Yves here. As a finance person, I can’t readily relate to the distinction the author makes between money once being seen as something tangible and it now being widely regarded as a mechanism for facilitating commerce. And I don’t see the rise of speculative finance as being the result of the abandonment of the Bretton Woods system. That devolution has many causes, including an active anti-regulatory ideology that started in the 1970s and gained tremendous momentum under Reagan. Nevertheless, I believe this post will resonate with many readers and thus I believe it will make for useful grist for discussion.
The end of Bretton Woods was an effect of the inflation of the 1960s, which in turn was due to the refusal of the Johnson Administration to raise taxes to pay for the war in Vietnam, the war on poverty, and the space race. Running fiscal deficits when the economy was already at full employment was bound to end badly. That inflation in turn was a major impetus to bank deregulation, as the old regime of simple products and fixed rates broke down as interest rates increased and became volatile.
But that distinction may help explain why some people have such a visceral, negative reaction to Modern Monetary Theory. MMT lays bare the role that money plays in a fiat currency regime. The notion that it is in some sense arbitrary, as opposed to representing something tangible, may explain some of the distaste.
By Dr Paul Tyson, Honorary Associate Professor, Theology, University of Nottingham. Cross posted from Yanis Varoufakis’ blog
Recently I was at a coffee shop, and to test a metaphysical hunch I asked a few of my fellow caffeinated confreres this question: “What is money?” They all gave answers along the following lines. Money is an arbitrary symbol of exchange value that we just make up in order to facilitate trade and investment. Money itself isn’t any thing but it is a collectively believed in fiction which operates as a very useful means of exchange.
This sort of answer confirmed my hunch nicely: us Modern people have no idea how (or even if) money is connected to real wealth. It was Medieval economics that opened my eyes to this fascinating and possibly very important insight.
If you were to ask a medieval person the question “What is money?” they would not tell you that it is simply a made up means of marketplace exchange. They would not say anything like that for a number of interesting reasons. The first of these reasons is that they would assume a “what is… ?” question is a question about something’s essential nature rather than a question about its conventional function or instrumental effect. This assumption reflects a huge difference between Modern and Medieval reality outlooks to start with. To the Medievals, everything has an essential meaning, and accurately discerning true meaning determines right use. To us Moderns, it is the other way around: everything has a use – effective manipulative power, based on a scientific knowledge of how things work, is the criteria of real world truth – and each person can make up whatever meanings and values they like. Indeed, to us, nothing has an essential meaning. To us, use defines value, but value itself has no essential meaning.
Because they were interested in essential meanings the Medievals did not believe in a notion so relativistic and contingent as ‘classical’ supply and demand determined “market value”. Instead, they believed in “true value” where the true (essential) value of anything sold in the market needed to be reasonably reflected in the price if it was to be sold fairly. Here a fair price was seen as a function of properly appreciated real value (knowing what something was really worth). Fair price was a function of the essential value of the traded thing itself and the real value of the skills, labour and pious stewardship of the people who produced and distributed that good. Here also the essential value of the buyer (such as a God-imaged, though poor serf, needing food) must determine the price of, say, bread if that price is to reflect true value. So you would not get an instrumental answer to a “what is?” question of any sort from a Medieval. Further, in relation to the question “what is money?” it would not occur to a Medieval that real wealth, and any means by which wealth is exchanged, would be an arbitrary fiction that had nothing to do with moral and spiritual truths.
Secondly, unlike today, the Medieval person would not think of money as an abstract numerical cypher, but as a tangible physical thing: a certain amount of a particular metal. (The Medievals, you must remember, lived before the birth of the modern nation state, and thus before central banking which guaranteed the wide spread stability of money as paper based notes of credit. ‘Money’ as we know it today first became widely viable in 1694 when the Bank of England was formed in order to fund a war for King William III.) To the Medievals money was no abstract numerical fiction, money was tangibly metallic. Further, metals were analogues of, even ontologically participants in, cosmic and spiritual realities.
To the Medievals, money was always made out of gold and silver – the metals of the Sun and Moon – and other metals. Gold, for example, as the Sun’s metal participates symbolically (and ontologically) in the Sun. The Sun is the physical source of all life, and thus – so Ficino maintained – an analogy of God Himself, the source and giver of life to creation. The Sun is a tangible icon that points us to the intangible God who is the eternal source and final destiny of all that is. Harking back to Plato’s analogy of the sun, the via antiqua metaphysics of the Middle Ages as well as Renaissance Platonism, saw God is the Goodness beyond Being, out of whom all beings come, the glorious source of the real qualitative value of all that is. Gold as incorruptible, and as the lustrous colour of the Sun, speaks to us of the eternal beauty and splendour of God and iconographically points us to the divine source of all true meaning and value. The wealth and splendour of gold is thus a real, though twice analogically reflected, wealth, and the spiritual reality that gold ‘sacramentally’ points to is divine providence, the source and essence of all wealth which is given to creation by God so that creation might flourish.
Reflecting on the theological meaning of money to a Medieval person, we can see that wealth was understood as a real feature of created reality, and that money was physically (though ‘sacramentally’) bonded to wealth. Thus money was not understood in its essence as an artificial, man-made construct. Unlike today, the Medievals could not envision money as an intangible construct to be used for whatever instrumental pursuit of transaction manipulating power the fertile imaginations of high finance simply dream up. No, to the Medievals money was an active function of real wealth, though wealth in no way reduced to human money.
The reason why I have taken you into the exotic realm of Medieval economics is that it shows us how different metaphysical approaches to money can be, and it makes us aware that our Modern understanding of the nature and meaning of money is not a fixed and certain reality. We can now hopefully see that our astonishingly instrumental and abstract assumed metaphysics of money is one option amongst many possible ways of understanding the nature and meaning of money. Modern money is one way of thinking and acting concerning the relations between work, commerce and finance; it is one way of approaching the nature of finance and its (non) relation to wealth, morality, reality and power. Perhaps, even, the abstract and instrumental nature of our assumed metaphysics of money is deeply implicated in the horrifying pathologies of high finance?
Bearing the above question in mind, let us return to gold.
The catastrophic global financial disaster of the Great Depression was in the vivid memories of those who gathered at Bretton Woods in 1944 to plan and set up the architecture for the post-war global economy. They were determined that the final popping of the massive speculative bubbles of the roaring 20s would not be repeated. How, they pondered, could they fix the value of money to reality so that speculative finance did not become the dog that wagged the tail of the real economy? The answer they came back to was gold. Currencies would be tied in value together, and the American dollar would undergird the new global economy by being tied to gold. $US35 per ounce of gold held money to some real wealth anchor and the fascinating thing is that whilst the gold standard lasted, so did the post-war boom. After the collapse of the gold standard in 1971, speculative finance took off again and the real economy started to take a back seat to high finance again. Come 2008 and the spectre of 1929 can again be seen riding its ghostly horse through the economies of Europe. High finance is now inherently unstable and the dynamic of financial implosion could spread to every corner of the globe at any time.
Perhaps we should think again about the metaphysics of money and the need to tie money in some way to real wealth rather than to let it float disconnectedly from the actual production and provision of human needs. For when that happens monetary bubbles are generated without any contact with real wealth, and money without any real wealth cannot fail – sooner or later – to unravel in bubble bursts that are profoundly destructive of real wealth.
I am not suggesting a return to the gold standard. What I am suggesting is that we must come to terms with the obvious fact that our collective metaphysical assumptions about the nature of money are now failing us badly. For today, money has no contact with real wealth, for it has no contact with reality. As Satyajit Das succinctly puts is “money and the games played [by high finance] are intangible, unreal, and increasingly virtual.” This entirely artificial conception of money has deep pathological tendencies which are profoundly destructive of real wealth.
High finance has a frankly criminal tendency such that it facilitates the transfer of real wealth from the public purse – the coffers of states in which wealth is gathered from the people for the common good of the people – into private hands. Yet our banks have this criminal ability because they are tied to our governments (as, since 1694, the big banking players have always been). Astonishingly, after the Federal Reserve Bank of the US poured trillions of tax payer guaranteed money into the private banking sector in 2008, no-one went to jail for extortion even though this is undoubtedly the largest single act of financial extortion in human history. Because global finance is dominated by institutions that are “too big to fail” this means we tax payers must keep them eating our very flesh, and the flesh of our children, in order that the economy – which apparently operates for our welfare (ha!?) – does not implode. Feed us or else we take you all down! This is extortion pure and simple.
Why do we let our governments and our high finance sectors act in so obviously criminal ways? Perhaps it is because we unquestioningly assume that money is an amoral, abstract, artificial and purely instrumental entity that is just made up. For if money is just a number that is ‘produced’ and manipulated by reserve banks and financial specialists, then we naturally assume a bizarre sort of ‘realism’ where entirely artificial finances are seen as the legitimate repositories of right order and real power. Assuming this sort of financial and political ‘realism’, it seems natural to us that our governments have the authority and legitimacy of an economic priest-caste which acts in consort with our magical banking gurus to keep the world as we know it chugging along in proper cosmic harmony
If we are to change this situation, we need to change the way we think about money, wealth and power. This is where the fundamental matters are that will determine our future.
We are not, of course, going to banish extortion or immoral instrumentalism just by having better metaphysics. Criminals, extortionist and abusers of violent power were as common and powerful in the Middle Ages as they are today. Yet if we do not appreciate the relationship between the prevailing order of wealth and power and the metaphysical assumptions which we all share when we engage in the use of money and the practise of politics, then the vital collective sources of our norms and of how power is sustained will be invisible to us. The main game is, indeed, a struggle for our minds. Plato saw this with characteristic insight. As long as we believe that illusions are reality, we are controlled by those who manipulate the collective illusions that structure the operational norms of the world of finance and power as we currently know it.
How do we get money tied to the realities of real human life so that it becomes a fair function of the actual production and distribution of real wealth? How do we re-introduce the idea that finance should be tied in some concrete way to the real world in which actual producing and consuming people live? How can we get finance to serve human (that is political) ends rather than politics facilitating financial ends for high flyers in investment banking? These are the vital questions for us today in the post-2008 world.
How do we get money tied to the realities of real human life so that it becomes a fair function of the actual production and distribution of real wealth? How do we re-introduce the idea that finance should be tied in some concrete way to the real world in which actual producing and consuming people live?
This is where the description by Knapp of money as an institution comes into its own. Value does flow from the real world of producers and consumers in which the state holds a gun to our heads, forcing us to go out and get the state’s unit of account. There are real negative consequences for failing to do so.
Did you mean that there are real negative consequences from not having a positive balance of bankers’ money in my checking account when I write a check?
Because the only gun the government holds to my head is to have that positive bank-credit account balance when my taxes are due.
The banks issue the national money unit of account every day…..it is what makes up the money supply…… as their own, and not the government’s, liabilities, and that is what we use to pay taxes.
“The Legalized Crime of Banking”, Silas W. Adams.
The banks issue the national money unit of account every day…..it is what makes up the money supply…… as their own, and not the government’s, liabilities, and that is what we use to pay taxes.
I’m sorry but this is false. Banks issue financial assets and an equal quantity of liabilities. The money supply expands and the money supply contracts as the loan is paid back, meaning no increase in net financial assets. Accounting renders your assertion impossible.
