Monday, March 19, 2012

Matt Yglesias — Modern Monetary Theory In The 17th Century

Matt Yglesias calls attention of the early use of paper money by colonists and its being tax-driven.

Read it at Slate (short)
Modern Monetary Theory In The 17th Century
By Matthew Yglesias
(h/t Alice Marshall)


Clonal said...

In fact, Adam Smith refers to the use of paper money in the American colonies in the Wealth of Nations starting II.2.100

Clonal said...

In fact, many historians consider the British Parliament's passage of "the Currency Act" in 1764 which banned the issuance of paper currency as legal tender in the American colonies as one of the major causes of the Revolutionary War. This act threatens to destabilize the entire colonial economy of both the industrial North and agricultural South, thus uniting the colonists against it.

wh10 said...

Wow, this is fantastic support given the source!

wh10 said...

I mean, Matt had no reason to post this. That he did is evidence that MMT is truly starting to become part of the policy discourse and is continuing to gain more credibility day by day. MMT will only continue to gain speed.

Matt Franko said...


He may have had a much needed breakthru wrt coercion.... we'll see tho:

" it's that if the quantity of taxes is too low relative to the stock of money, then the money loses its value and the price level rises. "

Still stuck in some sort of confused quantity theory here tho..... too bad.


paul meli said...

This is a huge step for Yglesias. It appears he is starting to see the light and a lot of young people read his stuff.

Bob Roddis said...

It is my observation that the problem that faces and has always faced mankind is aggression, war, plunder, rape and genocide, not a “lack of aggregate demand”. In line with that observation, let’s remember the facts surrounding Massachusetts’ issuance of paper money: An attempt to pay soldiers coming home from an unsuccessful plunder expedition of Quebec. That’s always been the main instigation of paper money, finding a way to pay for war and plunder without exactly having to pay for it up front. Such a wonderful invention.

Apart from medieval China, which invented both paper and printing centuries before the West, the world had never seen government paper money until the colonial government of Massachusetts emitted a fiat paper issue in 1690.[1][2]
Massachusetts was accustomed to launching plunder expeditions against the prosperous French colony in Quebec. Generally, the expeditions were successful, and would return to Boston, sell their booty, and pay off the soldiers with the proceeds. This time, however, the expedition was beaten back decisively, and the soldiers returned to Boston in ill humor, grumbling for their pay. Discontented soldiers are ripe for mutiny, so the Massachusetts government looked around in concern for a way to pay the soldiers. It tried to borrow £3,000–£4,000 from Boston merchants, but evidently the Massachusetts credit rating was not the best.

Finally, Massachusetts decided in December 1690 to print £7,000 in paper notes and to use them to pay the soldiers. Suspecting that the public would not accept irredeemable paper, the government made a twofold pledge when it issued the notes: that it would redeem them in gold or silver out of tax revenue in a few years and that absolutely no further paper notes would be issued.

Characteristically, however, both parts of the pledge went quickly by the board: the issue limit disappeared in a few months, and all the bills continued unredeemed for nearly 40 years. As early as February 1691, the Massachusetts government proclaimed that its issue had fallen "far short" and so it proceeded to emit £40,000 of new money to repay all of its outstanding debt, again pledging falsely that this would be the absolute final note issue.

It seems like half of the posts on this blog concern government outrages (a noble concern, BTW) but then you guys want to grant the same government even more plenary economic power. You have a most naïve underappreciation for the true brutal nature of government.

Leverage said...


Governments and states are void structures made by people. Is people who make choices. The same is true for corporate structures. Making these structures void of any 'soul' facilitates psychopathic behaviour, but in the end is a psychopath which will enact the decisions. There is always in the end a person making a choice and acting.

So it does not matter really much the institutional arrangement if there is people at charge, they will always screw and violence is the result plenty of times. Feudalism is much more similar to corporatism than the average would agree with, and the result is constant violence.

It's how we made these structures due to common public checks & interests how we keep conflict in check. So the actual response is more democracy, not less.

But both of us know that democracy will always clash with capitalism. So you end up with a travesty regime which hijacks democratic structures for own profitable purposes (political and economical), and here we are, no one getting what they want except the hijackers.

Tom Hickey said...

Bob, if you check previous posts, you will find that the contributors here are out in front on political repression of social unrest, as well as crony capitalism and corruption. We also write in opposition to military Keynesianism and its social, political and economic effect, and well as disregard of government for constitutional and human right.

What we do not think is that property rights trump constitutional or human rights, or that they have a very high place on the scale of justice in comparison to the intrinsic value of people.

Tom Hickey said...

Leverage: "Feudalism is much more similar to corporatism than the average would agree with, and the result is constant violence."

Those who read history recognize this immediately. Large corporations are fiefdoms complete with serfs and competition is the feuding of war lords, as well as their making alliances with each other to further their own interests. And all the rest of it has its contemporary counterpart.

BTW, when serfs replaced slaves, in some places serfs were not always bound to the land. Owners used indebtedness to bind them instead. People like Michael Hudson know whereof they speak when they talk of rising "debt servitude."

Moreover, the "lords" of large corporations and masters of wealth have capture government through the perversion of democratic institutions.

The dynamic is feudal in the extreme, and in Ravi Batra's model it presages a worker revolt that ushers in a new era of rule under the warrior mindset instead of the acquisitive.

Clonal said...
This comment has been removed by the author.
Clonal said...

If you look at the Indian diaspora during the British Empire to the Carribean, East Africa, South America, Fiji and other British colonies, it was because of debt slavery. Only a matter of degree difference between that and the current diaspora from former Soviet Republics, Iceland and Greece, and soon to be Portugal, Spain and Ireland

circuit said...


First, I wish to commend you for the excellent job you do here and elsewhere. Your presence on econ blogs is very much appreciated.

As for the Yglesias piece, I wish to say that it unfortunately doesn't do justice to the significance of this historic fact. In fact, a Federal Reserve economist in the 80s used the Colonial use of paper notes to disprove the quantity theory of money. Essentially, he used the Colonial Mass use of notes to argue that it is not the quantity of money (or growth in money supply) that matters but rather the way money is *backed*. In the Col Mass example, money was backed, it is claimed, by the promise of the government to retire the notes in the future. (This is analogous to balancing the budget). Since MMT also argues that it is the manner in which money is backed that matters, the Col Mass example indeed lends support to the MMT claim of "taxes drive money".