State Money and Markets — Peter Cooper

A national government with the authority to tax gets to nominate a money of account along with the ‘money things’ that will be accepted in fulfillment of the tax obligations it imposes. In doing so, the government creates a demand for a particular money – a ‘state money’. This motivates the formation of markets for goods and services whose prices are denominated specifically in the money of account. This is true whether the national government with the authority to tax is a monetary sovereign (a currency issuer) or a monetary non-sovereign (a currency user), though a monetary sovereign will have greater autonomy in shaping the economy according to democratically expressed preferences as well as the werewithal to underwrite the economy....

Excellent analysis of the crucial difference between the issuer of sovereign currency and users of that currency. Pass it along. This is foundational to MMT and few people, even some in banking and finance, seem to not get this distinction or forget it.

heteconomist
State Money and Markets
Peter Cooper

The Monetary Monopoly Model — Brian Romanchuk

What I refer to as the Monetary Monopoly Model is the simplest possible mathematical model that captures basic concepts from Modern Monetary Theory (MMT). Despite its simplicity, it gives a good feeling of how a sovereign could pin down the value of a brand new currency (relative to existing currencies, or the value of real goods or services). However, the model makes almost no assumptions about private sector behaviour, and such assumptions would be needed to simulate an existing industrial capitalist society. The reason to start with this model is that the discussion of those behavioural assumptions will drown out the MMT-specific parts of the model.

The model is based on the model presented by Pavlina R. Tcherneva, in "Monopoly Money: The State as a Price Setter."* Tcherneva's discussion follows earlier texts on the imposition of money in European colonies, by other authors; I chose this article solely because it had a convenient mathematical exposition within the article. Readers that are interested in the academic precedents for these concepts are invited to consult the citations in Tcherneva's article. The model presented here uses my preferred notation, but cannot be considered to be an original model.

For readers who are allergic to equations, feel free to jump ahead to the sub-section "Interpretation in a Fictional Country." An intuitive example of how this model works is given therein.…

Bond Economics
The Monetary Monopoly Model
Brian Romanchuk

Dirk Ehnts — Schumpeter on Knapp in his 1954 HEA

Schumpeter did not like Knapp's Chartalist theory.

econoblog 101
Schumpeter on Knapp in his 1954 HEA
Dirk Ehnts | Lecturer at Bard College Berlin

Michael Roberts — Modern monetary theory – part 1: Chartalism and Marx

Modern monetary theory (MMT) has become flavour of the time among many leftist economic views in recent years. The new left-wing Democrat Alexandria Ocasio-Cortez is apparently a supporter; and a leading MMT exponent recently discussed the theory and its policy implications with UK Labour’s left-wing economics and finance leader, John McDonnell.

MMT has some traction in the left as it appears to offer theoretical support for policies of fiscal spending funded by central bank money and running up budget deficits and public debt without fear of crises – and thus backing policies of government spending on infrastructure projects, job creation and industry in direct contrast to neoliberal mainstream policies of austerity and minimal government intervention.

So, in this post and in other posts to follow, I shall offer my view on the worth of MMT and its policy implications for the labour movement. First, I’ll try and give broad outline to bring out the similarities and difference with Marx’s monetary theory....

Can the Chartalist/Modern Monetary Theory (MMT) and Marxist theory of money be made compatible or complementary or is one of them wrong? My short answers would be: 1) money predates capitalism but not because of the state; 2) yes, the state can create money but it does not control its price. So confidence in its money can disappear; and 3) a strict Chartalist position is not compatible with Marxist money theory, but MMT has complementary features.

Let me now try to expand those arguments....

If you are already interested in MMT and Marx, this is obviously a should read. But if you are just getting interested, I can recommend London based Marxist economist Michael Roberts as a good entry point. He works in finance, so "money" is his thing. However, one also needs to be aware that there are different interpretations of what Marx actually said and that no one speaks for Marx. Be aware that Michael Roberts is not an expert in MMT. For an economist that is deeply familiar with both MMT and Marx, and sympathetic to both, see the work of Peter Cooper at heteconomist.com. If you are seriously interested in MMT and Marx, Peter is the go-to guy in my view.