Accounting is itself a mere norm for managing finances that are denominated in the national money unit. Accounting itself has nothing to do with money, but with financial management.. Accounting has never rendered anything false, but it renders things possible or not, according to accounting norms, which change all the time.
Your comment is really remarkable for its myopia with regards to ‘money”.
To deny that banks create ‘money’ by making a somewhat inane observation having to do with ‘net financial assets’ shows how far removed from the reality of money the Theorists reside.
Net financial assets matter to financialists(Mosler and Newman), not to the real people who live, work and spend in the real economy.
What matters to those people are their checkbook balances in their checkbooks, and those balances only arise (and count for the money supply), when banks create that money. All of it.
Why is there any denial of this proven reality?
My collection of videos from folks smarter than me will get you up to speed too with the Killer Algorithms. I know it’s hard to accept this but it’s what’s really going on. If you watch some of the videos done by people smarter than me, you can get up to speed. I used to write code and this is the flat out truth and reality and I know it’s hard for the average consumer to digest as all this works behind the scenes with technology that all are not familiar with.
Nothing on this blog incites more discussion than the concept of money.
It’s like the dead cat in the room. Most regular NC readers know how money is created by sovereign nations and how taxes function as something that taxpayers need to acquire to pay their dues; that nations like the US, Canada, Australia and New Zealand, but not those in the Eurozone, can easily fund deficits by spending it into existence.
I think what annoys most people that see the obvious, including dumb economists like self, is that MMT is gaining hardly any traction among TPTB. They know what money is and that austerity is bullshit, but it suits them to keep saying over and over that governments need taxes to pay for things, like welfare, health and education.
The truth is gaining some legs, but jeez it is a hard slog.
Most regular NC readers know…nations like the US, Canada, Australia and New Zealand, but not those in the Eurozone, can easily fund deficits by spending it into existence.
USG earns a piddling few hundred million in seigniorage on coin creation. It must tax, borrow, collect fees, or sell off assets to fund the remainder of its expenditures. Federal Reserve Banks are owned by the national banks; reserves are liabilities of the Reserve Banks and T-Bills are assets; for government to spend against the TGA account at FRBNY, it must relinquish assets to FRBNY. MMT is quackonomics, and its embrace was OHB’s severest and most unfortunate analytical error.
Either this is, or is not, the truth.,
What seems to be true is that any sovereign government, with monetary autonomy, COULD issue money via a specific authorization in its budgeting process to ACQUIRE these seigniorage gains as ‘revenue’, and to then spend that gain into existence.
And the salient question that needs addressing is whether Chris Cairns, or anyone else, has any proof that any of those countries CAN, as opposed to ‘could’, today, issue money as claimed.
And, if not, then what would it take to get from ‘could’ to ‘can’.
Oh, and, need to ask, OHB?
Oh, and, need to ask, OHB?
Pretty sure that’s been around. Our Humble Blogger.
Could not agree more.
OHB’s embrace of MMT’s money-construct, as opposed to its post-Keynesian economic constructs, which are each and all pretty spot-on (poss. exception JG > BIG) has persevered far beyond anything logical, given the level of contrary discussion each of these postings generate.
What would be of great help would be to understand the Yves-Lambert take on Marc Lavoie’s “friendly” critique of MMT, he being a noted post-Keynesian leader, and a continuing friend of MMT.
But with the posting of German economist Dr. Joseph Huber’s extensive analysis of how MMT is really not a money-system construct but a financial-accounting methodology of the bankers, it remains the job of MMT to surface some faith-strengthening explanations on why today’s bankers’ money system is superior to a sovereign fiat public money system.
This is the discussion that could move things forward.
Even most MMTers will admit, if perhaps grudgingly, that actual physical access to resources and societal stability are necessary prerequisites for governments spending money into existence to have any actual affect on the real world. Now coincidentally enough I just read a Guardian article (though admitted I previously knew of this) linked on NC earlier today that explained in some detail about how the Pentagon is actively preparing to violently suppress the population in expectations of mass civil unrest/insurrection brought on by imminent resource shortages. Oops.
Perhaps you should take a look at the above article again and then start coming up with ideas for how the monetary system can better reflect reality. Because “the government issues its own currency and therefore has infinite resources at its disposal to fix things” is demonstrably a false belief. The author above also mentioned that the current government/corporate complex is basically a criminal enterprise and that therefore it’s probably a bad idea to advocate for MMT ideas until these issues get resolved. Which seems bizarrely sensible to me, for NC.
Of course there is always my favored solution: radical decentralization and the abandonment of complex, centralized monetary and political systems, which I believe you all will come to embrace in time as well–when you see that the energy just doesn’t exist to maintain them. Intelligent and preplanned degrowth would be a comparatively pain free way to go forward after that realization is arrived at, as opposed to the complete and utter horror waiting for us if we keep on the way we have been.
Also, I’m not really sure how seeing god in gold does not qualify as a metaphysical valuation.
When the galleons came back filled with gold, and this gold flooded the market amid no new production, it resulted in inflation. Somehow, every generation is blind to the effects of money printing without an adequate increase in production apart from those who suffered devastation from it.
Countries still managed to cheat when money was backed by gold. What matters is how this new money is distributed and put to use.
Of course, the first ones to get the gold won…. just like with fiat money.
Yes. However, since global gold production never managed to add more than 1% annually to the existing gold stock, the possibility of a global speculative bubble was excluded.
Bubble III is global: Japan, England, Europe, China, the U.S., Canada with its fantastic housing bubble — they’re all in on it.
When this immense folly explodes in our fool faces, there will be no reservoir of responsibly managed capital available to bail out the victims: all will be hungover at the sametime.
Yes, but if all the gold entered London… or Madrid…1% total growth can be significant in 1 single city… that city would feel inflation and manage to seize wealth from other big cities without producing anything… so the 1st one with the gold won.
The other thing is that the gold supply could only increase by 1% but if 1 country decided to increase printing by a lot betting the other countries would respect the pegs, then you also ended up with problems… something the UK did at the beginning of the 1900s.
Whether you use a peg or a fiat, the system depends on rules and respecting them.
“It would have been interesting to see what plethora [of bullion] would have done. Freud held that man`s attachment to gold lay deep in his subconscious. Accordingly, the prestige of the metal or some of it would have survived even had gold become like coal. The hypothesis was not tested, for the abundance did not develop. Enough gold was found to have an effect on prices. In the twenty-five years before 1848, when the specks were first see in the race at John Augustus Sutter`s mill, prices in gold or its equivalent had been falling. In the next quarter-century they rose, although by modern standards the increase — by about 20 percent — was not very great.”
— John K. Galbraith, Money: Whence It Came, Where It Went
Why is Money such a wrathful god? He sounds like a plain old tory to me, from the way you continue to describe him.
Are there Red Letter Monetarists? I’d probably read that. “money doesn’t talk, it swears”
Sorry for multiple comments, I’m in a hurry and thoughts are coming sporadically.
I think Dr. Tyson is missing the role of taxation. During the Medieval period sovereigns typically demanded payment in the coins minted by their own government such as the silver penny in England after the Norman invasion. Those with tax liabilities faced the choice of working to obtain their sovereign’s coinage (more properly the state’s unit of account) necessary to settle the debt or a stay in the King’s prison. Much of Dr. Tyson’s description, such as money being based on a fair exchange for the work that went into the commodity, deals not so much with what money is as it does with how money is viewed or used.
At its core money is a liability denominated by the state and levied on the citizenry or subjects. Everything else it is and does flows from there.
@Ben At its core money is a liability denominated by the state and levied on the citizenry or subjects. Everything else it is and does flows from there.
A chemical trace of money is in coins, the money of the state. And none of that is a liability on any balance sheet. We’d all rather be owed money guaranteed by the state, than to hold the money of the state, with all the difficulties of protecting and conveying it. And, because of our preference, banks need hold only a comparatively tiny amount of the money of the state to owe its customers vast amounts. The money of the banks circulates in parallel with the money of the state, with infinitely greater efficiency. Our goods and services are priced in bank money, not state money. And the state is abjectly dependent on the banks both to clear its payments — accept the state’s debts as their own — and to project its power.
The fact that bank money is denominated in U.S. Dollars belies your argument. The sovereign’s unit of account lay at the core and we allow banks to make-believe they have the real thing by requiring them to back bank money with that unit. Without that backing bank money would cease to function. On the other hand if the current banking system went away the sovereign’s currency would still be able to circulate.
They can pretend to the throne but can never sit on it because they need the sovereign; the sovereign does not need them.
@Ben They can pretend to the throne but can never sit on it because they need the sovereign; the sovereign does not need them.
Finance dominates elected governments all over the world, even in monetary supposed-sovereign republics. Government can’t build a bridge, fire a missile, assess or collect a tax, or even mint a coin if it can’t clear a check. The state promulgates a monetary unit of measure, but a bank doesn’t need state money to clear payments denominated in that unit. If I write you a check for $10, my bank need only convey to your bank some instrument sufficient to induce your bank to owe you $10. Be it forex, corporate debt, my bank’s own IOUs, or the Central Bank’s IOUs. Then the law says you’ve been paid, though in state money terms you’re still owed. All because of our revealed preference for state-guaranteed bank money over state money.
The big banks are global, free to domicile in favorable jurisdictions; and social order is maintained at their whim.
Since banks are global, Prof. Hudson is right that all countries need to conduct regular sovereign debt audits and then take the necessary remedies. We can’t be the first on the block to do so since France just did it, but we can create a serious disturbance in the force when we join them.
Conduct a thought experiment:
Bankers tell the government to screw off, they’re going home and won’t have anything to do with the USD. Regardless of how many politicians have been bought, the banking infrastructure of the United States would be nationalized in response because there would be no other choice to make. Government makes deposits with government money and extends all the loans it wishes to, while the dollar just sails on past Jaimie Dimon.
Now imagine the Fed issues a statement ending any and all transactions with the U.S. banking system; you know as well as I do the big boys would collapse literally overnight. Bank created money won’t be worth a fig leaf because there won’t be any bank created money, not with a frozen payments system and insolvent banks.
Banking is a priviledge that can be revoked at any time and it will be, eventually. After we’ve done everything that can’t possibly work.
Bankers tell the government to screw off, they’re going home and won’t have anything to do with the USD.
Why in the world would bankers give up their greatest prize, their bought and paid for private fief?
The US Dollar is bank money. Did you ever notice that the old US Note could not be used to pay down public debt? That’s because you can’t pay down government debt by issuing government debt. The Federal Reserve note is legal tender for all debts, public and private, because it is the liability of USG’s creditors, not USG. The Mint prints it, as it did the prior National Bank Notes; but the Reserve Note isn’t money until the Reserve Banks issue it. Whereupon USG must truck, barter, tax and borrow to obtain it, that it may pay its new expenses and service its prior indebtedness.
A chemical trace of money is in coins, the money of the state. And none of that is a liability on any balance sheet. If coins (rather, the debts they represent) are not listed as liabilities or debts on somebody’s balance sheet, that is because they are drawing up the balance sheet wrongly. There is no law of nature that everyone, or anyone at all, including banks and governments, do their accounting correctly and intelligibly. That is what MMT is about. Doing accounting correctly and intelligibly, with some idea about what you are accounting for, that money is debt is a relationship, not a thing. Nothing else.
