An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
matt when I read those things I imagine a cult of people religiously worshiping a mountain of USD bills. Sounds like some worshiping a golden statue...
Oh wait, all this sounds too familiar. Maybe the disease related to the column 11 of the periodic table has something in common.
Ignacio right there is some common characteristics it sometimes appears USDs have replaced the column 11 metals...
From when the Empire collapsed until the 1900s, everyone was trying to get possession of metals, now almost everyone seems to be trying to borrow USDs... or rather maybe obtain possession of BORROWED USDs ie "debt based money"... to the point where they think the UST is actually borrowing them in the first place...
So there seems to have been a transition from metals to a view as "borrowed money"...
I'd view it as when we were under metals, we had given up our authority to issue currency to the metals... that was a complete surrender/subjection to the metals...
Now it seems we are not under the metals anymore but people think we are using "borrowed money" or "debt based money"...
OT but there is this one somewhat famous verse in the book of Revelation it says
"And it is causing all, the small and the great, and the rich and the poor, and the free and the slaves, that they may be giving them an emblem on their right hand, or on their forehead, 17 and that no one may be able to buy or sell except the one having the emblem of the wild beast," Rev 13:16
No one can buy or sell today without using what is considered by virtually everybody as "debt based money" of some nation... so this may be what that book is talking about and the 'emblem' is figurative... (Christendom thinks everybody is going to get a tatoo or a chip implanted or wtf...)
As opposed to when we were under the metals which the metals werent borrowed in order to exist in the first place... you would just have to dig them up or rob/rape/pillage from somebody who dug them up...
So the transition from metals to our current arrangements is a transition from a subjection of our authority (metals) over to now which is a flat-out denial of our authority ('debt based money') .... and perhaps "the mark of the beast" is a figurative description of this current characteristic we can see in zombie mankind of a denial of our authority...
Matt: Money isn't "debt-based", it is debt (credit) and nothing else, always was. You have it backwards - denying this simple fact means being trapped in metallism and commodity money. Thinking that money is not credit/debt means not understanding MMT, monetary economics.
"Debt-based money" is a really weird locution. Does anybody talk of gold-backed gold? Or authority-backed authority?
"There are many overlapping games with a variety of rules characterized by their sharing a "family resemblance" in an extended family named "money." Looking for the "essence" of money as the characteristic of a single set would led one astray."
"money" is a figure of speech, a metonym if not a metalepsis. By definition, any figure of speech is ambiguous and not proper terminology...
Let me re-emphasize Tom's observations here: "Looking for the "essence" of money as the characteristic of a single set would lead one astray."
Your 'essence' here, as Tom puts it, is "debt"... you are trying to assert that all "money" is debt-based or something.... "debt" is a common characteristic of the figure of speech or something...
It is not. We can issue currency without establishing any "debt" in the process we have full authority to do it this way... ie "no bonds...." a la MMT...
Think about the big argument in Christendom wrt "grace" vs. "works"... youre taking the "works" (debt) side while I am taking the "grace" (unmerited favor) side...
Its like Catholics vs. Lutherans (I'm with the Lutherans youre with the Catholics...)
I'm with Paul and youre with Peter...
It just has to play out.... I dont think it matters what we think per se... it matters what TPTB think and they are all morons and dont even have enough knowledge to have this back and forth we are having wrt "debt/no debt"... they think we are borrowing from the Chinese and our yet unborn grandchildren....
The 'uniqueness of money' is a metaphysical term being put about by those who have an axe to grind.
It reminds me of the 'uniqueness of monetary policy'.
Again being British I have no doubts. It's written on my money: "I promise to pay the bearer on demand the sum of £10".
That makes my money just an open cheque drawn on the Bank of England. You can't say a cheque at the Bank of England is any different from a cheque drawn on Barclays Bank. It's the same thing.
The question that has to be asked is what is the political end game of trying to push the 'uniqueness of money' line.
'"What is the political end game of trying to push the 'uniqueness of money' line."
Or the guy could not be the sharpest tool in the shed....
