Great Leap Forward

A New Meme For Money: the EEA presentation

Hi, I’ll make a presentation tomorrow; here’s a sneak peek. Pavlina Tcherneva has organized back-to-back presentations for the morning; the first is on fiscal policy and the second is on monetary policy. Here are the line-ups:

SESSION 1: Park 5; Saturday, May 11, 9:30-10:50 Fiscal Policy after the Crisis
Session Organizer & Chair: Pavlina R. Tcherneva, Bard College and L. Randall Wray, University of Missouri-Kansas City 1. A Meme for Money and the future of entitlements, L. Randall Wray, University of Missouri – Kansas City 2. Austerity: Will the U.S. Embrace Euro ‘Misery’?, Marshall Auerback, Institute for New Economic Thinking 3. Towards Full Employment: Rethinking the Countercyclical Stabilizers, Pavlina R. Tcherneva, Bard College 4. Growth accounting, income distribution and fiscal policy, Olivier Giovannoni, Bard College Discussant: Fatma Abdel-Raouf,Goldey-Beacom College
SESSION 2: Park 5; Saturday, May 11, 11:00-12:20 Monetary Policy after the Crisis
Session Organizer & Chair: Pavlina R. Tcherneva, Bard College and L. Randall Wray, University of Missouri-Kansas City 1. “Introduction: A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis” L. Randall Wray,University of Missouri-Kansas City 2. Monetary Policy Implementation in the Shadow Banking Era: The Transmission Mechanism and Lender of Last Resort after the Global Financial Crisis”, James A. Felkerson,University of Missouri-Kansas City 3. The New Monetary Consensus after the crisis, Yeva Nersisyan, Franklin and Marshall College, 4. Lender of Last Resort Intervention Structured through the Democratic Process, Nicola Matthews,University of Missouri-Kansas City Discussion amongst participants

Anyway, here’s my presentation for the first one.

Eastern Economics Association Presentation 11 May 2013: A New Meme for Money

I studied with Hyman Minsky in the early 1980s when he was writing his 1986 book. There are two phrases in that book that I remember him saying in class:

“Anyone can create money, the problem lies in getting it accepted”

“The need to pay taxes means that people work and produce in order to get that in which taxes can be paid”.

Most of my work on money for the first decade after my Dissertation concerned the first statement—I was one of those who developed the Endogenous Money approach most closely associated with Post Keynesians however it also drew heavily on the Franco-Italian circuit approach.

So that is all about the private money system; government enters through its Central Bank as the provider of bank reserves. My first book, “Money and Credit in Capitalist Economies” went through all of that in 1990, and I’ve continued work in that area as I examined the causes of the Thrift Crisis and later the collapse of what Minsky called Money Manager Capitalism in 2007.

However, I never forgot the other point he made: we work hard to get the government’s money because we have to pay taxes. That led me to Keynes of the Treatise and to Knapp when I was writing my dissertation with Kregel in Bologna in 1986.

I included a section on Chartalism or the State Money Approach in the 1990 book but it was very brief since I was focusing on the role of money in the private sector. So in the mid-1990s I returned to the role of the state, and discovered what I believe to be the best two articles ever written on money, by A. Mitchell Innes in 1913 and 1914. Keynes reviewed the first one and aside from some quibbles he declared it to be correct.

What struck me is that Innes was able to integrate both a State Money approach and a Credit Money approach. To understand our money, what Keynes called Modern Money, you must have both. Otherwise, to borrow a metaphor, you’ve got Hamlet without the Prince.

A group of us first at Levy and then at UMKC, but also including especially Warren Mosler and Bill Mitchell and Charles Goodhart dug deeper into this and gradually developed what is now called MMT.

Many think we claim to have invented some stand-alone entirely new approach to money.

That is false. We stand on the shoulders of giants (the third phrase I recall from Minsky)—there is no new theory in Modern Money Theory; the theory is an integration, one that integrates those two phrases from Minsky.