We’d all rather be owed money guaranteed by the state, than to hold the money of the state, with all the difficulties of protecting and conveying it. Not during modern bank runs, where what is desired is state money, not bank money. Yes, bank money could be more valuable than state money, could be “realer money”. than state money. Was that way back in the middle ages sometimes. Not really since then. That is the sort of situation where your worries have merit. Where banks have fiscal power superior to states’. In the modern world, all the pretenses which confuse so many about who has the money power, all the pretend-relinquishments of monetary sovereignty mean nothing at all.
@Calgacus If coins (rather, the debts they represent) are not listed as liabilities or debts on somebody’s balance sheet, that is because they are drawing up the balance sheet wrongly.
Cal, as you may have heard, the money sovereign isn’t like a household. Any of us can create our own financial liabilities; the sovereign can create its own assets by its very stamp and seal.
Government can present you with a $100 T-Bill or $100 in coin. In both cases you have a $100 asset. But in the former case, the asset is based on USG’s promise to add, over future time, $100 plus interest to the commercial bank account you’ve associated with the bill. That future performance is USG’s liability. With the coins, USG has already discharged its liability; you have payment assets that banks, merchants, creditors and governments are required to honor immediately.
As government is obliged to honor these tokens at tax time, is that not its liability? No, that is its obligation. And that’s also true of the money it’ll place in your account over time via the T-Bill.
So if you please, Cal, what multiple of a T-Bill do you consider to be USG’s liability? Considering that it’s an asset already, that the government has agreed to support that asset by placing face value plus interest into your account over time, and that the government has further agreed to support that asset by accepting these future numerations as tax payments?
Putting long reply to EconCCX below, for readability.
If the sovereign got rid of the banks, they’d create a new department that would do the bankers’ job. Maybe it would not be called banking but it would still be banking.
The sovereign has no need to get rid of the banks, or the bankers.
The sovereign needs to merely repatriate its money-creation powers…..NOT a banking function, but a governmental one…….and let the bankers do the banking, because that IS their job.
I don’t see how the bankers could do their job with a government cornering the money market.
Is that because you either don’t believe the “job of bankers IS to do banking, and not money creation, or is it because you see a government with a monopoly over money creation incapable of creating ‘enough’ money for the bankers to meet public demand?
“”…. we allow banks to make-believe they have the real thing by requiring them to back bank money with that unit.””
Yeah, that’s the make-believe part……requiring them to do so.
It’s not make-believe that the private bankers have usurped the authority of the sovereign government to ‘create and issue’ our money by passing laws that allow bank-credits privately issued to circulate as “the universal means of exchange in the national economy”, which is the legally-defined ‘quality’ of money in any sovereign jurisdiction.
Because we are sovereign, we can take back that money-creation power(monetary autonomy).
Let’s get on with it.
It’s the problem of legacy systems and path dependency. Moving to a national system in1913 was intended to dispense with the repeated banks runs, panics and depressions associated with private banking in the 19th Century, but the architects were under pressure to do so in a way that was not highly disruptive. The result was the Federal Reserve Act which effectively ended private banking while allowing those institutions (properly understood to be an arm of the Federal Reserve itself) to behave as though they were still private. They got the benefit of never having to worry about reserves again without the responsibility of serving the public purpose.
There should be an orchestral accompaniment to such a grandly pontificated tale
Anyone who has read even Griffin’s ‘The Creature from Jekyll Island” knows of the bankers’ conspiracy to design their fractional-reserve banking system, under which private bankers get license to issue the nation’s money into existence as a debt.
“”The result was the Federal Reserve Act which effectively ended private banking…”” LOL
How so, Ben?
Rather than issue their own private banknotes under the NBA, they set up a system of issuing private bank ‘credits’ using the national denomination unit.
Even a read of the Bank of England’s recent missive would require acknowledgement of the fact that the banks create the national money supply.
Give us something tangible.
Something rational and factual.
Not pronouncements about what is relevant or impossible, according to Ben’s new learnings.
These pronouncements always advance ill-conceived notions, based upon self-learned understandings of the monetarily stylized pronouncements of Randy Wray or Warren Mosler.
Money is debt.
Therefore, debts don’t matter.
Balance sheets R-US.
The Fed is ‘public’.
The most compelling argument for a metallic standard is the moral limit it exerts on financial means for those who prosper from organized killing by warfare, a quality which goes far beyond idle debate about whether money may be only a “metaphysical representation of value”. The perpetual moral limit of a metallic standard is a built-in feature which paper money has repeatedly demonstrated it cannot sustain.
That bankers, politicians, and other psychopathic plunderers would find a metallic money standard a far more onerous bar to profits created by never-ending killing campaigns would seem a very good thing to most ordinary people.
Right, right, because there was no war when money was metal. Alrighty, then…
No. Because raising vast funds for war (or any other purpose) becomes politically more difficult for trigger-happy governments when money to pay for it cannot be casually counterfeited in unlimited quantities and handed off as unpayable debt to future generations (which arguably imposes taxation without representation).
“There is only so much gold in the world”, as Volker once observed. Unlike paper.
Will a gold standard “stop” war? No. But it will impose immediate and heavy costs on the general public when war is promoted by the usual suspects, therefore creating a higher barrier against public support except in the face of demonstrably clear and present existential danger.
A very good thing.
Perhaps the issue is less the hard money standard per se than the invariable propensity of the PTB to flout their own laws when it suits them. Thus, the question should really be “Can legal restrictions on monetary emission serve as a brake on governmental warmongering tendencies?” History suggests otherwise. While I’m quoting from Galbraith (see above), another snip related to the money/war issue:
“The Constitution restricted the right of coinage to the Federal government. It expressly forbade the states to issue paper money. And, a far less convenient inhibition, it also forbade the national government to issue paper money as well. … The Constitutional ban was informally abrogated by Secretary of the Treasury Gallatin in the 1812–1814 war; under the usual wartime pressures he issued Treasury notes, most of them bearing interest at 5.4 percent but some bearing no interest at all and in denominations small enough, the smallest being $3.00, to pass from hand to hand as currency. These notes were not legal tender for debts. That, perhaps, was the thin thread of constitutionality on which they hung.
Then during the Civil War all pretense was dropped…”
— John K. Galbraith, Money: Whence It Came, Where It Went
Ben, are you unfamiliar with the wooden tally sticks used during the Middle Ages? These were used in regions where there was not enough gold and silver and other metals to serve as money. Tally sticks are very ancient. They were used to represent counts of various things. But as money goes in England in 1100 King Henry I took the throne and devised a tally stick system to serve as money, because most of the gold and silver had been spent out of the country on the Crusades. For details see http://www.freeread.com/fiat-money-of-the-past-part-3/. The point is that for nearly 750 years tally-sticks served as money in England. They were not always backed by commodities already in existence. The King would create them by notching sticks with different width notches representing different amounts of monetary units. The sticks would then be split in half lengthwise. One half would be retained by the king and the other issued in spending, e.g. to pay soldiers and builders. The King then required taxes to be paid with the tally sticks, which made them desirable and in demand as money in circulation circulation. The system was inherently stable, because as taxes were paid, the tally sticks were matched and retired, and new tally sticks had to be issued to keep money flowing in the economy. They were impossible to counterfeit because the split edges and wood grain and notches had to match exactly to confirm payment of taxes. The point is that the essence of money is not metalic coins, even in the Middle Ages. It is representations of units of account. The value of the units is based on the negotiated prices of goods and services exchanged. People make comparisons and settle on agreed values for things and services that roughly approximate stable amounts.
Certainly a debate worth having.
Means of exchange vs. store of value. Either way, money as the clearest manifestation of the financial tail that is wagging the dog called humanity.
Has anyone actually come up with an alternative model that works at least on paper?
and, from the old days
“Secondly, unlike today, the Medieval person would not think of money as an abstract numerical cypher, but as a tangible physical thing: a certain amount of a particular metal.”
“Thus money was not understood in its essence as an artificial, man-made construct.”
I don’t agree – at all – with Dr Tyson. When coins reappeared in medieval Europe, the myriad local lords started minting a myriad local coins. The weight and finesse of the silver or gold they contained was extremely variable, although their value was usually tied to the abstract pounds, shillings and pence of the Carolingians. What gave them their value was the authority and the power of the issuer.
Precious metals (bullion) have always been stores of value, but only seldom have they been “money”.
That’s a good way of putting it, Alex. I’m going to steal this.
Dead on Alex. Recommended reading: Luigi Einaudi on “Imaginary Money,” Amato and Fantacci’s “The End of Finance” or anything by Simiand, Bloch or Braudel. Or Graeber’s “Debt,” for that matter. Other suggestions welcome!
Money is BOTH a means if exchange and a store of value. If person A has X wealth, that which he needs at present is a means of exchange; that which he doesn’t must be STORED. There is no doubt a million dollars in a bank account is a store of wealth. However any number of things also function as a store of wealth: shares in a company, a gold bar, or a Picasso painting. So while many things including money function as stores of wealth, cash both virtual and physical, monopolize means of exchange.
A typical Profeser. He rambles off paragraphs of theoretical mumbo jumbo, but he doesn’t even try to answer the hard questions. :-)
That’s because they have no answers. The language of obfuscation seems to be the name of the game. Propagation of clarity would end the game for the beneficiaries.
This classic almost seems like it was written today and sent back in a time capsule;
“Great googalooga, can’t you hear me talking to you?”
Money is a contract, not a commodity and needs to be respected as such. What is one persons asset is another’s obligation. Even a gold backed currency is a contract, as in IOU one ounce of gold.
When it is public debt backing the currency, then the assets have to return to the public or it doesn’t circulate and pools in the private sector. So then the Government has to borrow it back to keep it flowing, thus increasing the public debit. So the system is designed to blow up.
If people understand it as a public utility and no more actually own those pieces of paper, any more than they own the section of road they are driving on, they would be far more careful how much value they extract from social relations and environmental resources. Which would turn society and the environment back into stores of value and not just resources to be mined.
Then such functions as elder and child care, public spaces, primary education, etc. would return to the being the organic functions they once were.
The problem with MMT is the idea of having politicians spend money into existence. This should only be considered with the strongest of reservations. When the basis of the currency is government debt, there is an inherent bias toward creating a lot of public debt. The current system is effectively designed to do so.
Budgeting is to list priorities and spend according to ability. Instead the legislative leadership bundles up these enormous bills, then adds whatever necessary to collect enough votes. Which the president can only pass or veto in whole. The result naturally leads to overspending. If the government actually wanted to budget, these bills could be broken into all their various items and have every legislator assign a percentage value to each one. Then reassemble them in order of preference and have the president draw the line at what is to be funded. As Truman might have put it, “The Buck Stops Here.”
This would create a system of actual budgeting, as well as distributing more power over the entire legislature, rather than having most of it accumulate at the top. The percentage voting would also allow legislators to tune their responses to various constituencies and other pressures, better than does a simple yes/no system.
This would result in far less national money going to local projects, but if there was a public community banking system, which funneled its proﬁts back into public projects within its own community, rather than having it siphoned off by big banks, to be lent back to the various governments, it would be result in a more stable and sustainable civic foundation.