Even Wray admits in one of the links :"I'm no philosopher...."
Well no he is not ... Maybe he should talk to one and get it straightened out...
And btw was not specie weighed? Vice counted?
When they would then provide specie in exchange for the notes, then that was a convertible system... The notes were convertible into a specified weight of silver specie...
So that was a completely different system than what we use today....
""Debt-based money" is a really weird locution. Does anybody talk of gold-backed gold? Or authority-backed authority?"
??????
You are asserting that "debt" and "money" are synonymous.
They are not.
this may be Lonergan's basic point...
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process...
If we didnt issue the bonds then no "debt-based"...
Wray's basic claim is that base money is a debt just as much as private bank issued money (which is what is normally meant by "debt based money". The flaw in Wray's argument is that the state owes holders of its money precisely and exactly nothing in respect of that money (even though base money appears on the liability side of central banks' balance sheets).
To illustrate, British £10 notes say that the Bank of England "promises to pay the bearer on demand the sum of £10". But if turn up at the BoE and try to get £10 of gold or anything else for your £10 notes, you'll be told to shove off.
Moreover, the state can grab its money off households and firms whenever it wants via tax, which makes base money a strange sort of debt: you can't grab money off the bank that gave you a mortgage with a view to cutting the mortgage.
Arguably, when bullion is at the apex of the hierarchy of money, as it was under Bretton Woods, bullion is "money." Final settlement of international trade was in bullion, as it had been for ages. When Nixon closed the gold window and the international monetary agreement was renegotiated, gold was no longer at the apex of the hierarchy of money, and floating exchange rates replaced fixed rates.
" Debts began to be monetized and recorded at least six millennia ago. "
How could something have been "monetized" 4,000 years before the creation of the Roman pantheon from which the figure of speech "money" originated?
Easy. And there’s proof in museums. The Sumerian clay tablets of debits and credits dating from at least 3500 BC. All market and agricultural sales were recorded on them at least 2800 years before anyone thought of using gold as a token (700 BC in the Greek temples). These debits and credits were used in other transactions and recorded as well. No different than what goes on right now in Ohio when farmers borrow in Feb to plant and repay at harvest in Sept and they apply their own accounts receivable to debts owed.
To illustrate, British £10 notes say that the Bank of England "promises to pay the bearer on demand the sum of £10". But if turn up at the BoE and try to get £10 of gold or anything else for your £10 notes, you'll be told to shove off.
What does gold have to do with it? Banks aren’t commodity stores.
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process...
I think you’re missing a step. Correct me if I’m wrong, but this is as Frank Newman explains it.
Today, in the process of issuing our currency (liability side of the ledger) the asset side of the ledger is what the federal government is buying, or more correctly, what has been appropriated legally by Congress. This includes appropriations made by previous congresses that might still apply as expenses on the Spanish American War did for fucking decades until what? The 1990s?
THEN, because of Congress’ law from the gold standard days, the US Treasury cannot have a negative balance in its General Account at the Fed. A negative balance would have been created the instant the Federal Reserve paid the vendors that Congress authorized.
THAT is what generates the treasury securities’ issuance. Nothing else. it’s an artificial constraint that Congress manufactured and didn’t remove when it was no longer necessary. As Newman writes, the federal government spending increases the money supply. The treasury securities issuance in the amount of spending “restores it to balance.” Absolutely no reason to continue this practice--the Great Depression and World wars intervened and occupied Congress’ time--but we do it because the rich loved getting (1) interest on their savings that gold bricks didn’t give them, and (2) they’re backed by the ‘full faith and credit’ of the US federal government. And later, FDIC made it plain that keeping your enormous wealth in a commercial bank that could go belly-up risked your entire fortune because until 2008, it only covered $125,000 per account. As JP Morgan crowed in the 1890s, “I tell my best clients public bonds are better than gold.” (Alain Parguez talk, no link.)