What is somewhat novel is updating of the description of the way the modern monetary system works in a country that issues its own currency. While I’m sure there were economists in both the Fed and the Treasury who understood all the operational details, these were not understood in academia or policy circles. They mostly still are not.

In any case, I first tried to lay out MMT in my 1998 book, Understanding Modern Money, and tried again in my most recent primer, Modern Money Theory.

I sent the manuscript of the first book to Robert Heilbroner to see if he would write a blurb. He called me on the phone—I have no idea how he got my home phone. In his soothing voice he told me he could not write the blurb, and that money is the scariest topic there is. My book would scare the hell out of readers.

And here we are a decade and a half later. In the past 2-3 years MMT has taken off, indeed, it has taken on a life of its own in the blogosphere. It is loved by many and hated by more. And as Heilbroner warned, it scares the hell out of even more.

That is why I’m shifting gears. I don’t think I can say anything more about MMT. It is as correct as a theory can be, and as good a description as we can have about real world monetary operations.

Where we continue to fail is in our explanation. We have to stop scaring people. I’ve become ever more convinced that George Lakoff is correct. The problem is not with the theory–it is with the framing. The reaction against MMT is largely moral.

That is not a back-handed slap at critics. Everything you understand is through framing, as Lakoff argues. You cannot understand without metaphors—you cannot think without stories.

Let me give you an example. Outside of the crazies, everyone knows the US government cannot run out of money. From Greenspan to Bernanke they all understand there is zero risk of involuntary default by the sovereign issuer of a currency.

And so the way that an MMTer approaches the current deficit hysteria is by pointing out that as the Federal government spends through keystrokes that credit bank accounts it can afford anything for sale in dollars.

The reaction typically goes through four stages:

1. Incredulity: That’s Crazy!

2. Fear: Zimbabwe! Weimar!

3. Moral Indignation: You’d destroy our economy!

4. Anger: You’re a Dirty Pinko Commie Fascist!

And those are my Post Keynesian friends.

Rather than winning the debate about unsustainability of debt and deficits, MMT loses the argument. How can that be? Because it’s immoral for the government to spend through the stroke of a key.

It makes no difference how accurately MMT explains the monetary operations that allow government to spend—operations that begin with budgeting by Congress, and then that involve complex procedures adopted by the Treasury, the Fed, and special private banks to ensure the Treasury has sufficient deposits in its account at the Fed so that finally some firm or household gets a credit to its bank account.

MMT will lose the argument by precisely presenting the facts. Because one can see facts only through framing.

My paper is exploring alternative framing. (here: We cannot adopt the conservative, textbook framing that automatically invokes a particular market metaphor, one based on “fair exchange”. From that vantage point, there’s nothing fair about government getting something for nothing—for mere keystrokes.

Instincts prefer the “taxes pay for things” metaphor: I paid into the Social Security Trust Fund, so now I get to draw down my balance in Social Security’s lockboxes during my retirement. It makes no difference that this description is completely wrong no matter what angle of approach you take. It trumps.

And so we get self-identified progressives fighting tooth and nail against payroll tax holidays even though they completely understand the tax is regressive and that maintaining the myth means tax rates must be raised to become ever more regressive in the future which makes money’s worth calculations ever worse. Progressives prefer to destroy the program over abandoning the moral myth.

We need a new meme for money.

The meme cannot begin from markets, from free exchange, from individual choice. We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.

Government spends currency in the public interest. It promises to accept its currency in payment. The tax system stands behind our currency, and we pay taxes to keep our currency strong. Good budgeting with transparency and accountability of elected officials ensures government doesn’t spend too much.

While there is a danger that private spending could threaten price stability, our government has a range of policy instruments at its disposal to hold inflation at bay. If necessary, it can increase taxes or take other measures to cool private spending; and it can reduce its own spending as required to eliminate excess demand.

Government spending provides the currency and US bonds that we accumulate as wealth. Possession of government’s money makes us stakeholders in this great nation. The payments we receive from Social Security and other income support programs give us access to our nation’s production.

We deserve this access not because we pay taxes, but because we’re all in this together. We take care of our own. Government helps us take care of our own through its social spending—for retirement, for medical care, for food stamps, and for support of poor families.

