Tuesday, February 7, 2012

Cullen Roche — FT Does MMR On Currency Demand

Read it at Pragmatic Capitalism
The FT Does Mmr On Currency Demand
by Cullen Roche

Attacks the state theory of money.

Scott Fullwiler tweets:
#MMT in the FT. Gets it wrong, though, as the "proof" against MMT is actually perfectly consistent with it, in fact.
Wray is very clear that the earliest state monies were rarely used in private transactions. #MMT


Matt Franko said...

Scott: "state monies were rarely used in private transactions."

Can you imagine that policy! I'd like to propose a policy where we would go back to just not allowing foreign trade transactions to be transacted/facilitated in our banking system.

The Mercantilists would have to go back to settlement in real goods. That ought to take care of the external deficits quite nicely, and get rid of the "free floating" aspect of our currency system that current POLITICAL policy implements.

Then it would be back to just a non-convertible currency.... no more worries about "foreign claims" then for sure.

To be clear, ALL of the current aspects of our FFNC system are a result of POLITICAL policies. This isnt Thermodynamics.

Matt Franko said...


The guy at the FT doesnt understand that the banks would need Scotland Cows to facilitate settlement for credit/debit card purchases at TESCO does he?

Matt Franko said...

And what is he talking about "Scottish Govt"?

Did Mel Gibson win?(I couldnt watch the ending)

is that separate from the Pound Neil?

is he talking about the equivalent of a US state govt there?

Tom Hickey said...

Right, the external issue could be resolved once and for all if WTO were amended to require reciprocal trade and at the same time creating an international reserve currency, possibly a basket of currencies that would vary periodically in proportion to the size of the global economies.

Septeus7 said...

I'm tired of folks claiming that a state issued money is inherently authoritarian but other forms of self-issued credit are perfectly fine. The MMR folks are completely ideological in claiming this is the case. So much the "realism" of MMR.

Let's consider the following examples:

CASE 1: The Free Market Entrepreneur.

I'm an entrepreneur and I get the idea of a bakery but I have no cash just a business model what do I do? I turn to credit finance. There's no other way to do it. I'll write a promissory note to the building's owner, the stone mason who builds the stove, the farmer from whom I acquire the grain, and baker I hire to cook the bread.

The Bakery shop opens and I price my loaves in the promissory notes. I'm a being authoritarian No, rather the farmer, the stone mason, my landlord, and the baker are very happy because they can now use my notes to acquire other market goods. There's no guns involved and there's no authoritarian police forces used. It's voluntary. No one had forced to agree the bakery was a good idea to allow to set up the credit system to support it's construction. People invent credit system because they think they can build things in the future which are profitable.

Now let's look at another example:

CASE 2: The EVIL Stalinist Commie Pinko Big Govmint Enslavement Plan of DOOM™

I'm a politician conspiring in a county where my town is separated from another town by a river. I hatch my evil to enslave both communities by saying that we should building bridge between the two towns but my intention is to imposed the "Evil Fiat Currency™" system.

As a politician I'm necessarily a useless lout with no resources of my own so I devise the following evil scheme, I write a promissory notes to stone masons, lumber mills, and construction companies and swindle to people of both towns agreeing give up the land needed for project over to me and my cronies in an institution which we the "State."

Now having effectively bamboozled the town folks into build the bridge I impose a general tax claiming I want some of my promissory notes back from the population because the increased business coming into the towns I claim has benefited essentially everyone.

Sadly, for the people in the towns they now have find employment or exchange goods with all of my cronies which I contracted in building the bridge. Now the evil partnership between myself and those "Evil Free Mason" contractors essentially run these towns and the Illuminati marches on!

So what is point of these two narratives? It is to demonstrate that the same action can be characterized from completely different viewpoints and anything can called "authoritarian" based on the politics of the situation.

In one case, the Bakery Entrepreneur leverages the trust of community into a profitable business for the good of all via a formalization of self issued credit and in the other case the Corrupt Politician leverages the same trust of the community to impose an authoritarian system of taxes.

How does MMR decides who's the villain? Is there some objective standards or it is merely the label of "private" versus "state" which distinguishes? What does it say about our current politics when we believe these labels? Who decided when and how we should apply them?

Ralph Musgrave said...