Interest owed for the coming year on all outstanding bills, notes, and bonds are calculated every August. The US Treasury THEN issues treasury securities in that amount to pay for them. The only part the Federal Reserve plays in this is calculating the amount for the US Treasury. This has nothing to do with the Fed’s interest rate management mandate. Nothing at all. Those are two completely separate issues.
The interest on treasury securities is a US Treasury gimmee to the people originally intended to keep people with gold-backed dollars from hoarding the nation’s gold supply. They didn’t want JQ Public trading in their $20 or $35 for an ounce of gold and keeping it under their mattresses when the US was concerned about protecting the gold supply to pay for international war debts (WWI). Treasury securities could still be traded, BUT they could not be exchanged for gold until they matured, no matter who owned them--and long-term bonds paid the highest interest.
The Fed’s interest rate management system concerns the non-federal government side of USD usage, banks, interbank lending etc.
So the transition from metals to our current arrangements is a transition from a subjection of our authority (metals) over to now which is a flat-out denial of our authority ('debt based money')
Hunh?
I agree with Calgacus. it’s a credit-based system, not a debt-based system.
Subjection of our authority? He who owned the gold mine controlled the gold. And the country. The US doesn’t have many gold mines. We got ours originally by either selling to the Spaniards or stealing it from them on the high seas. Benjamin Franklin realized that in 1729 when he was 23, and its why he issued Genghis Khan’s paper money (script) idea. The rich hated it, but the common people loved and it and the common people won because the rich gentry didn’t have a spokesman with Franklin’s writing skills to counteract him.
Matt: Even Wray admits in one of the links :"I'm no philosopher...." I commented on Wray's silly, wrong statement a while ago: here. People would do well to read that post btw. But in Review of Why Minsky Matters Wray says: "... Very few economists ever have to leave their desks to ‘do’ economics, that is, moral philosophy. I think I made the right decision.” This is the correct statement - that he is a moral philospher doing moral philosophy.
Ralph: The flaw in Wray's argument is that the state owes holders of its money precisely and exactly nothing in respect of that money (even though base money appears on the liability side of central banks' balance sheets).
There is no flaw, because this statement, which also Lonergan makes is wrong. Crazily wrong. Something children know is wrong. As weird, as contrary to common experience as saying that it gets dark when the sun is out. But everyone has been brainwashed into saying many such "water freezes when heated" statements.
Matt: You are asserting that "debt" and "money" are synonymous.
No, I am not. Money is a kind of debt. Saying "Humans are animals" is not saying that "human" and "animal" are synonymous. To make the parallel more precise: which sounds weird?: "gold is a metal" or "metal-based gold"? Ever heard anybody say "animal-backed human"? I prefer to speak in simple English for clarity.
Separating "the money" and "the credit/debt" is as weird as saying '"humans are animals" is wrong because "I see a human in front of me, but I don't see the additional animal".' The human is the animal. The money is the debt.
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process... If we didnt issue the bonds then no "debt-based"...
"Debt-based money" as described above is a crazy idea, a crazy phrase. Never was any such thing. Never could be. I noted how Lewis Carroll made fun of this ludicrous idea - that issuing bonds could magically back money - myself, before seeing that Keynes had noticed the same passage. This process is utterly not what MMTers mean when they say "Money is Credit or "Money is Debt"
The point is to use "money" and "debt" correctly, the way MMT does = the way ordinary speech and dictionaries do. The problem is that once people start talking about economics and finance, they stop speaking English (or German or French) and start speaking (postmodern transgressive quantum hermeneutics) Martian - a language which doesn't exist and doesn't make sense and often is just "word salad". As I have suspected and suggested for a long time, many MMT fans are unfortunately still often speaking Martian, because learning Martian creates a tremendous resistance to "speaking in English". Notably, Martian involves both conflation and false distinctions - calling two different things the same and insisting that two things which are the same are mystically different.