We take care of our own.

Government cannot run out of money; it can always financially afford to take care of our own. Anything that is technologically feasible is financially affordable. It comes down to technology, resources, and political will. We’ve got the technology and the resources. We need the right meme to align the politics.

The monetary system is a wonderful creation. It allows for individual choice while giving government access to resources needed to allow it work for us to achieve a just society. The monetary system spurs entrepreneurial initiative. It finances, organizes, and distributes much of the nation’s output. It is one of the primary mechanisms used by government to accomplish the public purpose.

We need to use the monetary system to pursue the public purpose, so that we all have some success at pursuing our own individual private purposes. Together we can use money to take care of each other.

Bruce Springsteen knows something about framing:

We take care of our own

Wherever this flag’s flown

We take care of our own

When I say we should take care of our own I do not mean that in a jingoist way. Sovereign currencies are national. Rich nations have the capacity to reach beyond their borders—to take care of others. Poor nations might not be able to do that. But if they’ve got a sovereign currency they can use their monetary system to take care of their own, to the best of their ability. A rich nation, and especially a nation like the US that issues an international reserve currency, must do more than that.



57 Responses to “A New Meme For Money: the EEA presentation”

Peter ShawMay 10th, 2013 at 8:57 pm

Money is (or is perceived) as many things, so a single meme is a big ask. Perhaps the problem can be progressively reduced by reframing whole classes of money; towards which I offer the following as stimulus:

The growing National Debt:
We, the taxpayers, increasingly owe it to ourselves to provide each other with the goods and services we need.

Social Security etc:
The young and fit of the community easily can and do provide the present needs of the old and infirm, as we have done time out of mind; only the means have changed.

senexxMay 11th, 2013 at 12:43 am

Ironic really, since the absence of framing and getting emotional about things is exactly what sold me on Modern Monetary Theory.

Kelly BrotherMay 11th, 2013 at 5:26 am

Excellent. You're right on track with the Lakoff framing analysis. Too bad the truth itself cannot do the heavy lifting. Taking care of our own is a good place to begin and end. Keep up the great work. Some are paying attention; more will come. Thanks.

SchofieldMay 11th, 2013 at 1:43 pm

Yep! Got to love the eusociality framing ( "nesting" as sociobiologist E-O. Wilson says in his book "The Social Conquest of Earth" ) of "we take care of our own." Following the Capital One TV ad it becomes "We take care of our own. What's in your vocabulary?"

PZMay 11th, 2013 at 8:39 pm

Can developing countries use developing aid in domestic expenditures? If they receive money in foreign currency and have domestic expenditures in domestic currency, they have to go to the FX markets to sell foreign currency in order to purchase domestic currency. This just pushes value of their currency up and funds some imports. Is the only effect of development aid to fund some imports to developing countries?

HenryMay 12th, 2013 at 5:58 am

"We take care of our own." Yes, in principle. But in reality the system, given the enormous power it comprises, is subject to abuse. Since Clinton and Co. deregulated, we are back to pre-Depression days and the banking system has become criminalized–at least in the hands of the dozen or so "too big to fail" banks. We are very far from "taking care of our own." Neoliberal thinking rules the day. I think part of the "frame" must comprise a clear understanding that every human system demands adequate regulation and supervision. There is no such thing as "failproof" in human affairs. Everything is liable to corruption.
Also in all realism, the notion that taxes are there to curb inflation is logical but not factual. Taxes are there to serve political ends regarding distribution of wealth. It should be clear that taxes for the simple purpose of ensuring legal tender could easily be dispensed with at the federal level and simply charged at the state and local levels, where they do in fact need to tax. Taxes at the federal level should be there above all to eliminate rentier incomes that ruin the equilibrium and security of the society. In cases of threatening inflation, there are more agile ways of removing the threat: stop government spending contracts; interest rates, and more. Also, although this takes us out of the realm of fiscal policy, we have a desperate need to control corporate activity: international laundering of funds; international tax evasion; labor arbitrage under the auspices of "free trade", ecological suicide, and much, much more. We also need to take the money out of the election process, and above all the whole lobbying system in our "lobbocracy" must be re-examined and controlled. We have a "bought and paid for" government, and we have criminals like the banks and the likes of the Koch brothers controlling far too much of the national destiny. The government-corporate sector has become literally sociopathic, and this is a contagion that necessarily spreads into the entire population. It does not augur well for our future. Years ago, Brzezinski wrote this chilling and all too accurate words, spelling out a devouring evil materializing before our very eyes and is not being curbed:

"The nation state as a fundamental unit of man's organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state."

Brzezinski, Zbigniew, Between Two Ages: America’s Role in the Technetronic Era (New York: Viking Press, 1973), p. 246.

RobbertMay 12th, 2013 at 11:59 am

Hello Randall,

I am a student at RSIS (Singapore) and following a course about Futures Studies right now. I was wondering whether you are already aware of Causal Layered Analysis, discussed by Sohail Inayatullah. As you are exploring to change the meme regarding money, I think his brief articles (i.e. "Six Pillars: Futures Thinking for Transforming") may provide interesting insights to expand your analytical framework.

I hope this may help,

With kind regards

L. Randall Wray L. Randall WrayMay 13th, 2013 at 12:49 am

Brother: thx. Truth is moral, too, tho. Yes, progressives always win, in the end. I think Colbert said something like that: unfortunately for the reactionaries, the real world is progressive.

L. Randall Wray L. Randall WrayMay 13th, 2013 at 12:55 am

Yes there is massive corruption, now. OWS. Take back our state. But Uncle Sam is still by far the biggest economic entity in the world. Tell Zbig. But we definitely need a whole new class of better policy makers. We deserve better leaders than the sorry lot we’ve got.

Erik JochemMay 13th, 2013 at 11:05 am

I'd argue that the source for moral indignation about money creation by key strokes flows out of the erroneous notion of deficits run by the government. Nobody ever will convince "me as a layman" that deficits – a term coined to indicate something fundamentally wrong – are positive in any way. A "positive" deficit is a contradiction in terms (the “priming” by the term deficit is too strong) and as such disqualifies all arguments in favor of a deficit. The same goes for any attempt to positively frame a deficit. "Me as a layman" will state that you try to hide the ugly truth of the deficit behind nice sounding terminology (You positively try to frame me.)

Erik JochemMay 13th, 2013 at 11:06 am

In my view the central point for framing MMT is to tell the story why there are no deficits in the first place. The most obvious frame-story here seems to be the public swimming pool where people are free to fill their private bucket at. If the government wants to refill the swimming pool anew (plan a new budget) it is not restricted physically in doing so by the amount of water that will still be in the pool at the moment when it is finally drained. No connection there at all. Of course we could introduce a water budget law stating that no more water must be filled in at the beginning of the new bathing season than probably will be drained at the end of season. In order to prevent an ever falling water level the first thing a government would do under such a regime was to restrict the right of the public to fill its private water buckets. The government would do its best to keep the amount of water to be finally drained at a maximum. "Water" generally seems to be a good frame for money-issues. The government keeps the economy afloat and provides even for the possibility of private water reservoirs.

EnlightenedMay 13th, 2013 at 5:59 pm

Professor, I am taken aback by what I have just read. For many years now I have been working my tail off to understand the intricacies of our economic and financial systems to understand why and how things got to be the way they are. It was a long, strange trip as I am a biochemist by studies and by trade. In the end, I was left perplexed by the disparities between different academic schools of thought, and between society's fundamental misunderstanding of how the monetary and fiscal systems operate. Sometimes it is so far off basis we never even ask the correct questions, or have conversation of any relevance. Change is wanted, but few truly understand what it is they think they want to change.

AndyMay 13th, 2013 at 6:29 pm

Me too. I think I 'm pretty average but there is definitely a barrier there when trying to convince people even though they know that I know they they know that they don't understand money and they would like to. The closest I can get to it is two-fold. 1) It can't be as simple as that and 2) Those in authority would understand this if it were true.
Whaddaya do ?

