much worst today than it was back in 1971.

    The GINI coefficient went off the charts starting in 1971. Personal incomes was replaced with debt beginning in 1971. This is a “things are this way because I said so” type paper. Hympty dumpty in my view. Forget about barter – find one single person (just 1) that would work indefinately for life and I will believe your theory.

    Truth is that all this debt creation benefits those with first access to credit, the already wealthy and the banks. If you want to continue the wealth transfer from the people, laborers, producers to the wealthy – we should keep doing what we are doing. Otherwise, the currenct system does not work for the folks in the middle or the bottom.

    1. f

      The “money must be debt” crowd will insist that all fiat is a debt of the government BUT IF the monetary sovereign never borrows, never runs a budget surplus and sometimes run budget deficits then what is essentially debt-free fiat would accumulate in the economy to the sum of those budget deficits. THAT would be a national blessing since it would be equity.

      But our current system is welfare for the rich (fascism) since the monetary sovereign will pay completely unnecessary interest not in proportion to need but in proportion to the amount of fiat one wishes to hoard risk-free.

  17. JEHR

    I enjoyed reading Huang’s paper. Students learn by researching and reading and writing and speaking and each one has to start somewhere. They will eventually begin thinking for themselves and developing their own ideas no matter from whence they begin.

  18. Greenie43

    Thank you very much for a semblance of accurate historical thinking on what happens with money in the real world. Fisher’s cogent ‘theoretical’ observations of the effects of debt-based money on society do far more to explain today’s paradox of ‘secular stagnation’ than these heralded information campaigns by the keyboardists.
    This is why such modern monetary technocrats as Adair Turner embrace the works of Fisher and Simons as among the true visionaries too long ignored in seeking the broad employment goals we all support.

  19. kevinearick

    money, crack me up…

    if you participate in the inflation/taxation loop, you get what you get, and that is the reality for most.

    what matters is the timing, what you are going to exchange that money for, to get rid of the money as quickly as possible.

    empires don’t have to move to relatively unoccupied areas on a regular basis by accident.

    you will find this one in the code, which is a simple fix, if you can see it.

  20. Hugh

    Isn’t the myth of barter something of a strawman? If I were a neoclassical economist, I would just begin with the gold standard which has a long documented history. And if I wanted, I still could re-introduce barter as an intellectual construct, as opposed to a historical one, to explain aspects of the gold standard. What would I lose going this route?

    As for money and credit, I have argued for some time that they can best be seen not as debt but as a media which allow calls on society’s resources. These resources are not static, and the principal resource of any society is its members.

    Historical context is interesting but if you are a heterodox economist and want to start back in Egypt with money as debt, you are still going to have to pass through the era of the gold standard (which did not end all that long ago in the US and persists in the form of the euro in Europe) to get to today. I am not sure how this is finessed.

    There is no mention of wealth inequality in the piece. I see this as a holdover of the Smith and Enlightement idea of essentially equal autonomous agents. Of course, in our modern economic world, nothing could be further from the truth. This also means that we have to be careful about what we mean by aggregates since the wealth inequality of the top 1%-20% distort them beyond recognition. Along with this is the absence of any discussion of the problem of interest. This lacuna fits into the neoclassical conception of “one man’s debt is another man’s asset.” But this is untrue since the wealth derived from interest concentrates at the top of the wealth structure.

    A minor note, “cattle” is a plural when referring to farm animals.

  21. allcoppedout

    In a distant future (partly with us) what we call work ethic vanishes. What would money be then? Why exclude the future? But for that matter what is money now used to buy a prostitute, trophy wife – whatever. What is it when we send our kids to private school and the best universities? We do not ask very many questions, in order to write a few acceptable answers that challenge nothing.

    Would we leave any decent society we can create vulnerable to men with sad perversions about women, black bags and polygamy? Money has had a lot to do with our military and technical superiority and this is probably part of its current definition in use. The Bushman feeds ‘rat’ to his wife and family, sharing the best cuts of giraffe with his mistress and chosen men. What would relations be without the intrusion of scarcity?

    1. from Mexico

      allcoppedout said:
      Money has had a lot to do with our military….”

      Yep. MMT has its truths.

      But it doesn’t have a theory of the way in which violence is used to achieve economic ends.

      It doesn’t have a theory of human spirituality.

      And as you said above, it doesn’t have a theory of foreign relations.

      So here’s my question: Can man’s economic life be extracted from his political and spiritual life and operate in a completely separate, independent universe?

  22. American Slave

    It is interesting to think about money,value and what happened to Iceland.

    One thing Dork of Cork always brings up is how many countries import cars and oil for them. so what if Iceland had somehow given up their ability to fish and make aluminum would their money be worth anything? what could foreign people buy with it. I think that’s what saved them.

    And that’s why its so important to have a local functioning economy with things like community owned fully equipped machine shops that local producers can rent out temporarily who dont need a 24/7 facility and can make products on a batch basis till they sell out there items and can rent the machine shop and produce the next batch of products.
    the same goes for commercial kitchens etc. and not have it like Detroit where they closed down the factory’s and took everything with them leaving nothing behind.