If Augustus or the USA or anyone just issued money - even if it is "grace" or "unmerited favors" - they are issuing debts by the act of issuing money, because the money (the grace, the favor) is the debt. Just the same way that when a human being is born, an animal is also born. It doesn't matter how the baby came about. If they issued bonds, they are just issuing bonds, which are also debt. But saying the bonds back the money is as crazy as saying $100 bills back $1 bills. The Martian / mainstream / metallist way you (& Ralph & Lonergan) are unfortunately speaking is like saying that if a boy & a girl is born that must mean that only one is a human or only one an animal, and that two children being born means "boys back girls" or "girls back boys". No, both boys and girls are both humans and animals (& children) and neither backs the other. Both bonds and currency are both money and debt (& NFA) and neither backs the other. This does not mean "boy" & "girl" & "children" are synonyms.
Let me re-emphasize Tom's observations here: "Looking for the "essence" of money as the characteristic of a single set would lead one astray." Well, Tom has been led astray. Speaking of "language games", mere "family resemblances" etc here just sows more confusion. It's wrong. "Money", its single, unvarying, uniform essence, its characteristic is easy to define and understand. It's not ambiguous, it's perfectly proper terminology. There's no particular mystery or difficulty to it - other than the necessity of actually reading or listening to the definition and explanations (in English, not Martian). Think in English, as if one had never heard of money or bonds or finance or economics before - because so much about them is written in Martian, it infiltrates into ones thoughts entirely unconsciously.
The only "metonymy" that appears here is the inevitable metonymy inherent in the usage of money: we use "money-things" (coins, bills, tally sticks, electric charges, marks on a board) to represent the immaterial social/moral relationship "money". As MMTers are very careful to distinguish between "money-things" & "money" they are not confused by any metonyms, are not using "money" as a metonym.
I see currency as a social contract that establishes some obligations to the issuer (government) and some rights to the holder (people). It is a negotiable contract, so it can be exchanged in the market. The obligations contracted by the issuer are a liability or debt in the accounting sense. The government does not need to get indebted to create a contract. But the contract itself is an agreement that creates a debt to the government. I guess that is Calgacus point.
How this social contract called "coin" or "currency" works? I like to imagine that the $1 coin (or note) is somewhat close to financial options: - The holder of the coin has the option to extinguish $1 worth of his own tax liabilities at the end of any fiscal period. He may choose if and when he will exercise that option. Because the option is a right to the holder, it is an asset to him. - The issuer of the coin (government) has the obligation to extinguish $1 worth of the holder's tax liabilities if the holder exercises the option. Because the coin represents a obligation to the issuer, it is a liability to the issuer (a debt). The coin is an option with infinite maturity. It will expire only if the holder exercises the option.
Why would anyone supply work, goods or services to the government to get some coins? Because people need to pay taxes, and the coin is the only way to pay taxes. There are no other ways to pay your taxes at the end of the fiscal period! If want to avoid the sanctions and punishments applied to people who don't pay taxes, you will want to earn some coins. Because it is a negotiable instrument, you can exchange it in the market for a lot of things. It may then be used by a lot of people as means of payments. Then it would have aditional value.
"It is not. We can issue currency without establishing any "debt" in the process we have full authority to do it this way... ie "no bonds...." a la MMT..." - Matt Franko. Don't agree. It is impossible to issue currency without establishing any debt in the process. I agree that the government do not need bond issuance to create currency. But the currency itself is a debt to the government and an asset to the population.
"Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process..." - Matt Franko Even if there were no bond issuance, the coin itself is a social contract and makes the govt indebted.
23 comments:
"Randall Wray, like many others, is resistant to the uniqueness of money"
There is nothing unique about "money" its a metonym. ....
The language of money: How verbal and visual metonymy shapes public opinion about financial events
http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1131&context=teachlearnfacpub
matt when I read those things I imagine a cult of people religiously worshiping a mountain of USD bills. Sounds like some worshiping a golden statue...
Oh wait, all this sounds too familiar. Maybe the disease related to the column 11 of the periodic table has something in common.
Ignacio right there is some common characteristics it sometimes appears USDs have replaced the column 11 metals...