“The problem with MMT is the idea of having politicians spend money into existence.”
There is no problem with having money come into existence via governmental operations of its budgeting process.
In true reform proposals, there is no role for ‘the politicians’ in effecting money-creation.
That power becomes statutorily bound by limiting the Guv role to determining the quantity of money in existence.
The politicians merely determine government spending levels and programs.
Money comes into existence in the “income-revenue’ side of the budget as an accounting entry of “seigniorage”, and fills the non-taxing spot currently occupied by “increases in (net changes to) the national debt”.
Don’t let politicians get near the ‘amount of money-creation’ part, and everything will be fine.
“Money comes into existence in the “income-revenue’ side of the budget as an accounting entry of “seigniorage”, and fills the non-taxing spot currently occupied by “increases in (net changes to) the national debt”.”
So basically if they spend more than is collected in taxes, it gets printed?
I realize it would be a logical and necessary part of the process, but given the political desire to ingratiate oneself with the electorate, versus the fact that any obligation which cannot be fulfilled goes bad, means there has to be some significant oversight to this process. It’s not that politicians wouldn’t necessarily be responsible for budgeting, but if it is effectively graded on a scale, in which the legislative sets priorities and the executive sets limits, there wouldn’t be a mass push to scratch everyone’s backs and blow open the process.
Welcome to the real world of sovereign fiat money creation.
It’s not a matter of “if” they spend more than collected in taxes, “it gets printed”, rather it is that the EXACT amount of seigniorage gain is determined by the monetary authority as needed for GDP-potential and accounted as revenue in the budget, so that taxes plus new money equals expenditure, instead of taxes plus debt today.
“”….means there has to be some significant oversight to this process.””
Which process? The politicians have nothing to say about money creation.
It’s all in the authorizing legislation. Get that right, and, for once, get “money’ right.
“Even a gold backed currency is a contract, as in IOU one ounce of gold.”
This is incorrect. There is no “contract”. The 100% gold standard is defined by law, not by contract.
“A gold certificate in general is a certificate of ownership that gold owners hold instead of storing the actual gold.” http://en.wikipedia.org/wiki/Gold_certificate
Banks today which hold gold owned by others (and specifically allocated to them) may not legally co-mingle those assets with their own for any reason including settlement of bankruptcy or trading on their own account. The bank is solely the responsible custodian paid a fee to hold someone else’s property. The bank is not an owner of that asset and the real owner is not merely a claimant on those assets, which are specifically enumerated. “Unallocated” metal holdings ARE an asset owned by the bank and therefore incur no fee for storage. People who “own” unallocated metal held by banks are merely claimants on those assets who must get into line with other claimants if the bank goes bust.
It is important to distinguish “money” as the highest order good recognized in common trade within a particular economy: it is that good most readily accepted in trade (that is, most “liquid”) for other goods. That is not to say other goods than the highest order good may not also be readily accepted in trade for goods and services during peacetime. John may still trade his cow to Bob for blacksmith services. (But Bob would prefer the greater security of gold if John has any.)
Even in a gold standard system, silver coins are readily minted and passed from hand to hand. And in silver standard economies (where the US started), gold coins are common units of account for transacting larger sums.
While the Irish, Nuer, and many other pastoral peoples may have counted most of their wealth in cattle (and readily traded them for other goods), gold and silver were more readily acceptable in trade and as a store of wealth. Particularly for trade with foreign merchants who come and go over long distances. Individual cattle are a poor store of value because they die. But a herd of cattle is a renewable store of wealth if skillfully husbanded and will increase total locally recognized wealth of the owner as it grows in size. Cattle are also an earning asset, unlike gold in pocket. But in time of trouble, a pocket full of coins can be carried across borders to safety. Driving a herd of cattle will be more difficult. Wealth transferred across oceans or other long distances is therefore in the form of precious metal, not livestock.
The highest order good (“money”) has many virtuous qualities, not least that it concentrates a lot of easily moveable wealth in a small (which is to say portable) density which can also be conveniently subdivided in exact quantities to exchange for all other specific goods in any desired quantity. This is more difficult (and bloody) than with cattle.
A recently subdivided cow may have great value in the marketplace to people who want meat, but it also suffers an exceedingly short shelf life. Gold has no limit on shelf life. Gold is a perpetual store of value while individual cows are not. That is not to say a person with only cattle and no gold will be regarded as poor. It’s just that their form of wealth, no matter how considerable, is far more susceptible to predation by disease, war, famine, and rustlers — periodic miseries repeatedly recorded throughout all human history down to the present day. And it is much easier to conceal large stored wealth in coins in the ground than cattle in the crib.
Finally, of course, there is no real debate about whether gold is officially recognized by bankers as “money”. All central banks account for gold as a “monetary asset” and gold is accepted by all central banks in settlement of trade. Central banks also don’t keep cows in the back pasture. That’s because they do not regard cows to be a “monetary asset”. While both represent wealth, gold is plainly the superior in duration and as a unit of account (as determined by people, not governments).
In the end, what ordinary people regard as “money” is decided by human action in markets, not by scheming sovereigns. To the extent government may regulate weights and measures and mint coinage accordingly, people only rely on the king’s money for convenience and confidence that it is what it says it is. But they will also pay a fee to private mints for coinage which is uniform, convenient, and trustworthy. There is no special prerogative of government as a right of “seigniorage”. It’s just a cost of fabrication, regardless who does the work.
Using official money of a foreign sovereign for domestic purchases has been acceptable for centuries. The Mexican peso is now commonly in circulation in some US border towns. That was decided by local market participants to serve their own mutual convenience. The USG has no say in that. This is not a “black market”. It’s just a convenience.
When money becomes inconvenient owing to steady debasement, people abandon it in favor of other higher-order goods. The Germans found it inconvenient to deliver a wheelbarrow load of Weimar currency to purchase a single loaf of bread. As the story goes, the wheelbarrow was more valuable than the paper money it contained, which was emptied out onto the ground when the wheelbarrow was stolen.
As Voltaire pointed out, paper money always declines to its intrinsic value: zero. Gold has never suffered this fate. Academic money theorists never acknowledge the significance of this vital difference.
Correction: “This is more difficult (and bloody) than with cattle.”
Should be, of course: “This is less difficult (and bloody) than with cattle.”
Money is not a contract. It’s a token in units of account representing debt obligations in a contractual exchange of goods and services. Let’s be precise.
A word has meaning if someone else understands that meaning. Value in exchange has reality only if some one else shares that value. Everything is relational or relative. Meaning and value are given by the transaction in the way that meaning is given by the intelligibility of a given language.When money is conceived as we all do as store of value it requires that the future be fixed according to our needs and because the future is unknowable violence is used in order to subject reality to our will. Violence is manifold but it flows from the will’s desire to be effective. I used the word violence in a general way including fraud.
Eventually the difference between our will and the moving reality becomes so wide that a “crisis” ensues. The crisis restores value and meaning.
“Secondly, unlike today, the Medieval person would not think of money as an abstract numerical cypher, but as a tangible physical thing: a certain amount of a particular metal. (The Medievals, you must remember, lived before the birth of the modern nation state, and thus before central banking which guaranteed the wide spread stability of money as paper based notes of credit. ‘Money’ as we know it today first became widely viable in 1694 when the Bank of England was formed in order to fund a war for King William III.) ”
This is incorrect. It’s quite well documented that various medieval populations were quite familiar with credit, and there is extensive evidence that European peasantry and the merchants of the Islamic world, to think of two groups off the top of my head, routinely reconciling transactions in the form of credit with no metal exchanged. The state was never required to make credit systems work, as Graeber has ably and accessibly documented. Medieval peoples had a substantially broader conception of wealth, value, money, etc than the author suggests.
It all depended on when, where and how you were making a living in the Middle Ages. For subsistence-level peasants with labor obligations (AKA serfs) money didn’t play much of a role–debts were something to be worked off, not paid off in coin or paper. Tenant or freehold peasants did play a role in the money economy, while urban artisans and merchants were of course heavily involved in it. I
t’s also my impression that markets preceded mints, at least in northwestern Europe in the ninth and tenth centuries and that initially just about anyone could set up a mint.
It’s true though that medieval notions of money were a good deal more diverse and nuanced than Tyson seems to think. Concern about “essences” was largely limited to university scholastics who had ODed on Aristotle.
Once again, I’am bemused by the article. Money has always been a social technology. Yes, once upon a time, we had a gold standard. But that was not a ‘natural’ situation, historically speaking; and even then, the price of gold was fixed by fiat and private banks could create credit almost at will (see Bagehot). The author is trying to remind us of something that never existed.
One of the main features of capitalism is that private banks create money out of thin air. Loans create deposits. That doesn’t mean that money is not tied to ‘the realities of real human life’. Quite the opposite. When money is needed in the real world, money is created. Countless valuable projects would have been nipped in the bud had money been strictly tied to bullion. The problem is not money creation per se, but how we regulate banks so that their money creation becomes a public good.
This “feature” of private banks creating money out of thin air is essentially legalized counterfeiting. It steals value from those holding the currency and re-allocates it to the bank. It is quite conceivable that those “valuable projects” would still occur without the counterfeiting mechanism. This difference is that projects would not be funded through debasement of the currency.
Anyone more or less acquainted with the history of money should be deeply puzzled by the terms ‘counterfeiting’ and ‘debasement’ you are using. They don’t make much sense to me, to be honest.
If you were to come to me for a loan and I were to print that money up and give it you, I would be counterfeiting; even if I destroyed that money when you returned it, but kept the interest. For banks, the only difference is the legality. As for debasement, when money is created out of thin air, the money supply expands while the represented value remains the same. So, the value per unit of money drops. In other words, when the counterfeiter (the bank) creates a loan, they steal from the current holders of money; debasing the currency. If this puzzles you, I would suggest you are not all that acquainted with the history of money.
“For banks, the only difference is the legality.” If it’s legal, it cannot be counterfeiting. Now you can think the law isn’t right, but there is no “lawful counterfeiting”. You say the current holders of money are being robbed, but who created the money they own, and how?
“when money is created out of thin air, the money supply expands while the represented value remains the same.” If I borrow money to create something, the value does not remain the same. The idea that a higher level of economic activity requires a higher money supply is pretty straightforward.
You seem to think that money is some natural, eternal and immutable feature of economic life. History clearly shows it’s not the case. From the very beginning, money is a social construct, it’s the result of the struggle between the different parties in a given society. The words “Counterfeiting” and “debasement” are besides the point.
While I agree that counterfeiting cannot be lawful, I am arguing that the action of creating money out of thin air is the exact same thing with the exact same effect.
The idea that a higher level of economic activity requires a higher money supply is pretty straightforward
This is not so straightforward. At the moment in time when the bank created the loan, what happened was a very subtle re-allocation of money. This is the core of our current financial predicament. When bank cap ratios are combined with derivatives that allow banks to keep liabilities off balance sheet, this subtle re-allocation results in a massive reallocation of wealth. What you consider to be a feature, I consider to be the core problem.
I certainly do not think that money is eternal and immutable. That is why I am discussing it. People have to understand what it is before they can understand why it needs to be changed.