L. Randall Wray L. Randall WrayMay 13th, 2013 at 6:55 pm

Erik Layman: Well that was pretty much my point. Using the term “deficit” implies “deficient”, so DON’T USE IT. Call it what it is: government’s contribution to private sector net financial assets. That is accurate and without the conservative framing.

L. Randall Wray L. Randall WrayMay 13th, 2013 at 6:59 pm

Erik: If you look at my Modern Money Primer book you will see the “water” and bathtub analogy spelled out in detail. You are on the right track but stocks and flows are not clear in your explanation. when govt spending is greater than taxes it fills the tub. A flow. Water in the tub is the private sector’s accumulation of assets. Stock. When govt spending is smaller than taxes, that is like the bucket taking water out. So you’re on right track but seem to have it back-aswards?

Erik JochemMay 13th, 2013 at 7:55 pm

sorry for being unconcicse (got your mmt Primer at hame 500 km from here, that's why
;-), For the rest I'm just trying a little brain storming. The buckets in my example symbolize financial net saving desires of the individuals. They take money out of circulation. Governement spending thus feeds the money in circulation (in the pool) plus private net saving desires. The less government spending exceeds taxation the less the stock of money being in circulation at a certain point in time will be if private saving desires stay the same.

In fact my main point here is that there's a great emotional power in comparing money to water. In Europe right now we have a discussion about the danger of privatising water. Isn't money also a public ressource that shouldn't be privatised ? And isn't the Euro regime just that : separating the public from free money (water) supply ? How can we accept money privatisation if we don't accept water privatisation ? Money is the public ressource number 1.

EnlightenedMay 13th, 2013 at 8:46 pm

I notice that most of my post was deleted. Is this due to it being too long or saying something incorrect? Not that I am offended, I just want to make sure I am not off base.

L. Randall Wray L. Randall WrayMay 13th, 2013 at 8:46 pm

OK Erik–next time don’t leave home without the Primer!

I see what you are trying to say. Budget “deficits” (using the awful word) necessarily equal net saving flows (into the nongovt sector), accumulated as a “pool” of water (well, I mean monopoly currency, including cash, reserves, or bonds). You can’t really take the water out of the pool (metaphorically). Only if govt then runs a surplus does the pool get smaller–you send the monopoly currency back to govt to pay taxes. So that is the only place it goes–back to govt to be destroyed.

I’m against privatizing the monopoly right to issue currency. Anyone however can create money–as Minsky said. But not currency (unless you illegally print it).

L. Randall Wray L. Randall WrayMay 13th, 2013 at 10:18 pm

enlighten: no idea. some very long posts get through so either it was a glitch or maybe you sent 2 versions?

TrueStoryMay 14th, 2013 at 10:02 am

Words evoke feelings.

Economists used existing words to describe newly minted ideas.

Those ideas were socially weaker than the immense gravity of the words used. This problem not only pervades society, and people, and politics, but economists themselves. Many economists have trouble balancing being human, the entirety of economics, and the weight of discourse. Such that most economists end up getting confused by non-economics.

So yes, we need a new meme. We need a new discourse. The first thing we can do is stop saying "budget deficit" and "budget surplus". Call them "investment expansion" (or "investment growth") and "investment contraction".

Right now macroeconomists at leading universities still think that a federal surplus equals some magic function called "government investment" and is economically the desired steady state.

G>T is called a deficit.
But (G-T)>0 is a positive number. That's a surplus to me. It's already in the equation. We can start by flipping the terms. But using new words for surplus so we don't have to fight the wave of kneejerk reactions and social tides.

nmmaierMay 14th, 2013 at 8:09 pm

Dr. Wray:_
Your attempt to change the meme with your narrative will be unsuccessful because your ideas are discordant with the expectations of regular Americans, to say nothing of being completely out-of-step with the founding principles in our constitution.