From when the Empire collapsed until the 1900s, everyone was trying to get possession of metals, now almost everyone seems to be trying to borrow USDs... or rather maybe obtain possession of BORROWED USDs ie "debt based money"... to the point where they think the UST is actually borrowing them in the first place...
So there seems to have been a transition from metals to a view as "borrowed money"...
I'd view it as when we were under metals, we had given up our authority to issue currency to the metals... that was a complete surrender/subjection to the metals...
Now it seems we are not under the metals anymore but people think we are using "borrowed money" or "debt based money"...
OT but there is this one somewhat famous verse in the book of Revelation it says
"And it is causing all, the small and the great, and the rich and the poor, and the free and the slaves, that they may be giving them an emblem on their right hand, or on their forehead, 17 and that no one may be able to buy or sell except the one having the emblem of the wild beast," Rev 13:16
No one can buy or sell today without using what is considered by virtually everybody as "debt based money" of some nation... so this may be what that book is talking about and the 'emblem' is figurative... (Christendom thinks everybody is going to get a tatoo or a chip implanted or wtf...)
As opposed to when we were under the metals which the metals werent borrowed in order to exist in the first place... you would just have to dig them up or rob/rape/pillage from somebody who dug them up...
So the transition from metals to our current arrangements is a transition from a subjection of our authority (metals) over to now which is a flat-out denial of our authority ('debt based money') .... and perhaps "the mark of the beast" is a figurative description of this current characteristic we can see in zombie mankind of a denial of our authority...
Matt: Money isn't "debt-based", it is debt (credit) and nothing else, always was. You have it backwards - denying this simple fact means being trapped in metallism and commodity money. Thinking that money is not credit/debt means not understanding MMT, monetary economics.
"Debt-based money" is a really weird locution. Does anybody talk of gold-backed gold? Or authority-backed authority?
Calg from Tom in the other thread:
"There are many overlapping games with a variety of rules characterized by their sharing a "family resemblance" in an extended family named "money." Looking for the "essence" of money as the characteristic of a single set would led one astray."
"money" is a figure of speech, a metonym if not a metalepsis. By definition, any figure of speech is ambiguous and not proper terminology...
Let me re-emphasize Tom's observations here: "Looking for the "essence" of money as the characteristic of a single set would lead one astray."
Your 'essence' here, as Tom puts it, is "debt"... you are trying to assert that all "money" is debt-based or something.... "debt" is a common characteristic of the figure of speech or something...
It is not. We can issue currency without establishing any "debt" in the process we have full authority to do it this way... ie "no bonds...." a la MMT...
Think about the big argument in Christendom wrt "grace" vs. "works"... youre taking the "works" (debt) side while I am taking the "grace" (unmerited favor) side...
Its like Catholics vs. Lutherans (I'm with the Lutherans youre with the Catholics...)
I'm with Paul and youre with Peter...
It just has to play out.... I dont think it matters what we think per se... it matters what TPTB think and they are all morons and dont even have enough knowledge to have this back and forth we are having wrt "debt/no debt"... they think we are borrowing from the Chinese and our yet unborn grandchildren....
The 'uniqueness of money' is a metaphysical term being put about by those who have an axe to grind.
It reminds me of the 'uniqueness of monetary policy'.
Again being British I have no doubts. It's written on my money: "I promise to pay the bearer on demand the sum of £10".
That makes my money just an open cheque drawn on the Bank of England. You can't say a cheque at the Bank of England is any different from a cheque drawn on Barclays Bank. It's the same thing.
The question that has to be asked is what is the political end game of trying to push the 'uniqueness of money' line.
'"What is the political end game of trying to push the 'uniqueness of money' line."
Or the guy could not be the sharpest tool in the shed....
Even Wray admits in one of the links :"I'm no philosopher...."
Well no he is not ... Maybe he should talk to one and get it straightened out...
And btw was not specie weighed? Vice counted?
When they would then provide specie in exchange for the notes, then that was a convertible system... The notes were convertible into a specified weight of silver specie...
So that was a completely different system than what we use today....
""Debt-based money" is a really weird locution. Does anybody talk of gold-backed gold? Or authority-backed authority?"