The idea that a higher level of economic activity requires a higher money supply is pretty straightforward Alex Hanin
1) The monetary sovereign should run continuous deficits.
2) 100% private banks with 100% voluntary depositors could still leverage a bit.
3) Common stock is an ethical form of endogenous money.
Summary: The excuse that we need money creation by a government-backed banking cartel is therefore bogus.
I think you need to distinguish money in circulation versus money in existence. Money in circulation inflates or deflates according to its usage in exchanges of goods and services. Money in existence involves much money that is not being used in exchanges of goods and services. Money can be created and shipped to the moon and have no effect on inflation. That money on the moon can then be destroyed and no deflation results. Inflation concerns prices for goods and services rising across the board because more money has been put into circulation than needed to clear the market of goods and services at stable prices and full employment. Then those with more money are able to bid up prices. But as money circulates, everyone is affected
in setting prices.
But , it’s unclear, ultimately, which side you’re on.
” When money is needed in the real world, money is created.”
“The problem is not money creation per se, but how we regulate banks so that their money creation becomes a public good.”
The creation / issuance of money as a public good implies that money is created as needed in the ‘real’ world, that economic world where the Restofus all live, work and spend.
Your point is taken, by me, to say that today, money is not ‘created as needed in the real world’, but that financial deregulation and control by private capital interests determine that money is issued INTO the non-real, financialized world of “making money from money”, rather than creating incomes for The Restofus.
A system of money based on debt-contracts that serve as tradable assets in capital markets will never accomplish our public purpose. If we want the grandkids to have to do this all over again, we’ll hitch on to restoring Glass-Steagall (not that it would be a bad thing) and uber capital regulation.
Only a real sovereign fiat money system ever will ever achieve public-purposed money.
Anyone can create money. When my kids were young, my parents used to give us babysitting gift certificates. Money is a promise that someone will do work or give you a product worth the amount on the certificate. I could have gone to the local shop and paid for my stuff using my babysitting certificate… the shop owners would have accepted it only if they needed a babysitter and liked my mom.
The biggest problem with the central bank is that it is not privy to all our dealings and must guess how much money it needs to create. Another huge problem is that banking is typically based on collateral which means that it favors hard assets. Since services are unlimited, a huge problem arise when the money created from services enters the physical goods market which is limited.
Right now the biggest problem with our money system is that the services world keeps on getting restrained by the physical world when it should be unlimited…. as soon as someone makes money in the services world he/she will turn around and plunk it into the physical world because instinctively everyone knows that scarcity in the physical world will protect your wealth.
Sometimes I wonder if we should not have a money system for services and a different money system for physical goods. The question then becomes how do you link the 2?
This is the most insightful thing I’ve read so far. Along this line the military creates money by submitting a budget for military services. In order to control money we need to define its purpose. But it is so easy for it all to be fungible that we just don’t bother.
Now, if the government said you could use your Mom’s money to pay her taxes, that would make it worth others getting it. Until then it will be outcompeted for acquisition by money required to pay taxes with.
As I understand it, the Fed cannot create money unless there is already an authorized, legal reason for it. The Fed attempts to modulate the money supply by open market operations. But because private banks also create money in creating loans, the Fed cannot totally control the money supply. You need to distinguish money created for government operations (ultimately debt free) and money created by the banks as debt (loans). You also have to distinguish the debt obligation implicit in money that the government will replace your dollar bill with another dollar bill at the Treasury, from the debts between government and banks constituted by purchases of government securities by the banks. Furthermore you need to distinguish debt between government and private or foreign investors in Treasury securities which are like time deposits, where the time deposit does not get used in government spending, and debts between government and banks used by the government for acquiring money to be spent on deficits. That money gets spent into circulation. The investor’s money in their time deposits backed also by Treasury securities, does not. It just sits in accounts at the Fed until maturity, at which point the investor can demand money back with interest or roll over the debt. The latter case is a method by which the Treasury securities help to prevent inflation from money sent out of circulation in our buying imports from coming back into circulation if we are deficit spending heavily.
As for the need to distinguish services from goods in our accounting, keep in mind that workers
provide services that employers buy with wages and salaries. The workers do that to get goods and services also. So, you don’t need two kinds of money for this.
“One of the main features of capitalism is that private banks create money out of thin air.”
This is NOT a feature of capitalism. It is a feature of inevitable, late-stage corruption of money which governments always resort to, in more recent history by chartering central banks to facilitate that dirty work.
The essence of capitalism has existed in practice for centuries (and in the US until relatively recent times), whereas paper money created out of thin air has at all times demonstrated a very limited half-life. In only a hundred years, the US currency has steadily declined 97% in purchasing power, virtually all of that decline having occurred after the monetary system left the gold standard and ordinary citizens could not use it in everyday exchange. Gold itself has not lost purchasing power over the same period (or any other long period of time you wish to consider.)
Gold endures. Capitalism endures. Paper money doesn’t. End of story.
Perhaps you never heard of the paper money experiment with U.S. Greenbacks.
They were a permanent , non-debt based issuance by the federal government and they persisted for well over a hundred years, until their nominal(Knapp-state) value was superseded by their collectors value.
“”Gold endures. Capitalism endures. Paper money doesn’t. End of story.””
Got another story?
At the risk of falling out of line with inane comments like………money “is a liability” of somebody or other – like, without its double-counting identity, we could not discuss money – this rather interesting post misses the larger aspect of money. What is important to understand, in order to make ‘money’ be able to do the things we want money, itself, to do, is an understanding of the ‘monetary’ SYSTEM. (Alexander Del Mar : The History of Monetary Systems).
Sounds like Yves got some good responses to ‘what is money?”.
Better than, ‘it’s a liability of the issuer’.
Next time ask them: “Who creates the nation’s money, and how?”.
That question would be about how the money system ‘works’.
And if any coffee-laden MMTer jumps forward to chime in:
“”It’s the government that creates and is the monopoly issuer of our money”” (they will not say ‘currency’ at the coffee shop), “”and they issue the money by ‘spending’ it into existence””, what would be really nice would be for Yves to say “thank you very much, but WRONG!”
But she will not. Because she can’t.
Tied as she is to the modern Mosler-Newman view of debt-based money (what, me worry about debt?), a rather sanguine sense of accomplishment might take over, and ‘thank you’ be the only reply.
And the ‘learning’, about money, would stop right there.
But if this Divinity professor used the word god as an adjective we might get somewhere. God might acquire a useful meaning, almost like a resource.
One thing we can do is turn the service of banking into a commodity and all banksters into derivatives of this commodity with sovereign fungibility. Kinda like commoditizing “consumers” and ordinary people.
Being about money, and not banking, those with the money power today create money with debt-contracts that ARE commodities in themselves, with derivatives therefrom galore.
That damage is long done, and can only be un-done via reform to a non debt-contract form of money.
That would be money created as money, that never retires with a contract payment, that remains in existence permanently and that never requires from the sovereign citizenship a single penny of interest to remain in circulation.
That is the difference we need.
We could do a lot with permanent sovereign fiat money.
Is there a backing here, as called for by Minsky, for a new National Monetary Commission, in order to sort this all out via public discourse?
@JuneTown money created as money, that never retires with a contract payment, that remains in existence permanently and that never requires from the sovereign citizenship a single penny of interest to remain in circulation. That is the difference we need.
Sovereign coins have that characteristic, JT. Bank liabilities are promises of state money, but then all valid accounts receivable are promises of state money. The banks’ promises are state-guaranteed and more easily assignable. A regime of 100% state money would require closed loop public banking and the eradication of all other. Banks so challenged would first demand immediate repayment of their debts, and a war of expropriation would ensue.
But we absolutely need a parallel currency, one without the compounding interest, use fees and debt deflation behaviors you describe. Service-backed and service-denominated, such as a Forever Stamp or a tier of bridge toll. Pilkington calls us “money cranks” for understanding the problem.
“Money cranks” refer to an object fetish [ridged unsupported ideological beliefs], rather than a more nuanced approach, which better confronts the human condition.
“” A regime of 100% state money would require closed loop public banking and the eradication of all other. Banks “”
Me thinks not.
These six noted economists, including Fisher and Graham, proposed a state money system, and were publicly supported by over 400 economists at the time.
Please explain what they may be missing.
@JuneTown Please explain what [we] may be missing.
First off, Reserves are Central Bank money, not state money. Secondly, commercial bank money turns over thousands of times faster than Central Bank money. The credit instructions move in real time, the customer-to-bank settlements follow on a delay, then there are bank-to-bank private settlement relationships, and finally interbank net balances settled via Reserves in a batch process. Without a mechanism for Reserves to clear in real time, you have, perforce, fractional reserve banking.
Moreover, a reserve balance is just one form of bank asset. Banks don’t know whether a given day will be one of favorable or adverse clearances. So, suppose one bank is short on reserves but has perfectly good and marketable securities to sell. Thus not insolvent, merely illiquid. If you forbid the transaction, you have, in the extreme case, spurious bank failures that echo through the financial system. If you permit it, as you inevitably will, you have fractional reserve banking.
I’m lost to understand these notes about ‘reserves’.
I never mentioned ‘reserves’.
I posted a link to a U-Chicago Booth Biz-school e-library historic proposal for reform to end fractional-reserve banking……….to replace the gold standard with a standard of stable buying power, and to have the government issue the currency rather than the commercial banks……..that has no connection to your response, that I am aware of.
Reserves are not money at all, they never circulate as the universal means of exchange in the national economy of issue, which legally defines what money is and does.
They are merely CB-issued inter-bank settlement media, required in a debt-based money system.
But discussions about reserves inevitably lead away from discussions about money, metaphysical or physical.
Did I start that movement?
Does this comment relate to the U-Chicago library study-link?
the standard econ 101 functions of money (account, trade, value (less and less stressed now)) come from a more fundamental human necessity, one that economists hate to acknowledge.
the main function of money is to keep humans honest. without honesty human society falls apart.
the problem with paper money is that it wants the common people to be honest and the insiders always try to make out like bandits. let’s see how long this society lasts.
“the main function of money is to keep humans honest.”
Succinctly stated and well said. This is also why governments (and their apologists) hate honest money and will collude with bankers to corrode its value to their mutual benefit.
The reason you “have trouble” with this commentary is that it’s completely nutty. we reality-based people have difficulty getting into other peoples’ fantasies, when our vantage point is concrete empirical reality.
The “metaphysical” problem in the above is that he starts in the Medieval period — that is, a Dark Age, when social connections had fallen apart. Barter is not the FIRST stage of money. It is the final, collapse stage.
Had he begun in the ancient Near East where money began, he would have seen that “money” was a means of paying debts. Credit economy came first. Barter and commodity-money came only in the post-Roman collapse. So he gets the dynamic backward.
He doesn’t see that designating the means of payment under administrated prices occurred when most debts (and hence “money”) were owed to the palaces and temples of the ancient Near East.
When someone talks about money and lacks a historical perspective, it is natural that you or I would get dizzy, because there is no grounding.
Thank you professor. Tell me, maybe I’m confused as usual, but didn’t Randall Wray recently analyze the value of a currency and say that it should be pegged to the value of its economy and that in turn should be pegged to full employment, and living wages?
If you read and comprehend Soddy, then Randy is correct….up to a point.