    I still remember a town I went through in Oregon that had a customer and farmer owned store that had a kitchen that someone could rent for a day and sell food out of which the farmers and hunters would do quite often.

    And that brings us to the federal problem of which we should De-federalize as much as possible since those taxes mostly pay for federal creeps to watch every persons every moves and an oversize military looking for expensive trouble everywhere it can. Im not against having a federal government to protect the borders but they should stay out of local peoples business and let them make and use there own currency and at most charge a 10% income tax thereby leaving more room for local taxation and hence projects.

    My other example of the federal nightmare is Obama care. Why not let the states decide what they want on there own and as such some states are moving to single payer on there own.

    The world has changed we have the UN and NATO etc. The world no longer needs America playing world police-man which is destroying our local communities via high federal taxes.

  23. tiebie66

    Interesting and well-written. An unfortunate consequence is that something clear and well-written is also easier to criticize because the concepts are made lucid. My comments are therefore not aimed at the author specifically, but at the wash of misguided ortho- and heterodox views of money.

    1. Money IS scarce. The orthodox notion of money scarcity is merely restated, not obviated, by this sentence: “If the bank thinks Henry’s project is good,…”. Implicitly, then, if the banks thinks Henry’s project is not good, then he gets no money. This is money scarcity. Money is scarce because natural resources are scarce in this reality where the economy must operate.

    2. I find the endogenous money creation method a good solution to the problem of distributing money without having to “spend it into existence” which is tantamount to counterfeiting. Spending money into existence also undermines its accounting function. Thus, I accept endogenous money creation (more below). But, how then, can a lack of aggregate demand ever arise? If Henry wants more money, Henry takes out another loan.

    3. The implication drawn from the article is that people should take out more loans, increase debt, and banks should oblige, especially when there is an output gap. A further argument could be that, even in the face of rising inflation, debt should not necessarily be curtailed as inflation causes the debt to wither away faster.

    Nary a word about the the real limitations of the physical world in which we live except the tangential implication in “full employment”. Before reaching full employment, deficit spending is unlikely to become inflationary? No, deficit spending may become inflationary due to other constraints. The MMT disconnect with the real world and its physical constraints again visible here (but, to be fair, I have noticed efforts to address this issue).

    How to address this disconnect? Money must be created endogenously only against collateral. Non-collateralized lending should be via loanable funds. This puts environmentally relevant physical constraints on money creation, imposes scarcity on money that is not artificial, and recognizes that everyone is not identical and identically successful.

    1. F. Beard

      2. I find the endogenous money creation method a good solution to the problem of distributing money without having to “spend it into existence” which is tantamount to counterfeiting. tie66

      Wrong. Spending money into existence is the ideal way to create it since deflation is not built-in as it is with lending money into existence. And the monetary sovereign has a perfect right to spend fiat into existence as long as we are not de jure or de facto required to use it for private debts too.

      As for counterfeit money, lending it into circulation or existence does not cause it to not be counterfeit.

  24. F. Beard

    Money must be created endogenously only against collateral.

    NO. In the case of government-backed banks, the ability to repay the (legally) stolen purchasing power of the population plus interest to the original thieves, the banks, is MORALLY IRRELEVANT.

    When it comes to government privileged banks, NO ONE is so-called creditworthy.

    1. skippy

      Super persons (multi/super/national corporations) infecting your government does not equate to a government backing, anymore than a coup resembles someone opening the windows to let in some fresh air. Banks are corporations which are intern owned by various holders of its paper. Bloody biblical freemarket small government advocacy is a ludicrous theological pipe dream from thousands of years ago. Hint beardo – humans were a ignorant as a pile of rocks when all that stuff was conceptualized, there are facts to unequivocally prove it.

      BTW… how do you have stolen purchasing power of the population when the – asset prices – are a fraud from the get go, how in the hell do you adjust for that? Has the government institutionalize prices or the the dominate market players… cough collusion… plenty of search hits.

      skippy… you have a human problem and not a system architecture problem. Your ideology will not permit you or yours to address the fundamental problem, evidenced by the Royal Commission on children crimes down under and abroad. Seems progressive public sodomy is bad in your book, yet, cloistered sodomy in some religious enclave or institution for the poor and unfortunate is fair game. Ahhh yes… they believe where it counts and that is good enough for a pass.

      1. skippy

        Lets make it as simple as possible… the problem is corporations… the ability to legally amass wealth and power exceeding that of the government[s themselves.

      2. F. Beard

        Seems progressive public sodomy is bad in your book, yet, cloistered sodomy in some religious enclave or institution for the poor and unfortunate is fair game. skippy

        Substantiate that slander or go to Hell.

        Or have you lost your flipping mind? You love facts, then present them or BEG my forgiveness for being a liar.


        Blessed are ye, when men shall revile you, and persecute you, and shall say all manner of evil against you falsely, for My sake.