??????
You are asserting that "debt" and "money" are synonymous.
They are not.
this may be Lonergan's basic point...
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process...
If we didnt issue the bonds then no "debt-based"...
Wray says here:
" Debts began to be monetized and recorded at least six millennia ago. "
How could something have been "monetized" 4,000 years before the creation of the Roman pantheon from which the figure of speech "money" originated?
Wray's basic claim is that base money is a debt just as much as private bank issued money (which is what is normally meant by "debt based money". The flaw in Wray's argument is that the state owes holders of its money precisely and exactly nothing in respect of that money (even though base money appears on the liability side of central banks' balance sheets).
To illustrate, British £10 notes say that the Bank of England "promises to pay the bearer on demand the sum of £10". But if turn up at the BoE and try to get £10 of gold or anything else for your £10 notes, you'll be told to shove off.
Moreover, the state can grab its money off households and firms whenever it wants via tax, which makes base money a strange sort of debt: you can't grab money off the bank that gave you a mortgage with a view to cutting the mortgage.
Arguably, when bullion is at the apex of the hierarchy of money, as it was under Bretton Woods, bullion is "money." Final settlement of international trade was in bullion, as it had been for ages. When Nixon closed the gold window and the international monetary agreement was renegotiated, gold was no longer at the apex of the hierarchy of money, and floating exchange rates replaced fixed rates.
How could something have been "monetized" 4,000 years before the creation of the Roman pantheon from which the figure of speech "money" originated?
Simple. The context preceded the name. This is not unusual, since meaning is context-dependent.
@Matt,
" Debts began to be monetized and recorded at least six millennia ago. "
How could something have been "monetized" 4,000 years before the creation of the Roman pantheon from which the figure of speech "money" originated?
Easy. And there’s proof in museums. The Sumerian clay tablets of debits and credits dating from at least 3500 BC. All market and agricultural sales were recorded on them at least 2800 years before anyone thought of using gold as a token (700 BC in the Greek temples). These debits and credits were used in other transactions and recorded as well. No different than what goes on right now in Ohio when farmers borrow in Feb to plant and repay at harvest in Sept and they apply their own accounts receivable to debts owed.
To illustrate, British £10 notes say that the Bank of England "promises to pay the bearer on demand the sum of £10". But if turn up at the BoE and try to get £10 of gold or anything else for your £10 notes, you'll be told to shove off.
What does gold have to do with it? Banks aren’t commodity stores.
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process...
I think you’re missing a step. Correct me if I’m wrong, but this is as Frank Newman explains it.
Today, in the process of issuing our currency (liability side of the ledger) the asset side of the ledger is what the federal government is buying, or more correctly, what has been appropriated legally by Congress. This includes appropriations made by previous congresses that might still apply as expenses on the Spanish American War did for fucking decades until what? The 1990s?
THEN, because of Congress’ law from the gold standard days, the US Treasury cannot have a negative balance in its General Account at the Fed. A negative balance would have been created the instant the Federal Reserve paid the vendors that Congress authorized.
THAT is what generates the treasury securities’ issuance. Nothing else. it’s an artificial constraint that Congress manufactured and didn’t remove when it was no longer necessary. As Newman writes, the federal government spending increases the money supply. The treasury securities issuance in the amount of spending “restores it to balance.” Absolutely no reason to continue this practice--the Great Depression and World wars intervened and occupied Congress’ time--but we do it because the rich loved getting (1) interest on their savings that gold bricks didn’t give them, and (2) they’re backed by the ‘full faith and credit’ of the US federal government. And later, FDIC made it plain that keeping your enormous wealth in a commercial bank that could go belly-up risked your entire fortune because until 2008, it only covered $125,000 per account. As JP Morgan crowed in the 1890s, “I tell my best clients public bonds are better than gold.” (Alain Parguez talk, no link.)