Let me comment on your narrative to make my point:
“Government spends currency in the public interest. It promises to accept its currency in payment. The tax system stands behind our currency, and we pay taxes to keep our currency strong. Good budgeting with transparency and accountability of elected officials ensures government doesn’t spend too much.”
Most Americans do not believe that the tax system is fair and that we pay our taxes to keep our currency strong. This is silly. Most Americans believe the tax system is rigged to favor special interests and special industries. We don’t like having our labor taxed. There is no transparency or accountability in the Federal Government. The Federal Reserve is not audited, our gold reserves are not audited, and there are dozens of off- balance sheet liabilities that are not disclosed.

nmmaierMay 14th, 2013 at 8:12 pm

You say – “Government spending provides the currency and US bonds that we accumulate as wealth. Possession of government’s money makes us stakeholders in this great nation. The payments we receive from Social Security and other income support programs give us access to our nation’s production.”

But Real Wealth is not stored in US bonds or in a currency whose value is subject to change dramatically based upon the amount of currency the Federal Reserve pumps into the system. Real Wealth is stored in productive capacity i.e. Those companies that have the intellectual property and capital resources to make useful products.

nmmaierMay 14th, 2013 at 8:13 pm

You say, “We deserve this access not because we pay taxes, but because we’re all in this together. We take care of our own. Government helps us take care of our own through its social spending—for retirement, for medical care, for food stamps, and for support of poor families.
We take care of our own.”

But the founding principles are clear. This country is about individual liberty, not a collectivist vision. Progressives have been trying since Abraham Lincoln to foist the Federal Government on us as our collective savior. Americans want to be left alone to pursue their own happiness.

nmmaierMay 14th, 2013 at 8:13 pm

You say – “Government cannot run out of money; it can always financially afford to take care of our own. Anything that is technologically feasible is financially affordable. It comes down to technology, resources, and political will. We’ve got the technology and the resources. We need the right meme to align the politics.”

You are right. The Government cannot run out of money. But, as we have seen in countless examples, over thousands of years, Governments can destroy the value of their currency. We don’t need Big Government to plan our future. The free market will do just fine, thank you.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 1:09 am

NMM: Ahh, gold reserves. I thought that is where we were headed! Sapping our precious bodily fluids and all that stuff. Not that Dr Strangelove was entirely wrong. We do deserve a better govt.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 1:11 am

NMM: UhhMMM: your point? Money provides access to the output of those “real resources”.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 1:13 am

Yep. I’ve got a map to a secret cave where you can live your life free of all the intrusions of modernity. 5 bucks and it is yours.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 1:14 am

nmm: Yep. Free mkt is doing just one heckuva good job, Brownie. Let’s just let it do its thing.

TrueStoryMay 15th, 2013 at 2:31 am

The US Constitution is plenty fantastic. The US Constitution has no bearing on facts of economics.

It is worth noting, the preamble of the Constitution:

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."

If you are going to appeal to politics to disregard economics, in order to promote a certain kind of economy, it is worth understanding the politics you cite. The Preamble states why we have a United States. Justice. Tranquility. Common defense. General Welfare. Liberty. In that order.

An individualist reading can make the claim that Liberty is purely for the individual. The rest are collective in nature. Tranquility can mean anything. General Welfare means the establishment of tools to promote a collective welfare through the powers of government. Justice is a social construct (so is individuality, but we should leave that aside for now). Common defense, a general thing and while intended to be against the British, Rebels, and Native Americans at that time, is really anyone who undermines the sovereignty of We the People.


NB: It is worth noting that The Constitution replaced the Articles of the Confederation, which weren't collectivist enough.

NB: Nothing in Wray's work interrupts a functioning free market.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 11:55 am

True: agree; the Constitution was neither the Neolib wet dream that tea partiers imagine nor the progressive document we deserve. But it was aspirational, esp the bill of rights. Did they really mean it? Remember, Jefferson owned humans, and did not even free them at his death (which would have been easy enough to do). But progressives have bit by bit tried to hold America to the ideals it proclaimed. By contrast, the neolibs long for the good old, purely imagined, days of the past.

jonf34May 15th, 2013 at 1:23 pm

I'm curious about these "countless examples over thousands of years". Which ones did you have in mind and were they the result of the government destroying the currency or someone destroying the government?