I agree with Cullen. I made similar points to Cullen in a blog post a year ago:


Matt: I don’t agree that a form of state money (cows or anything else) is required to enable commercial banks to settle up between themselves. If the state DOES ISSUE money, then the central bank is a convenient place for commercial banks to settle up. But failing that, they could perfectly well settle up between themselves via book keeping entries, and any bank going too far into debt would face bankruptcy and having its assets grabbed by creditor banks.

Kristjan said...

To Ralph Musgrave:

That's how the euro was planned basically. ECB and national central banks are managing those bookkeeping entries for commercial banks. So there is nothing wrong with the eurozone.

I'd say euro is less authoritarian!

Matt Franko said...

good comments all here...

Ralph, I guess I see your point they could exchange "cow liabilites"...

Look this is a bad article with cows and such. (TIP: if you read an article and it mentions 'coconuts' or 'cows' and 'money' together beware!)

Peter Cooper absolutely DESTROYS this article here btw:



Tom Hickey said...

The issue is state money. The purpose of state money is to move private resources to state use. In the past, states have used two options, direct confiscation and taxation.

IN the first, some soldiers come to your farm and take a % . Obviously, you have no alternative other than to comply if you value your freedom.

The other option is to issue a token that is required to meet a tax obligation and then set the price of the resources desired for state use. You have to obtain the state's token for periodic payment or the soldiers come and take you as well as the resources + as a fine.

That's it. If you don't like it, you can move away from the reach of the state if you can mangage it, e.g., go the forest and live by hunting and foraging.

At the outset, state money was just used to to transfer resources to the state. Most other transactions were in the informal economy where people generally used private debt.

Gradually this developed into a more complex system as production of commodities increased. Tallies were common and fairs were gatherings at which the tallies were "tallied up."

The use of state money as we know it is rather recent, and it did not really take off until mass production of commodities through mechanization, when markets grew larger, richer, and more complex.

Tom Hickey said...

In addition to state money, there was temple money. In ancient religious societies one had to meet one's religious obligations by offering sacrifice as a civic duty. But only "pure" offering were acceptable and they could only be obtained with temple money. So one had to exchange one's resources for the token to obtain the acceptable offering.

This is actually the basis of the NT story of Jesus driving the money changers from the temple. The people did the exchange in the outer court to obtain the acceptable offering for sacrifice.

Tom Hickey said...

The problem with the EZ is that the national government have relinquished national sovereignty by becoming currency users and having to obtain the currency by borrowing. The Eurocrats and bankers control the ECB. It's a deflationary system that is designed to fail politically.

Matt Franko said...


I believe the human demarcation line you draw via your parable here is one we all should be aware of.

We should perhaps try to look at ourselves and figure out what side we are on and proceed accordingly without necessarily trying to "convert" the others on the opposite side into what we are.

And consider that with all we have at our disposal today, we dont necessarily have to have a "one size fits all" economy that is a conflated mish-mash based on a combination of bits and pieces of policies inspired by the principles of both sides that just ends up pissing both sides off to a great deal.

Good parable.


Clonal said...

John Carney opines on this - The Buckaroo and the Demand for Money and Stephanie has a couple of comments there as well.

My take on it extending Stephanie's thoughts. Some people like doing community work. They accumulate buckaroos. Some are lazy, they buy buckaroos. Other would rather just do enough community work to get the buckaroos to pay the tax. Some might work a bit more to sell to the lazy (or over burdened) students. Carney's argument holds only if the taxes and the exchange value were the only motivating factor. The value of the buckaroos more likely derives from how much the excess buckaroo workers value their own time. They always have the option not to sell their buckaroos, as they have already done the work that they derived enjoyment from. They become the "swing producers" of the buckaroo. Remember. the buckaroo is payment for an hour of community work.The exchange value for the buckaroo has been stable between $10-$15 per buckaroo. $10-$15 /hr is the ball park estimate for what a student may get for part time employment elsewhere. so when somebody sells a buckaroo, that fact very likely plays in. In my view, it is highly unlikely that the value of the buckaroo will ever collapse, unless somebody pulls a hunt brothers - which in this case would be very difficult to do -- as one has to perform actual physical work to accumulate the buckaroos and a person only has 24 hours per day. To accumulate the buckaroos to a level where that could be done would take several generations of students. And that can be very easily prevented by UMKC by demonetizing buckaroos issued over 6 years ago.