National money must represent the national economy, and its value is thus definitionally determined by the amount of natural resources consumed, plus the amount of energy effort, notably the human labor of producing the national GDP, that go into the real wealth that is created.
Wealth, Virtual Wealth and Debt.
The Role of Money.
Dr. Frederick Soddy
Thanks Michael… the – ethnic problem – does seem metaphysical in origin, wink, wink.
What was it, like, 4000 heads, needed adjustment before the dark ages could end, then you had those pesky vikings [population problems manifesting].
Skippy… are the vikings at it again?
I think this is an unfair criticism. The author did not purport to write a history of money in his original post. He did not set out to write a treatise against MMT. His main point was to explore the relationship between “money” and “wealth” — and to compare how people perceived the relationship between the two in two different historical periods. I did not see anything in the post suggesting that the concept of money was invented in the medieval period.
The point of my post reminding the author of wooden tally sticks used in the middle ages was to challenge his view that the people of the Middle Ages did not have to think of money in terms of metalic coins, because they rarely saw them (unless you were in the upper classes of the nobility). So, maybe the upper class thought of it that way, but the general population saw money as just a token representation of debt obligations in something that had no intrinsic value except maybe as firewood.
Why is this all made so complicated and misleading? (rhetorical)
Money is nothing but an easily recognizable, easy means of transfer of value for value, be it mineral, animal, vegetable, labor or currently, fiat. Description and timing are agreed upon among the participants to any transaction. The word is indeed an intangible construct.
Who agreed to the dollar’s delinking from gold in 1971?
Nobody. Richard Nixon issued a ‘Sunday morning special’ ukase, and the rest of world woke up to learn their green-colored scrip wasn’t redeemable no more.
He only has the moves of a knight
But he wants the absolute freedom of a queen
Too bad the only money he’s got is coming in
Colored American green
You know it’s worthless paper you can spend or save
Go ahead and count it by yourself but look out
Jefferson Starship, Devil’s Den (1974)
Actually, Jim, not redeemable in bullion any more, but perenially redeemable in any good or service ever produced in the national economy of the country of issue.
And, they’ve done fine with that value, without a metal relationship, because that’s what money does.
If money is nothing but a means of transfer, then money is completely immaterial to economic analysis. It is just a veil over the real activity of exchanging commodities and so saving, debt and banks can be safely ignored by economists, which takes us right back to Say’s Law where a commodity is sold for money so that one can immediately purchase another commodity (C-M-C).
This is in opposition to Marx, who hypothesized that in a monetized economy the goal is to get one’s hands on more financial wealth by investing money to produce a commodity that one can then sell for more money (M-C-M).
It might seem like a superficial difference but the policy choices reflecting these ideas can be profoundly different. Say’s Law, for example, tells us that supply creates its own demand; therefore supply-side policies aimed at generating more commodities will stimulate transactions and increase employment. Marx, Kalecki and Keynes tell us demand creates supply which would mean to reach full employment equilibrium requires additional financial assets be issued (spent) into the peoples’ hands.
I think it goes much deeper than what is “money” into what is “value” and what is “wealth”. JLCG said above that personal values are all relative and, to a point, I agree. Although I would premise that we all have a set of shared values which might be more aptly called needs: water, food, shelter, health care/medicine, and self-defense (communally or individually). Wealth is anything tangible that contributes to fulfillment of these needs/values. Take for example food: wealth is seeds, plants, shrubs, trees, space to grow, a medium to grow in, storage/processing facilities, etc. We value the ability of that wealth to feed us. Things that are not wealth include jewelry, art, non-industrial “precious” metals and stones, everything in tourist trap stores, etc. Money, it seems, is really just something worthless (often traded as something equally as worthless like paper or fancy diamonds) that is used as a driver for people to use their labor to destroy more of the planet than they need to. It’s worthlessness is seen in how different people value even those necessary items like food. A rancher with thousands of head of cattle will value their effort to obtain/retain a single cow much less than a man whose family is starving to death. The latter will probably kill you for it. Can that value be put into a fiat currency or even a gold backed one?
Sorry if this came out a little convoluted but I run some pretty autistic tendencies and sometimes it is hard to put the pictures into words.
So to add to your contour density: I was thinking of water rights in the west. In order to transfer water rights which were purchased based on their intended use, the new user/buyer must get the approval of the state (Utah) and if the use is beneficial they will get the right to use the water. This is because water is the most precious resource. Since resources everywhere are finite, this reasoning could apply to all and every transaction involving “money”.
“effect of the inflation of the 1960s, which in turn was due to the refusal of the Johnson Administration to raise taxes to pay for the war in Vietnam, the war on poverty, and the space race. Running fiscal deficits when the economy was already at full employment was bound to end badly. ”
I’d add that the 1960’s was when consumer credit took off (due lending made much easier due to the introduction of computers/databases which made the mundane work of tracking payments, calculating payments, etc much easier/profitable)— was like adding kerosene to the conditions above.
“To the Medievals, everything has an essential meaning, and accurately discerning true meaning determines right use. To us Moderns, it is the other way around: everything has a use – effective manipulative power, based on a scientific knowledge of how things work, is the criteria of real world truth – and each person can make up whatever meanings and values they like. Indeed, to us, nothing has an essential meaning. To us, use defines value, but value itself has no essential meaning.”
The poverty of the intellect.
Money is simply an abstraction of labor-value, and as such, made it possible to raise the ability of the few to steal from the masses to dizzying heights.
Bankers took this truly evil concept, sprinkled it with their pixie dust [debt], and rendered a concoction so toxic, so incredible virulent, that would it have made the pharaohs of ancient Egypt blush.
We all assume more money is a good and that is what really powers this process. Basically it gives bankers the political power to manufacture as much as possible. Now the system is getting out of control and the main function of the economy has become to produce money.
When it blows up, there will be a window of opportunity, before society falls back into the abyss, to figure out what is going on.
Humans use metaphors to think abstractly. Sometimes the metaphors are missleading. Thinking that money must itself be of value equal in value to what it represents in units of account, confuses the value of goods with the value of its representation in thought.
Yours is the best, simplest and most concise summary of the nature of ‘money’. Added value, meaning human effort dedicated to the creation of shared necessities of life: food, shelter, social cohesion.
Money should always be a means of exchange and nothing more. As far as a revised, rational measure of value I would put my resources behind a manifold currency/money system with a heavy emphasis on energy as a measure of value. At a later time, after we adapt philosophically, the system could completely operate by using energy as value. By energy I mean ALL forms (food/biological) not just those economists are familiar with (oil, gas, nuclear, etc.). All of our problems have been rooted (and will be rooted) in the production and consumption of energy. Designing such a system and maintaining it would be an immense task but it is the only way I can see our species existing 1000 years from now. Our global culture has accepted a human’s right to consume so long as they have the capacity to consume (via currency), but our currency measures nothing but a perception, which is immaterial. So, in effect, we can consume an infinite amount, which is impossible. A money of perception is okay for the species when they have little systemic impact on the environment, but we are fast realizing that perception does not translate to environmental reality, and we are paying the price by overstretching our resources. Since an economy must deal with the material, any future monetary system cannot be tied to the metaphysical even if the mode of exchange is an abstraction.
I think everyone misses the true nature of money in general. Even in a metals based monetary system, if, no one is mining gold and silver; and adding that to the treasury, then, I can’t even make the concept of; anything inorganic, actually, generating interest work, in today’s market and world.
The reason for Bubbles and Busts, and it works better if you DO NOT have a metal based currency; as, any graph showing the boom of our economy, during this time discussed, will show, after 1971-74 when we decoupled our currency from gold.
Booms and Crashes are to expand the amount of currency in the market (Boom Bubble Whatever) the Crash is to return that money to the system, (The Banks) so they can redistribute, that expanded, amount of, money in the market, back, as interest on Savings, Investments and of course the Bankers cut for facilitating this fraud. If money cannot generate interest, then, on the backs, of the people, do bankers truly live. As in it was your good name that generated a loan that put money in the market and the guaranteed failure of at least 20% of our society has to fail to make all this work would seem motivation enough to change it. Thus my old saying to the kids of “All good deals are predicated on the tears of another mans failure” is now proven true. Also true why all systems, like ours, over time; die, as countries and the people, cannot bear the weight of a currency devaluing and inflationary monetary system.
Money can take the guise of:
1. A Promise
2. A Demand
3. An Asset
4. A Liability
5. A fetish.
When an Entity produces Demands and/or Liabilities, without producing Service or Goods in kind; the money is effectively counterfeited/fraud.
Inflation. Purchasing power debasement. Scarcity. Want.
When an Entity produces Promises and/or Assets, without producing money, growth and/or a rise in living standards effectively achieved.
Deflation. Purchasing power enhancement. Plenty. Wealth.
I was disappointed by the article. If it is about the metaphysics of money, where are the views of philosophers about money? He mentions Plato, but fails to mention that Plato, along with Aristotle, regarded money as a social convention and medium of exchange. The author is a theologian. Surely he knows his Thomas Aquinas, extremely influential medieval theologian and philosopher. Aquinas also regarded money as instrumental, as a means of buying goods and services, i.e., as a medium of exchange. IIUC, one reason that Aquinas opposed usury was that it would cause the value of money to fluctuate. That means that Aquinas did not regard the value of money as an essential quality. See https://en.wikipedia.org/wiki/Thought_of_Thomas_Aquinas#Usury .
The author also ignores the English tally sticks, as well as seigniorage, the former dating back to the 13th century, and the latter dating back to at least the year 1,000 A.D. Both of these show the fiat aspect of money. It seems to me that the author badly misrepresents medieval thought about money.
ChrisCairns : “”…austerity is bullshit, but it suits them to keep saying over and over that governments need taxes to pay for things, like welfare, health and education.””
Hitler’s propaganda chief Goebbels said that if you repeat a message , such as the one quoted above , often enough then people will eventually believe it . That meme quoted above must have been distributed by the American Progressive School of Subversive Accounting ; and they probably got it from the KGB School of Subversive Propaganda . The economy would be quickly destroyed by inflation and the government would subsequently collapse if taxes were not collected to pay for what the gov has already spent .
John Merryman : “” So the system is designed to blow up.””
Yes indeed and Thomas Jefferson among other prominent intellects warned about handing the money-creation power over to private banksters . Old man Rothschild himself admitted as much in a famous quote attributed to him . President Wilson , Charles Lindburgh , Henry Ford and others warned of this after the 1913 goyim congress sheepishly handed the government’s money-creation power over to the de facto private federal reserve banksters . Private money power of the fed reserve system has subjugated this entire nation of 330 million people by instilling fear of credible consequences for opposing that power . Our fedgov is subservient to the fed reserve private powers . The people were warned about this trap yet danced right into it anyway . Brilliant , positively brilliant . The goyim ( nonjews ) always have been , still are and perhaps may always be mystified by money . They do not seem to fully understand this manmade technology ( or did God make it ?) . The Zionist ( especially Rothschild and associates ) , on the other hand , do appear to fully understand money
and all the powers that go with creating it and having a lot of it .
one can be mystified only by something one does not understand. once you understand it becomes commonplace, the magic curtain lifted.
that is why I find the economists reactions about MMT so amusing – bankers and politicians have known very well for a hundred years how paper money works. economists seem to be figuring it out now (“govt does not need taxes!”) after a hundred years of misleading money multiplier books.
economists find MMT so shocking because they have been completely deluded by the money illusion and they still cannot believe, viscerally, what paper money really is, a legalized scam to benefit the politically powerful.