Interest owed for the coming year on all outstanding bills, notes, and bonds are calculated every August. The US Treasury THEN issues treasury securities in that amount to pay for them. The only part the Federal Reserve plays in this is calculating the amount for the US Treasury. This has nothing to do with the Fed’s interest rate management mandate. Nothing at all. Those are two completely separate issues.
More on March 10, 2016 at 4:06 PM.
The interest on treasury securities is a US Treasury gimmee to the people originally intended to keep people with gold-backed dollars from hoarding the nation’s gold supply. They didn’t want JQ Public trading in their $20 or $35 for an ounce of gold and keeping it under their mattresses when the US was concerned about protecting the gold supply to pay for international war debts (WWI). Treasury securities could still be traded, BUT they could not be exchanged for gold until they matured, no matter who owned them--and long-term bonds paid the highest interest.
The Fed’s interest rate management system concerns the non-federal government side of USD usage, banks, interbank lending etc.
So the transition from metals to our current arrangements is a transition from a subjection of our authority (metals) over to now which is a flat-out denial of our authority ('debt based money')
Hunh?
I agree with Calgacus. it’s a credit-based system, not a debt-based system.
Subjection of our authority? He who owned the gold mine controlled the gold. And the country. The US doesn’t have many gold mines. We got ours originally by either selling to the Spaniards or stealing it from them on the high seas. Benjamin Franklin realized that in 1729 when he was 23, and its why he issued Genghis Khan’s paper money (script) idea. The rich hated it, but the common people loved and it and the common people won because the rich gentry didn’t have a spokesman with Franklin’s writing skills to counteract him.
Wasn't just gold, silver, and copper that had monetary use.
Also salt, as in "not worth his salt." Soldiers were paid in salt and the king owned the salt mines, which were worked by slaves.
Same with wheat back in the day when the owners of the surplus owned the storage bins.
Lot of other things, too.
Or tally bars. Plain old wood.
(1/2)
Matt: Even Wray admits in one of the links :"I'm no philosopher...."
I commented on Wray's silly, wrong statement a while ago: here. People would do well to read that post btw. But in Review of Why Minsky Matters Wray says: "... Very few economists ever have to leave their desks to ‘do’ economics, that is, moral philosophy. I think I made the right decision.” This is the correct statement - that he is a moral philospher doing moral philosophy.
Ralph: The flaw in Wray's argument is that the state owes holders of its money precisely and exactly nothing in respect of that money (even though base money appears on the liability side of central banks' balance sheets).
There is no flaw, because this statement, which also Lonergan makes is wrong. Crazily wrong. Something children know is wrong. As weird, as contrary to common experience as saying that it gets dark when the sun is out. But everyone has been brainwashed into saying many such "water freezes when heated" statements.
Matt: You are asserting that "debt" and "money" are synonymous.
No, I am not. Money is a kind of debt. Saying "Humans are animals" is not saying that "human" and "animal" are synonymous. To make the parallel more precise: which sounds weird?: "gold is a metal" or "metal-based gold"? Ever heard anybody say "animal-backed human"? I prefer to speak in simple English for clarity.
Separating "the money" and "the credit/debt" is as weird as saying '"humans are animals" is wrong because "I see a human in front of me, but I don't see the additional animal".' The human is the animal. The money is the debt.
Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process...
If we didnt issue the bonds then no "debt-based"...
"Debt-based money" as described above is a crazy idea, a crazy phrase. Never was any such thing. Never could be. I noted how Lewis Carroll made fun of this ludicrous idea - that issuing bonds could magically back money - myself, before seeing that Keynes had noticed the same passage. This process is utterly not what MMTers mean when they say "Money is Credit or "Money is Debt"
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The point is to use "money" and "debt" correctly, the way MMT does = the way ordinary speech and dictionaries do. The problem is that once people start talking about economics and finance, they stop speaking English (or German or French) and start speaking (postmodern transgressive quantum hermeneutics) Martian - a language which doesn't exist and doesn't make sense and often is just "word salad". As I have suspected and suggested for a long time, many MMT fans are unfortunately still often speaking Martian, because learning Martian creates a tremendous resistance to "speaking in English". Notably, Martian involves both conflation and false distinctions - calling two different things the same and insisting that two things which are the same are mystically different.