Michael Roberts Blog
Modern monetary theory – part 1: Chartalism and Marx
Michael Roberts

The following is part-3 in an open series meant to introduce the basics of modern monetary theory (MMT) and to explore the potential for MMT’s radical model of macroeconomic reality to intersect with revolutionary theory and struggle. In part-1, the basic principles and monetary mechanics of MMT were presented alongside an irresponsibly brief review of money’s evolution from its prehistoric origins to the ongoing failure of orthodox economics to explain how money functions today. Part 2 looked at how MMT re-writes the rules of public spending and how it could be used by the working classes to build radical organizations and fight the power of capital with a self-managed federal job guarantee. And now Part 3 presses on to new territory where, for the first (and probably last) time, engine mechanics and the state theory of money will become relevant to a discussion of one of history’s most exhilarating topics — taxes. (Please, don’t leave)…

John Lauritis Blog

On the State Theory of Money, Social Power, & Taxes: Modern Money Systems 3

John Lauritis

Peter Cooper — A Simple Modern Money Tale – Buckwell Island Establishes a Currency

Pass it on.

heteconomist
A Simple Modern Money Tale – Buckwell Island Establishes a Currency
Peter Cooper

The Economics Novice

Weekend reading. There are only three entries. Easy read.

Ed Zimmer is an engineer and has only recently encountered economics.

But I had now picked up an interest in macroeconomics — and started seriously reading many of the economists' blogs and papers. But the more I read, the more disillusioned I became. Having no previous introduction to economics, I initially assumed economists were scientists (and that was reinforced by the math I was seeing). But as I read their blogs and papers and worked through many of their mathematical models, I came to realize they're not scientists at all — but philosophers. A model reflecting reality simply CANNOT be built from variables that cannot be precisely defined and accurately measured — so their models are essentially useless. They may give insights (for readers to test with their own logic), but any notion that they're offering "truths" is just simplistic.

And to compound that weakness, most economists' papers share the academic weakness of trying more to disprove other economists' work than offer viable solutions to real-world problems. So much of what is found in today's economics textbooks and blogs is simply false — the real-world truth often being the exact opposite of what is written. Economics is not that complicated — little more than the disiplined logic every human is capable of.

So that's how this site has become The Economic Novice. It gives me a platform to lay out my solutions (admittedly novice, but hopefully clear and logical) to societal problems resulting from technological change. I'm doing this as a webpage (rather than a blog) simply because I don't want arguments mucking up the presentation. I'll point to this site as applicable in others' Comments sections and that's where arguments will occur. If anyone wants to argue via email, you'll find me at edzimmer@zimmer-foundation.org.

• About us
• The "No Free Lunch" Myth
• A Job Guarantee Program

The Economics Novice

JP Koning — An example of tax-driven money during the greenback era

Some interesting history.

Moneyness
An example of tax-driven money during the greenback era
JP Koning

Brian Romanchuk — Understanding Why Fiat Money Is A Liability Of The State

One of the topics I discussed in Abolish Money (From Economics)! returned to Twitter today, and I just want to give a long form version of my arguments. The debate was with Eric Lonergan (web site) regarding where money should show up on the government's balance sheet. I discussed this topic in Chapter (Section?) 14 of Abolish Money -- "Money as Debt."

I am keeping the core of my argument short, since I am actually just applying boring mainstream logic to the question. As that section of the book noted, there's a lot of complicated questions that arise in this area. I am only interested in a narrow technical question.

The first thing to note is that all of the national accounting conventions that I am aware of treat money as a liability on the balance sheet of the issuing government. Note that we cannot use the terms "debt" and "liability" interchangeably: debts are undoubtedly liabilities, but not all liabilities can be classified as debts. For example, a corporation might have a liability that is an accounting provision for potential legal liabilities; such a provision does not meet the definition of debt according to almost any definition (legal, accounting). Instead, what I am interested in here is: how should we treat the monetary base from the perspective of economic analysis (the accounting conventions be damned).

Bond Economics
Understanding Why Fiat Money Is A Liability Of The State
Brian Romanchuk

J. D. Alt — The Great Italian Experiment (part 2)

As I said, Italy, is now experimenting with paying for public services with tax credits. Presumably, this is happening because Italy doesn’t possess enough Euros to pay its citizens to provide all the goods and services needed to maintain and run the public sector of its social economy. And Italy can’t “create” the additional Euros it needs because that prerogative is the exclusive right of the EU Central Bank which Italy, even as a sovereign member of the EU, has no control over. But, as the news article explains, Italy still needs to have the grass mowed and the weeds pulled in its public gardens. So it has decided (out of desperation, the article implies) to pay the gardeners with tax-credits. The gardeners are willing to do the work in exchange for the government’s tax-credits, because it means the Euros they earn (in other ways) can then be used to purchase goods and services rather than for paying their taxes. So, in practical terms, it is “just like” getting paid in Euros.