You should expand some on what you mean by "the free market". It is nothing near free from where I sit.

nmmaierMay 15th, 2013 at 3:28 pm

We don't have a free market. We have a government monoploy on money, a Federal Reserve that sets the price of money, too big to fail banks, crony capitalism at all the banks. Subsidies for every industry imaginable and a tax on labor. This is not a free market. A free market would be no government monopoly on money and no corporate subsidies.

nmmaierMay 15th, 2013 at 3:48 pm

Jon, read some history. I suggest the book by Harry Veryser, " It didn't have to be this way" which describes in detail in Chapter 2 histrorical examples of govt caused inflation going back to Diocletian in 300AD in the Roman empire to the inflation in Britian and France due to the he Napolenaic wars, to Russia in 1917 which destroyed its currency.Britian, France, and Russia all experienced massive inflation after WWI due to government money printing. There are dozens of examples of inflation due to bank credit expansion.

nmmaierMay 15th, 2013 at 3:57 pm

The US Constitution states " No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts….
Article 1, Section 10, Clause 1 .
Section 8
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

nmmaierMay 15th, 2013 at 3:59 pm

We agree. We deserve a govt that doesn't destroy the value of our money. That's called theft.

nmmaierMay 15th, 2013 at 4:01 pm

My point is that if the money is constantly being debased through inflation, then your access to productive resources is debased.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 6:46 pm

NMM: there you go. That is the MMT argument–the money monopoly; to use the monetary system in the public interest.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 6:49 pm

NMM: you might call it that but you are stretching the definition. So if US oil companies raise the price of crude, is that theft, too? that is a far more important source of inflation than anything the US govt is doing.

L. Randall Wray L. Randall WrayMay 15th, 2013 at 6:50 pm

NMM: obviously false as a general statement. Always false if you apply it to sovereign govt.

nmmaierMay 16th, 2013 at 12:02 am

You can't be serious. You actually think that oil companies can arbitrarily raise their prices and this is equivalent to the theft of the Federal Reserve debasing the currnecy? At least with oil companies you have a choice. You can either drive less or use a competitor. The Federal Reserve spreads their inflation misery across everyone…very democratic of them. .

L. Randall Wray L. Randall WrayMay 16th, 2013 at 12:50 am

NMM: ahh, Goober. Did you actually listen to the news today? Ok let’s make this a lot simpler for you. I am your landlord. I tell you that supply and demand (i control supply and demand has grown) dictates that I can raise the price. You can move or pay more. I’ve got somone willing to pay 25% more than you are paying currently. Am I a thief, or am I just following the “market”. Clearly, I’m debasing the currency. Go for it, goldbug.

L. Randall Wray L. Randall WrayMay 16th, 2013 at 1:33 am

NMM: point? Sovereign govt has sole right to issue the currency. Nothing in there about preserving the interests of goldbugs? Federal govt can regulate the value of the currency. Can, if it wants, completely impoverish goldbugs. And levy taxes. On goldbugs and Neolibs, and slaveowners, and the like, if it wants.
Right? Not theft. Taxes. Within the sovereign’s purview.

jonf34May 16th, 2013 at 2:21 am

To be clear – we live today not a thousand or five thousand years ago. If you have a lesson you want to pass along to Ben, I am all ears but to just say "the other guy went bust" with no further comment is not good enough. Like I suggested, whatever happened may have had more to do with the barbarians than anything else. And I am sure there are examples of some foolish noble who really blew it, probably because he didn't understand what he was about, but that may have little or no relevance to the way monetary policy is conducted today.

I still don't know what you mean by a "free market". My objection to that phrase is it holds all sorts of ideas, some of which I may agree with and some of which are just wrong. To mention one: the great recession and the housing bubble, all happened in a free market and we are still living with that one.

nmmaierMay 17th, 2013 at 3:22 pm

The point is that the Founding documents specifically reference gold and silver becuase the founders understood the the destructive nature of fiat currency. They lived through the fiat currnecy debacle of the "Continental". You are correct that the Federal govt can regulate the value of paper currency but only when it has no link to gold. This is precisely the problem.