        Rejoice, and be exceeding glad: for great is your reward in heaven: for so persecuted they the prophets which were before you. Matthew 5:11-12
        King James Version (KJV)

        1. skippy

          I mentioned the Royal High Commission which you could have easily looked into, but, once again I have to do the work for you.

          That should give you a running start… every single mob beardo… even the salvation army.

          “BEG my forgiveness” ergo – for so persecuted they the prophets which were before you. – beardo

          Skippy… Man you have a massive pathological complex… seriously considering classifying libertarians as a personality disorder… whack some theology (mythology) on top of that and boom[!!!].

          1. F. Beard

            every single mob beardo… even the salvation army.

            But not me. I don’t even attend church but if I did it would be a church so small that no one could get away with anything.

            And for the record: All forcible rapists should be executed. In the case of statutory rape, the male should be forced to marry the girl if she so desires and never allowed to divorce her (but she could divorce him for any reason until she was of age and get alimony, 1/2 the property, child support, etc). That’s all I have to say and indeed far more than I should have to say in any case. Be ye therefor content.

            1. skippy

              This is not about – you – so your personal opinion is moot. Its about the institutional abuse of vulnerable children, that has been going on for century’s. And all you can say is twas not me so….

              Yet your proceeding quip – Substantiate that slander or go to Hell. Or have you lost your flipping mind? You love facts, then present them or BEG my forgiveness for being a liar.” – beardo

              So one moment you part of the – whole [defend] – and the next an – individual [zero attachment] – with out any responsibility at all. If memory serves the Nuremberg Trials were full of such sorts and so is the Royal Commission.

              skippy… how covenant for – you –

              1. F. Beard

                If I’m part of a whole, it’s not of some human institution but of the Body of Christ, which is composed of true* as opposed to mere professing Christians.

                But you’re right, this is not about me, so why do you keep trying to make it so?

                I’ll be on the road for 6 hours so take your time if you choose to reply. I’ll assume for the moment that you’re acting in good faith and that we are just failing to communicate somehow.

                *Spare me the true Scotsman quips since Christ knows who are His.

                1. skippy

                  I pointed out an incongruity in your logic, one of many imo, its a factor of your qualifier. One of the reasons you attempt to varnish over the malfeasance, yet, attempt to fiddle with architectural system features. Hint banks are corporations and corporations utilize Citizens United to leverage the government, so your ire at banks having government support to counterfeit[?] is wonky at best.

                  Then we have the whole “corporate salvation blessing” system you would like to set up which smells exceedingly like the neoliberal – Chicago school rubbish Pilkington took down ages ago.

                  Skip… “Christ knows who are His.’ – massive assumption – kinda like everything else built on it – freewill.

  25. bob goodwin

    Although I agree that money is the goal of economic activity rather than the other way around, I have always found it interesting that parts of the US economy because barter based at several points. The far west before the gold rush had severe shortages of currency, and again during the depression. It seems very plausible that collectives, barter and money can coexist, and the presence of one does not preclude the others.

  26. Greenie43

    “Since money denominates and extinguishes debt obligations, it is not merely a medium of exchange.”
    Just a little suprised that Mr. Huang can believe that money IS debt, and yet is capable of extinguishing debt. Seems rather incongruous, if not antithetical.
    ” A closer look at the actual operation of central bank and the treasury reveals that the government does not facilitate its spending through taxation or bond sales. ”
    Actually, upon closer look, it does so.
    Neither he nor Tcherneva offer any proof or reference, and an understanding of Dr. Bell’s early writing is both most unconvincing and beyond comprehension for political science aficionados. What else is there?
    “It is important to note that bond sales do not finance government spending.”
    Again, any proof?
    “” the federal government faces no affordability issues since it is the monopoly issuer of the currency.””
    For real?
    I found this contrary opinion , full of explanation.
    Can they both be right?

    1. Calgacus

      money IS debt, and yet is capable of extinguishing debt. Seems rather incongruous, if not antithetical. No, it is tautological. A debt is the ONLY thing that can extinguish another debt. I owe you. You owe me. We call it quits. That’s it.

      1. F. Beard

        A debt is the ONLY thing that can extinguish another debt. I owe you. Calgacus

        Wrong. Have you gone daft? Equity can extinguish debt too. If you borrow ten shares of common stock and then repay them you have repaid a debt of equity with equity. Or heck, if you borrow anything you can repay that debt with the same anything.

        You guys got debt on the brain.

        1. Calgacus

          You aren’t doing the accounting in sufficient detail. The transfer of anything else creates a credit/debt, which is what cancels the opposing credit/debt, which is what is necessary, not the “anything else”.

        2. EconCCX

          @Cal ” A debt is the ONLY thing that can extinguish another debt. I owe you. You owe me. We call it quits. That’s it.”

          My ticket says that Greyhound owes me a bus ride. Can you think of any possible way Greyhound might discharge that debt other than inducing me to owe them a bus ride, so that we can call it quits?

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