This, in fact, is way more interesting than it seems. In fact, it might even be mind-expanding! Here’s why:

Nice post that lays out a lot clearly in a few simple words. Well done.

Part 1.

New Economic Perspectives
The Great Italian Experiment (part 2)
J. D. Alt

Mish — Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme?

MMT Foolishness: Modern Monetary Theory (MMT) suggests that debt does not matter and governments can print at will creating a virtual utopia of constant growth. MMT, Keynesian, and Monetarism all suffer from the same fatal flaw: They promise something for nothing, in various ways.

For discussion, please see Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List.

Those who believe in the absurdity that a benevolent government would spend the money wisely, cancel all the debt or pay interest to itself and everyone will essentially live happily ever after, seriously needs to investigate my reading list.

By the way, MMT cannot possibly be correct for a reason I have not heard anyone else state: It’s based on fraud.

Mish continues to display arrogant ignorance. He is actually a pretty savvy guy in other ways. I used to read him and assumed that he would overcome his Austrian bias eventually and grok MMT. Nope.

Bitcoin is real currency, USD fraudulent, you see.

Mish is implying that  portfolio cash saving should be switched from the USD into bitcoin as a safer haven?

Just who is being foolish here?

FXStreet
Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme?
Mike “Mish” Shedlock | Sitka Pacific Capital Management,Llc

Peter Cooper — State Monies are Fundamental to Modern Monetary Economies

What is the most appropriate entry point to the study of a monetary economy in which government is currency issuer? Is it “the market”? Is it the definition: total spending equals total income? Is it real exchange? Real production? Is it total output? Total employment? Total value? Distribution of income? The origin of profit? Price formation? Competition?

I would answer “no” to all these suggestions. They are all important aspects of the subject, but they are all embedded in something else. They are all embedded in a social context that is put in place through collective action. In modern monetary economies, this collective action is conducted through currency-issuing government and its instrument, state money.
The operation of markets requires various collective arrangements already to be in place, which can be summarized as the laws and regulations governing property rights and their transference, along with supportive social institutions.

Spending, in a modern economy, is monetary, and is received by somebody else as monetary income. But where does this “money” come from?

The weakeness of conventional economic is that it assumes away the social basis for a modern economy, e.g.,  by beginning with the Robinson Crusoe model of barter exchange in Econ 101.

Modern economies are nothing like that.

Modern economies, even relatively ancient ones, presume an existing institutional basis, e.g., in law. Property, for example, is a legal matter. Law ariese out of custom. Even the most ancient socieites were regulated by custom.

There is no "natural" field in economics that is anything like the natural sciences. Presuming there is skews the investigation from the outset.

A small mistake in the beginning is a big one in the end, according to the Philosopher [Aristotle] in the first book of On the Heavens and the Earth. —Thomas Aquinas, De ente et essentia

heteconomist
State Monies are Fundamental to Modern Monetary Economies
Peter Cooper

Lars Syll — Keynes & MMT

Keynes quote.

Lars P. Syll’s Blog
Keynes & MMT

Lars P. Syll | Professor, Malmo University

See also

Mainstream monetary theory — neat, plausible, and utterly wrong

Dirk Ehnts — J. S. Mill (1848) on tax-driven money

Via Matt Forstater (link), I have found some paragraphs by J. S. Mill on tax-driven money (see below). It is quite amazing that this knowledge got lost in the 21st century, with all that technology available.

econoblog 101
J. S. Mill (1848) on tax-driven money
Dirk Ehnts | Lecturer at Bard College Berlin

Ellis Winningham — One Way That The Federal Government Can Ensure its Survival

The federal government requires various goods and services to operate and function as government. It needs tables, chairs, paper, pens, printers, ink, computers, airplanes, tanks, ships, ammunition, concrete, steel, wiring, switches, light bulbs, on and on. The question is, how can the federal government obtain all of these things, now and in the future, to ensure that the federal government will always exist?….

Chartalism.