L. Randall Wray L. Randall WrayMay 17th, 2013 at 6:06 pm

MNM: You didn’t even read your own quote carefully. As you quoted the Constitution it says “no state” can issue money and it is only there that it makes the exception for precious metal. The (now) 50 states cannot issue currency because that right is reserved only to the Federal govt. And, no, our founding “fathers” knew of a number of cases of colony paper money that held value just fine, backed by taxes not gold. (The crown prohibited the colonies from issuing coin.) They were preventing the states from usurping soverign power to issue the currency, and regulate the value thereof. You might not like that, but it is right there in the Constitution.

Gary GoodmanJune 4th, 2013 at 6:48 am

NMmaier, ANYONE can create money. Govt agents called banks create money, and they don't use the Fed's "reserves" to create it. They create it by creating debt obligations. Private banking controls the supply.

But other institutions create money-like fiat paper. Private institutions create Securities. Unregulated hedge funds can create any kind of derivatives. But they generally can't exchange those for a Pepsi or a tank of gas unless they first convert those to Dollars. They COULD … but would the seller accept those? Would the seller accept Gold Bullion at erratic spot market prices (always been erratic) for a quantity of fuel or a hamburger at McDonalds?

Some communities create stuff like LETS or Ithaca Hours.
The problem is always whether or not the money is accepted.
The most basic money has no intrinsic value, only nominal value.
What did Lysander Spooner say about the practice of minting coins out of precious valuable commodity metals?

Gresham's Law, after Spooner, proved that "good" commodity money will be hoarded and melted down, while "bad" fiat currency will be very busy being passed around for commerce and trade. A philosophical argument could arise about the purpose of money — is it for commerce and production, or for hoarding and savings, for removing from circulation? What would Adam Smith probably say?

The LEAST valuable money isn't paper — it's electronic credits. Note how easily those flow … both from an ATM card for a purchase — Japanese waves a cell phone — and global financial transactions? Would BUSINESS consent to shipping gold on freighters to Europe or across the Pacific for transactions? Hiring guards and building vaults to secure it … like those good old days of stagecoach robberies? What PERSON would rather haul around gold coins? To stick with the PURE TRUE value of bullion and avoid anyone losing to market fluctuations of gold, each transaction would have to be conducted with NO VALUE printed or stamped on so called money, and the weight and fineness would have to be determined on the Internet for each transaction. The number of grains would vary throughout the day. WHO would willingly vote for THAT system?

Not to mention the inherent stiffness that gives rise to the kind of periodic extreme scarcities that drove cycles of Economic Collapse throughout the late 1800s, which destroyed much REAL value.

If money creation "debases" currency, then make banking and credit ILLEGAL. How about that?

Now the problem of creating and destroying real world value is due to the private banks when they were creating loans at will, with huge profits up front, and no concern if the banking institutions were destroyed a few years later. Take the money and run. No govt or laws FORCED banks and private mortgage firms to commit multi-level frauds at every stage of the process. As Wm Black explains, from Romer and Akerloff's "Bankruptcy for Profit", the driving incentive for frauds is RECORD PROFITS early on, followed inevitably by RECORD LOSSES later on … because that's what frauds do.

The meme that govt money creation causes bad inflation and causes the value of currency to fall in proportion to the amount put in circulation, that was proven false by Steve Keen's mathematical models, which trump stupid Supply VS Demand curves that don't add up. Catch up.

One could argue the fact that $1.00 doesn't buy as much bread as it did in 1930s when my grandfather was raising a family, but he only took home probably $2.00 per day, later $5.00 was a stunning raise by Henry Ford. Nearly every penny my grandfather and the vast majority earned back then was spent the same week or same year. Who hordes cash in a mattress for 100 years?

These idiotic arguments are old and debunked as much as the Flat Earth and the Sun as the Center of the Universe.