Alex Hanin : “” The problem is not money creation per se, but how we regulate banks so that their money creation becomes a public good.””
That is one problem . The most fundamental issue is with the moral / ethical problem of fractional reserve lending . It is a legalized process that is based on what was historicly a capital offense criminal scam . The question that has never been answered is — why should the fedgov sanction the provision of U.S. currency to private banks so that they can make a living ( profits ) ? Does the fedgov provide you with employment so that you can profit from it ?
When the bank lobbies got Congress to pass a law forbidding the Treasury from creating the money it needed for deficit spending (e.g. greenbacks), forcing Treasury to borrow from the banks, the banks got their cash cow in the perpetual interest it would generate, thus providing enough money to clear all debts plus interest in their loans.
But suppose we went back to greenbacks (US Treasury Notes) issued by Treasury as needed, what sort of mechanisms would be needed to replace the Fed’s open market operations to control inflation and fight deflation? Inflation could be fought by cutting spending, raising taxes, encouraging savings and buying of imports, but is there something the central bank and Treasury could do? Could it refuse to spend the money until inflation subsided? Treasury would keep an eye on the inflation meter. When inflation got above a certain percentage or quantity, it could delay spending. Could the Fed or Treasury sell securities to banks to drain their reserves? And could Treasury buy back securities with new money it creates, from banks to fight deflation? Here we would merge back into the Treasury some functions of the Fed (central bank). For MMT this would be an optimal solution in the current context.
What would be a modern analog of King Henry I’s tally sticks. That system was stable because when the taxes came back in the form tally sticks, these would be matched to the other half of the stick and the sticks destroyed when match was concerned requiring a new issue of tally sticks corresponding to money created by the King.
Could a record of each dollar or multidollar issue be kept at the Treasury (and/or Fed) and when those dollars came back in taxes, they would extinguish the recorded serial number. So far, that would be a horrendous computing task. We are dealing with trillions here. The problem is that much money is not represented in physical tokens, like the tally sticks were. It is just bookkeeping entries in spread sheets. The physical representation is just in whatever medium the representation is made, arabic numbers in paper registers, digital numbers in a computer somewhere. Keeping track of their serial numbers would be a big problem. Got to think more about this…
MtnLife : “” Wealth is anything tangible that contributes to fulfillment of these needs/values….. Money, it seems, is really just something worthless “”
Please notice the contradiction between the two assertions separated by an ellipsis in the above quote .
Does anyone ever use a dictionary anymore ?
There is only a contradiction if you equate money with wealth, but they are not the same. Wealth consists of the tangible assets you really own (debt free) in the real world. Money is purely a human construct. Think of it this way: If the monetary system collapses, the sun will still come up tomorrow, and the physical world will still be here. Somebody somewhere will own everything capable of ownership. That’s real wealth. That’s the real world. See how that’s different from modern currency? It’s easy to mix up the two when currency is stable and you can buy items of real wealth with it. But this stability can be illusory, a lesson savers in Thailand and Korea learned the hard way back in 1997.
Rosario : “” Money should always be a means of exchange …””
It cannot be stressed enough that the main value of money is as a means of exchange . Money is the most exchangeable item of wealth that you can have — more so than gold ( a totally devalued currency is not ” real ” money ). Exchangeability is the value that is stored in money . Since money is a store of value then it is an item of wealth — money is wealth so long as it is viable . The purpose of money is to use it in exchange for some other item of wealth at any opportune time . If money is not wealth ( ie. worthless , has no value ) , then why do Billions of people worldwide accept it in exchange for items of wealth — everyday for the past several thousand years ?
Perhaps it is because we unquestioningly assume that money is an amoral, abstract, artificial and purely instrumental entity that is just made up. For if money is just a number that is ‘produced’ and manipulated by reserve banks and financial specialists, then we naturally assume a bizarre sort of ‘realism’ where entirely artificial finances are seen as the legitimate repositories of right order and real power.
A good example of this ‘realism’ is the way the troika scritinizes public accounts in deficit countries. Nationalised bank debt is senior to government spending. Although both contribute to debt, only government spending is “deficit” while nationalised bank debt is just “necessary”.
If a pound of bacon had a price of 3.99 four years ago and it is now 7.58 per pound, my dollars don’t buy as much as they once did. I will have to have another 3 dollars and some change to receive the pound of bacon. It is paper and nothing else. 3 more pieces of paper gets me the bacon. The paper with the green and black ink is worthless. The paper is good, the ink is good, the value of the paper money is a laughable.
It is paper and nothing else. Always is purdy much useless unless you spend it for something that is of value to you, something you want instead of the paper.
If the money is in the form of a coin with silver content of 90 percent and has been minted by a gov, it is a whole new ball game. It has value, something worth having. Paper dollars have zero value, maybe will help you out of the grocery store and to buy gas for the ride back home, but otherwise, all it is is paper and nothing else.
Until minted coins return with silver or gold in the content, not the copper, steel and nickel, the paper you have in your wallet is worthless and useless backed by nothing except thin air. All it can do is be exchanged for something useful and has worth.
At the moment, nothing can change it so you have to have what is used as money. All you have to do is just have more all of the time. You have to if you want to eat. It is stupid to have more money in your account than what is needed for daily expenses.
You accumulate minted coin with gold and silver content to save money. Your savings remain at home in a safe place, not the bank where it can be confiscated at any time. There is really no other way, inflation kills your paper money. It is useless to save money in a bank in hopes of it growing, it doesn’t.
Yves, I really like this piece. That this is a metaphysical matter open to interpretation, I think, is what makes some MMT advocates so frustrated by dissenting views. There is no right answer. These are matters of personal preference.
If one person wishes to define money solely as currency (as the means of exchange) and another wishes to define money as having two components (means of exchange and means of storage) neither person is wrong(!).
It’s a game of semantics. For me, what turns me off of the policy advocacy of MMT reasoning (JG, platinum coins, net deficit spending, etc.) is that it tries to tie together transactional usage of currency and storage value (ie, wealth) through the buffer stock price anchor reasoning that is based neither in historical nor logical reasoning.
I think we should completely separate wealth from currency. The notion that monetary policy can provide price stability I find hilarious. Every buffer stock we have tried has failed, from gold to silver to copper to unemployment. Stability is a political matter. What matters is who gets the currency units put into circulation and who gives up the currency units taken out of circulation.
What matters is whether “money” is spent on warfare or the public commons, on ensuring rule of law or undermining it.
please have a read of Soddy’s “”Wealth, Virtual Wealth and Debt”” for a scientific approach to these matters.
Then flesh it out with Neo-Austrian – Neoclassical – ABM Modelling – Le Play – Evolutionary [thinly veiled Lamarckism] et al.
skippy…. BTW your use of the phrase “for a scientific approach to these matters.” it should be observed as limited by consensus, invoking the term – scientific approach – does not grant empiric validity and could be viewed as deceptive imo.
Do not understand why you are on this plane.
If a guy who won a Nobel as a nuclear-chemistry scientist and later started the concept of “social sciences” as well as the study of Ecological Economics does not satisfy skippy’s definition of a scientific approach to this subject, then have a visit to modern-day Economic Sociology professor Dr. Joseph Huber’s presentations at sovereignmoney.eu, – as recently aired to great acclaim at the Real World Economic Review.
I do not take money science as lightly as you infer with these potshots, and ask what money science exists to back the MMT construct?
Your witty insightful missive will follow.
And I used to look forward to them.
Its not about – MY – definition of what the term “scientific approach” means, “consensus” – IS – the definition, so your appeals to authors that conform to your personal biases, is not, compelling in my observation. Which is further acerbated by your personalized projections, an unfortunate norm amongst your stripe imo.
My inclusion of “Neo-Austrian – Neoclassical – ABM Modelling – Le Play – Evolutionary [thinly veiled Lamarckism] et al” is not a pot shot, but, an unpacking of the synergies a work wrt your ideological – metaphysical school of thought.
“as recently aired to great acclaim at the Real World Economic Review.” – JuneTown
Quire, whats up with the constant deployment of the word – identifier “Real” and your mob, real money, real world, real people, real metaphysics, real science, etc. That and the emotive “aired to great acclaim” shtick, that kind of mental dry humping always sets off the incoming Deontological proximity warning bells in my head.
In MMT money is not, as the classic account in Carl Menger goes, simply the most salable commodity, but rather a symbol that has value because the state requires us to pay taxes in it. I would also point out that B.Acy. or B.Acc. or B. Accty.. are not science degrees, although it is also sometimes titled Bachelor of Accounting Science (B.Acc.Sci.) or “Baccalaureus Computationis.
Skippy… JuneTown there should be no surprise on my position in these matters, after all these years on NC. As I am vehemently anti Austrian or any neo concoction, classical blending that might be offered.
I cited a very important book for those unclear about the roles of money and debt in the distribution of wealth, an understanding obviously lacking on these pages, a book by a Nobel-prize winning author/scientist, and you throw platitudes full of Austrian linkages that have zero relevance to anything I, or Soddy, or ANYONE I ever link to or mention.
As to the modern money system, a contrast between Soddy’s view and that of MMT is long overdue, but you rather denigrate this science with little but these irrelevant and misplaced Menger-Austrian references.
It’s your failing to not understand monetary reform, and resort to cranky-ness rather than discourse.
For instance, Soddy very clearly applied scientific rigor to both economics and money and concluded, this FRB is not a money “system” as in science, but a ‘confidence trick’, as in a con by which a private monopoly issues ‘credits’ that serves as national money, and collect compound interest in perpetuity,
That’s the system we have, and which MMT prefers we keep.
“In MMT money is …….. a symbol that has value because the state requires us to pay taxes in it”.
I’m fully aware of that ‘taxes drive money’ meme it being without foundation…..because Randy Wray loved Minsky’s quote about ‘getting people to use ‘money.
In reality, two things drive money…..the state’s sovereign right of issuance, and the fact that we can pay our Bills with it, and its not state issued money that we use to pay our Bills, but bank-credit money, and that includes for paying our taxes.
Glad to see you venture from witty-missives to public policy.
Wish you had something more intelligent to observe than parroting MMT errors.
I asked above, what of post-Keynesian Lavoie’s friendly criticism of MMT….is any of that valid or relevant?
And what of Dr. Joseph Huber’s analysis of MMT as simply bankers school accounting?
Your many years of commentary are much appreciated.
I’ll get back to ‘real’, later.
Got a nasty alert on that link, something about unsecure site.
skippy… more crapification….
Pleased that you tried.
It just worked for me, and I hope, others.
Perhaps your browser security disenables.
I sent your note to Dr. Huber for a check.
And the PAER link below is to the same paper.
Crapification……..sorry, sounds like another of those ‘eye of the beholder’ ailments.
On the REALity of money things in a modern monetary economy, esp. as relates between MMT and reforms.