Ellis Winningham — MMT and Modern Macroeconomics
Currency Issuance: One Way That The Federal Government Can Ensure its Survival
Ellis Winningham

Heske van Doornen — The History of Money: Not What You Think

Most of us have an idea of how money came to be. It goes something like this: People wanted to exchange goods for other goods, but it was difficult to coordinate. So they started exchanging goods for money, and money for goods. This tells us that money is a medium of exchange. It’s a nice and simple story. The problem is that it may not be true. We may be understanding money entirely wrong.

The above story assumes that first there was a market, and then people introduced money to make the market work better. But some people find this hard to believe. Those who subscribe to the Chartalist school of thought give a different history. Before money was used in markets, they say, it was used in primitive criminal justice systems. Money started as—and still is—is a record of debt. It is a way to keep track of what one person owes another. There’s anthropological evidence to back up this view. Work by Innes, and Wray suggest that the origins of money are more like this:

The Minskys
The History of Money: Not What You Think

Heske van Doormen, UMKC

Brian Romanchuk — Should We Care About The History Of Money?

When reading about economic theory, one of the arcane areas of argument that comes up is the origin of money. From the perspective of knowledge for the sake of knowledge is a good thing, one cannot complain about this. However, if you are interested in understanding the current monetary system, this debate is largely a red herring. In this post, I discuss some of the criticisms of "neo-Chartalism" by Anwar Shaikh in his new book Capitalism (link to my discussion of that book).

The simple answer to the importance of the history of money in theory of money is historical. Neoclassical economics is based on the barter-commodity theory of money, which implies that money is a neutral veil.

The opposition of some economists to this deficient assumption was not only to point out that money does not function as a neutral veil in modern monetary economics, but also that the narrative on which the barter-commodity theory of money is erroneous. For example, the commodity theory leads to the assumption that gold is money, or gold, silver and copper are money, and that other forms of money are just tokens for these real assets.

So, yes, economists have to take the history of money into consideration into order to avoid the false assumptions that afflict conventional economic methodology, a principal one of which is that a modern economic is a barter economy rather than a monetary economy. This has lead to wrong conclusion and disastrous policy based on them.

Bond Economics
Should We Care About The History Of Money?
Brian Romanchuk

Pavlina R. Tcherneva — Money, Power, and Monetary Regimes

ABSTRACT

Money, in this paper, is defined as a power relationship of a specific kind, a stratified social debt relationship, measured in a unit of account determined by some authority. A brief historical examination reveals its evolving nature in the process of social provisioning. Money not only predates markets and real exchange as understood in mainstream economics but also emerges as a social mechanism of distribution, usually by some authority of power (be it an ancient religious authority, a king, a colonial power, a modern nation state, or a monetary union). Money, it can be said, is a “creature of the state” that has played a key role in the transfer of real resources between parties and the distribution of economic surplus.

In modern capitalist economies, the currency is also a simple public monopoly. As long as money has existed, someone has tried to tamper with its value. A history of counterfeiting, as well as that of independence from colonial and economic rule, is another way of telling the history of “money as a creature of the state.” This historical understanding of the origins and nature of money illuminates the economic possibilities under different institutional monetary arrangements in the modern world. We consider the so-called modern “sovereign” and “nonsovereign” monetary regimes (including freely floating currencies, currency pegs, currency boards, dollarized nations, and monetary unions) to examine the available policy space in each case for pursuing domestic policy objectives. 

Levy Economics Institute of Bard College
Money, Power, and Monetary Regimes
Pavlina R. Tcherneva | Assistant Professor of Economics at Bard College

Randy Wray — THE VALUE OF REDEMPTION: DEBT-FREE MONEY PART 3

Sorry that it has taken me a while to get back to my multi-part series on debt-free money. This is the third part of the current series, although I had previously written several other blogs on the related topics of debt-free money, positive money, and 100% money. See links at the bottom.

New Economic Perspectives
THE VALUE OF REDEMPTION: DEBT-FREE MONEY PART 3

L. Randall Wray | Professor of Economics, Bard College

Paul Craig Roberts and Michael Hudson — The Atlanticist Tactic Revisited

Paul Craig Roberts and Michael Hudson team up to analyze the Russian economy and economic policy. MMT-friendly.

Michael Hudson
The Atlanticist Tactic Revisited

Paul Craig Roberts and Michael Hudson