If Augustus or the USA or anyone just issued money - even if it is "grace" or "unmerited favors" - they are issuing debts by the act of issuing money, because the money (the grace, the favor) is the debt. Just the same way that when a human being is born, an animal is also born. It doesn't matter how the baby came about. If they issued bonds, they are just issuing bonds, which are also debt. But saying the bonds back the money is as crazy as saying $100 bills back $1 bills. The Martian / mainstream / metallist way you (& Ralph & Lonergan) are unfortunately speaking is like saying that if a boy & a girl is born that must mean that only one is a human or only one an animal, and that two children being born means "boys back girls" or "girls back boys". No, both boys and girls are both humans and animals (& children) and neither backs the other. Both bonds and currency are both money and debt (& NFA) and neither backs the other. This does not mean "boy" & "girl" & "children" are synonyms.
Let me re-emphasize Tom's observations here: "Looking for the "essence" of money as the characteristic of a single set would lead one astray."
Well, Tom has been led astray. Speaking of "language games", mere "family resemblances" etc here just sows more confusion. It's wrong. "Money", its single, unvarying, uniform essence, its characteristic is easy to define and understand. It's not ambiguous, it's perfectly proper terminology. There's no particular mystery or difficulty to it - other than the necessity of actually reading or listening to the definition and explanations (in English, not Martian). Think in English, as if one had never heard of money or bonds or finance or economics before - because so much about them is written in Martian, it infiltrates into ones thoughts entirely unconsciously.
The only "metonymy" that appears here is the inevitable metonymy inherent in the usage of money: we use "money-things" (coins, bills, tally sticks, electric charges, marks on a board) to represent the immaterial social/moral relationship "money". As MMTers are very careful to distinguish between "money-things" & "money" they are not confused by any metonyms, are not using "money" as a metonym.
I am with Calgacus. I think he got it right.
I see currency as a social contract that establishes some obligations to the issuer (government) and some rights to the holder (people). It is a negotiable contract, so it can be exchanged in the market.
The obligations contracted by the issuer are a liability or debt in the accounting sense. The government does not need to get indebted to create a contract. But the contract itself is an agreement that creates a debt to the government.
I guess that is Calgacus point.
How this social contract called "coin" or "currency" works?
I like to imagine that the $1 coin (or note) is somewhat close to financial options:
- The holder of the coin has the option to extinguish $1 worth of his own tax liabilities at the end of any fiscal period. He may choose if and when he will exercise that option. Because the option is a right to the holder, it is an asset to him.
- The issuer of the coin (government) has the obligation to extinguish $1 worth of the holder's tax liabilities if the holder exercises the option. Because the coin represents a obligation to the issuer, it is a liability to the issuer (a debt).
The coin is an option with infinite maturity. It will expire only if the holder exercises the option.
Why would anyone supply work, goods or services to the government to get some coins? Because people need to pay taxes, and the coin is the only way to pay taxes. There are no other ways to pay your taxes at the end of the fiscal period! If want to avoid the sanctions and punishments applied to people who don't pay taxes, you will want to earn some coins.
Because it is a negotiable instrument, you can exchange it in the market for a lot of things. It may then be used by a lot of people as means of payments. Then it would have aditional value.
"It is not. We can issue currency without establishing any "debt" in the process we have full authority to do it this way... ie "no bonds...." a la MMT..." - Matt Franko.
Don't agree. It is impossible to issue currency without establishing any debt in the process. I agree that the government do not need bond issuance to create currency. But the currency itself is a debt to the government and an asset to the population.
"Today, in the process of issuing our currency, a simultaneous debt of the govt is created via the bonds that are issued for interest rate management ... hence "debt-based money"... and most people say "we're borrowing from the Chinese!" out of this process..." - Matt Franko
Even if there were no bond issuance, the coin itself is a social contract and makes the govt indebted.
(Sorry for the bad english!)
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