First level…real people and the real economy….being the acknowledged difference between the Main Street and Wall Street economies, for which this site has more than adequately complained that the “bailout-cum-stimulus” was singular in saving Wall Street and the banking system. Thus, the discussion of ‘money’ must involve the substantive process of ‘real’ Main Street economic betterment for the ‘real’ people, who I think needs no more clarification than average working class people, not the investor class, and the part of the economy where those real people live, work and spend.
We should be discussing whether saving the fractional reserve banking system, a throwback to the gold standard (most oft ill-connected to reforming the money system). has any value whatsoever, a position markedly consistent with Minsky’s view later in his career, in calling for a National Monetary Commission for the 21st century……. an important factor most ignored by MMT’s selective pro-Minkyan posture.
In closing out the ‘real’ economy issue, if it is an economic action that affect real people, like the JG of MMT or deficit spending under post-Keynesianism, then it is real-economy.
If you’re discussing bank reserves, it’s not part of the real economy, because interbank media NEVER enter the “P” of the national GDP.
If it remains in that “fog around the money”, such as Mosler’s fave “net financial assets”, then it is not an important money-related public policy matter.
That’s more financialist fodder.
I cannot defend the “real” tag of “Real World Economics Review”
It is the journal of the World Economics Association.
They certainly post articles by our most noted economists, and the paper posted by Dr. Huber had a healthy round of discussion.
Where is MMT’s response to that paper?
Finally, there is the issue of “real money”, as compared to our present….PRIVATEly-issued, debt-contract (financial-asset) based system that commands PERPETUAL interest cost from our national economy to those bank-credit issuing ‘financialistas mentioned earlier. This is the system that MMT defends.
Real money is that which is constituted in a national medium of exchange that is spent directly into the economy (as equity) by the government of issue with permanent purchasing power that requires zero interest(money-cost) to be maintained in operation forever.
Thus, a national-issue, permanent, debt-free money system, as also proposed by Congr. Dennis Kucinich in the 112th Congress, is a ‘real-money’ system.
Again 400 active economists publicly supported that Fisher paper.
It is such a system of money, quantity-determined by a transparent public monetary authority, issued into circulation via government spending……ironically what MMT claims happens NOW….. that would electronically mimic the Greenbacks of Republican Lincoln Congressional issue, that is a ‘real-money’ system.
Thanks for the question.
And if you care to discuss money science, let’s.
No, I actually got an unsecured web site firefox warning, which I c-p to verify, WP filters or something found it disagreeable* [* statement of fact, not a whinge].
As far as AET anything goes, its completely untrustworthy, something that has been unpacked endlessly on this blog and others.
As Far as Dr. Huber’s ecological modernization theory is concerned, it has been criticized and I am in agreement that all it amounts to is green washing via leaving it to business self-regulation practices (York and Rosa, 2003) . Which is evident in his opinions on Monetary issues e.g. fixating on the object and not the agency which created the problem in the first place i.e. free market deregulation.
Skippy… anything AET or Neoclassical [synergy] is wrong footed from the foundations [look around]. WRT Post Keynesianism I would state that its better than the other options available, more conducive as a transition mechanism, in preparing for the challenges the future has in store. More or tweaked of what got us here is not going to cut it.
My own concerns with the national debt, led me to consider how it is currently being retired. Although it is true that Treasury and banks collude by the Treasury issuing new securities in swaps for mature securities with the banks (a roll-over), the Fed can also retire debt of the government to banks when the Fed buys the securities representing that debt from the banks with money created out of thin air. The effect of that is that the debt of the government to the banks is redeemed by the Fed’s action (as an “independent” agency of the govt) because banks get the money back plus interest when paid full face value for the securities by the Fed, and they no longer have the securities. That cuts off perpetual interest too. But perhaps not recognized is that the original money obtained from the banks by the Treasury for deficit spending now is debt-free. It is as if the Treasury just issued the dollars debt free in the first place. The money received by the banks from the Fed replaces the money in their reserves that they gave up for the loan to the govt. So, they are essentially back to the way they were before. By the fungibility of money the deficit spending money is also new money. The banking system also now has more money than before when the deficit spending money is immediately spent into the economy and the banks get their reserves restored by the Fed.
The Fed will also swap mature securities it has for new ones from the Treasury. At that point I think the original mature securities are extinguished at Treasury (does anyone know?) (This is like King Henry I’s burning the tally sticks when they came back in taxes and matched). So, our current system is equivalent to one in which the Treasury created the money. Only in our current system banks get interest they didn’t get in Lincoln’s Treasury. Is this the price we get for a fiat money system supported by the banking community?
washunate : “” I think we should completely separate wealth from currency.””
If you ever discover an item of wealth that is honestly worthless and has no value then please let us know about it . Until then , money ( currency ) must necessarily be an item of wealth
; or 2 plus 2 does not equal 4 .
Have you ever wondered why so many Billions of people worldwide for thousands of years work all day long just to acquire a handfull of ” worthless ” money ? Maybe that is why there is so much poverty in the world .
Have you ever wondered why the people who work directly with the most money ( ie. worthless currency ) also happen to be the wealthiest ( Rothschild , not Bill Gates according to MSM propaganda ) ?
It may break your heart to see the destruction of the mystique of money ( it does not metamorphise and disappear into other items of wealth — you must exchange it for other kinds of wealth ) , but once you realize that money is an item of wealth ( contrary propaganda and other incoherencies not withstanding ) then you will begin to see it for the valuable technology that it is and think accordingly .
Do you really believe that all the mercenaries in the world kill and risk being killed for ” worthless ” money ?
Do you really believe that all the religious houses in the world fund God’s works with ” worthless ” money ?
masterslave: No, money is not an item of wealth. Wealth is what exists in the real world. Money is what exists as the digital units on your bank statement. Think of it this way: Imagine two parallel planes, one at ground level and one floating in the air above it. The bottom one is the real world, the tangible world, the world of food, cement, water, gold, cars, buildings, copper, boats, dirt and airplanes. The floating one is the monetary world we have created after we severed all fiat currencies from gold. Everything in the monetary world is just a claim on something in the physical world. It all works as long as you can exchange units in the monetary world for things in the real world. But what happens if the aggregate of the claims in the monetary world vastly exceed the available stuff in the physical world based on values presently assigned? I do not know the answer to that question, but I fear that the entire system is not as stable as it may appear at first glance.
@masterslave It may break your heart to see the destruction of the mystique of money ( it does not metamorphise and disappear into other items of wealth — you must exchange it for other kinds of wealth )
When the bank charges you a $10 fee, removed directly from your account, where do you think the $10 goes, where is it held, and what does it look like?
Humans are unstable ergo our concoctions are too~
I was surprised and delighted to find my little piece up on naked capitalism. Many thanks for running this through this hard headed financial mill. Over all I’d say plenty of chaff has come out of my piece, so I am grateful to one and all for the many interesting comments I have read here. Even so, I think the manner in which the instrumental constructivist logic of our modern age is unaware that this outlook is a metaphysical stance (a distinctive interpretive take on the nature of reality) is also well born out in most comments.
Bobbo : “” Wealth is what exists in the real world.””
Does that insinuate that money does not exist in the real world — that money is not real ?
“” Money is what exists as the digital units on your bank statement.”” Wrong . It is only a representation of the amount of your money in the account .
“” Everything in the monetary world is just a claim on something in the physical world.”” Wrong again . Money is not a claim on anything but rather it makes the claim that it has an exchangeability value that is equal to the worth of the item of wealth that you are willing to exchange it for .
“” It all works as long as you can exchange units in the monetary world for things in the real world.”” Bingo !
“”… I fear that the entire system is not as stable as it may appear at first glance.”” Bingo again ! The big banks were bailed out to the tune of trillions of dollars because of presumed stability uncertaincies if they were not bailed out .
One reason that God said in the Old Testament ( can’t remember the verse but it is well known to many other bible scholars ) that jews shall have goyim as slaves # forever # is because jews understand money technology much better than goyim ( nonjews ).
skippy : “” Humans are unstable ergo our concoctions are too~””
Should not be surprising since the whole entire universe is unstable … unless you believe that the explosive creation of galaxies are examples of stability .
The difference between the Universe and our Species – is – the former does not engage in romanticism.
Cal, as you may have heard, the money sovereign isn’t like a household.
That is an IMHO often-misleading slogan of MMT, not really a part of the theory, and is mainly useful at an introductory stage. For the heart of MMT is Mitchell-Innes – who says that the sovereign is exactly like a household. That money is credit/debt – a purely immaterial relationship and nothing else, and that bank money and state money are exactly the same not-“thing” fundamentally. A moral obligation, a moral relationship between 2 persons, differing only by who the issuer is, a bank or the state. The difference between state money and bank money is merely behavioral, empirical, not abstract, conceptual, based on unusual accounting.
Any of us can create our own financial liabilities; the sovereign can create its own assets by its very stamp and seal. No it can’t. Nobody can really do this. The closest thing would be the state creating taxes-due letters – which would be state assets, private liabilities. Money – coins, bonds, bills, notes – all of which differ only very, very trivially are all financial liabilities, promises of the state, not assets.
. But in the former case, the asset is based on USG’s promise to add, over future time, $100 plus interest to the commercial bank account you’ve associated with the bill. No, it is not. The asset is based on the future acceptability of bonds to pay taxes, for one debt to cancel another debt going the other way, exactly as with coins or dollar bills. Banks need not be involved. Bonds are not liabilities for dollars (as Dan Kervick says), but liabilities just like dollars, really just dollar bills with dates in the future printed on them.
As government is obliged to honor these tokens at tax time, is that not its liability? No, that is its obligation These words “liability” “obligation” “debt” etc are entirely synonymous here – and usually. You are drawing a non-existent distinction, one that exists only in bad theories, not in human behavior and cognition. It is very important to not draw it. Why not see what happens if you don’t?
So if you please, Cal, what multiple of a T-Bill do you consider to be USG’s liability? I do not understand at all how you are using the word “multiple” here or this last paragraph. Again, T-bills, bonds, coins, FR notes etc are all the same thing. Everybody used to understand this. “Government credit and government currency are one and the same thing” (FDR, 1933) ; “Government securities are quasi-money” (Seymour Harris, Prof at Harvard, member of 1st CEA IIRC, 1947)
What I find odd is how you so clearly and accurately reply below to masterslave – “When the bank charges you a $10 fee, removed directly from your account, where do you think the $10 goes, where is it held, and what does it look like?” But you argue against the point of MMT which is that everything works exactly like that.
In other words as you said here: “Moreover, a sovereign coin is an asset to whoever lawfully possesses it, government or nongovernment. It is never a liability because it represents nobody’s promise to pay, but rather that wherewith said promise is satisfied. The point of MMT is that “sovereign coins” are indeed liabilities, never assets, of the state/debtor, and only assets of private holders/creditors. As above, a coin does represent a promise to pay. One of the most important & least understood points of MMT is that there is NO “that wherewith said promise is satisfied”. There is no thing, no “that”, that financial liabilities/debts are “liabilities for”. There are only cancellations of oppositely directed, purely immaterial liabilities from and to. As Mitchell-Innes put it – “There is no medium of exchange”; Geoffrey Gardiner, in his invaluable article in the Mitchell-Innes volume, stresses and explains this point’s importance.