Rohan Grey — Administering Money: Coinage, Debt Crises, and the Future of Fiscal Policy

Abstract

The power to coin money is a fundamental constitutional power and central element of fiscal policymaking, along with spending, taxing, and borrowing. However, it remains neglected in constitutional and administrative law, despite the fact that money creation has been central to the United States’ fiscal capacities and constraints since at least1973, when it abandoned convertibility of the dollar into gold. This neglect is particularly prevalent in the context of debt ceiling crises, which emerge when Congress fails to grant the executive sufficient borrowing authority to finance spending in excess of taxes. In such instances, prominent legal and economic scholars have argued that the President should choose the “least unconstitutional option” of breaching the debt ceiling, rather than impeding on Congress’s even more fundamental powers to tax and spend. However, this view fails to consider a fourth, arguably more constitutional option: minting a high value coin under an obscure provision of the Coinage Act, and using the proceeds to circumvent the debt ceiling entirely. Reintroducing coinage into our fiscal discourse raises novel and interesting questions about the broader nature of, and relationship between “money” and “debt.” It also underscores how legal debates over fiscal policy implicate broader social myths about money. As we enter the era of digital currency, creative legal solutions like high value coinage have the potential to serve as imaginative catalysts that enable us to collectively develop new monetary myths that better fit our modern context and needs.

The platinum coin redux.

Rohan Grey
Administering Money: Coinage, Debt Crises, and the Future of Fiscal Policy

Quebec Issued the First Paper Money in the New World — Martin Armstrong

Factoid.

Armstrong Economics
Quebec Issued the First Paper Money in the New World
Martin Armstrong

Equilibrium Theory and Near East Economics — Michael Hudson

Video interview and transcript.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
Equilibrium Theory and Near East Economics
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

On the Economy — Historical U.S. Trade Balance and Industrialization

The U.S. has run a persistent trade deficit over the past few decades, similar to much of the 19th century. The shifts in the U.S. trade balance over time seem to correspond with U.S. industrialization in a global setting, according to a recent Economic Synopses essay. 

“We hypothesize that industrialization leads to structural changes that cause a nation’s comparative advantages to change relative to those of other nations,” wrote Assistant Vice President and Economist Yi Wen and Research Associate Brian Reinbold.

“Since countries trade based on their comparative advantages, we would expect to see long-term changes to a country’s trade as it enters a new stage of development,” they added....

The interesting point from the MMT POV is that when a country is growing it needs to import more than export and runs a chronic trade deficit, meaning that the country is receiving "winning" in real terms of trade. Then, after industrialization and increasing comparative advantage in manufactures, the country begins to run chronic trade surpluses, meaning that it is saving on other countries currency one balance and "losing" in real terms of trade. Then, in the third stage, the developmental process reverses, the country runs chronic trade deficits and begins "winning" again in real terms of trade.

This is opposite the conventional interpretation of winning and losing in trade competition.

On the Economy — FRBSL
Historical U.S. Trade Balance and Industrialization

Apocalypse economics and economic apocalypse — Richard Westra

What cutting edge economic anthropology and economic history shows is that prior to the dawn of the capitalist era it would have been nonsensical to refer to such a thing as an “economy” and no one ever did. The reason for this, quite simply, is that while economic reproduction is an existential facet of all existing human societies it had always been intermeshed with other social practices–culture, religion, ideology, politics, and so on–and indistinguishable from them. Only under capitalism does economic life emerge transparently, as a separate sphere, permitting systematic study of “the economy” in economic theory.

Mainstream economics in the neoclassical tradition which gained hegemonic status across much of the world by the early 20th century never problematizes the above important ontological fact. Rather, it blithely advances precepts that draw on select economic practices of capitalism as universal principles of human economic life per se.

Unfortunately for humanity, the naturalizing of capitalism by dominant mainstream neoclassical economics establishes a bulwark against the posing of vital economic questions which challenge capitalist rationality....

Societies involving human relationships are complex adaptive systems, comprised of subsystems and "elements," that is, individual members. In human society as a whole, the elements or members are not the unit of society but rather the family is the social unit. Traditionally, this was the relationship of subsystems interrelated by kinship — individuals, families, clans, tribes, and nations.

Each society is characterized by its culture, which includes its traditions, customs, institutions, capabilities and potential, and shared aspirations. This includes overlapping factors that are often characterized as social, political and economic. It is not possible to disentangle the factors comprising the society other than conceptually.

Such conceptualization necessitates drawing lines that involve making assumptions that hang on on factual evidence as well as on abstractions that are based on fuzzy sets. Moreover, identification of key factors and their measurement, as well as prioritizing relevance, is extremely difficult in the scientific sense. Thus, arriving at causal explanation that is scientific sense is riff with issues. These issues are generally debated ideologically rather than scientifically, making the outcome speculative and rhetorical, infected with cognitive-affective bias.

Human knowledge is relative since there are no absolute criteria. For example, in science, all measurement categories are anchor to a real basis as a standard. Scientists are continually trying to refine the exactitude of such standards, as well also ensuring that the standards are adhered to in practice.

A further complicating factor is that human knowledge is based on conceptual structures that are not fully systematized. That is, they are not algorithms. Rather, the basis of human known is narrative, a world view that is embedded in the cultural narrative. For example, the history of thought can be divided into three periods so far, with a fourth period emerging.

The first period was mythological explanation, which still persists, e.g., in religions. "Mythos" means English "story" in Greek. The Greeks distinguished mythos and ethos. Mythos is the cultural story while ethos signifies the cultural values and character. Generally, the cultural ethos is the context for the cultural story that determines and transmits fundamental values and orientation. Logos or reason is distinguished from pathos or feeling. There is also topos, or cultural theme — what a culture is primarily concerned with. Topos relates to telos or purpose. For example, the topos of America is liberty as an end-in-itself or highest good. Finally, there is kairos or opportune time. Cultures are subject to the process of historical dialectic, waxing and waning with a Zeigeist. The mythic age began to wane during the Axial Age (c. 600-300 BCE) and began to be replaced by the conceptual age as mythos as mythological explanation gave way to logos as rational explanation. This was particularly visible in the West with the rise of Greek philosophy as the foundation for what would develop into the Western intellectual tradition.

The intellectual, philosophical or conceptual age is the second stage. It would be characterized by logos or rationality. Pathos or feeling was acknowledged as important but relegated to rhetoric by Aristotle.The cultural narrative began to change as mythological explanation gave way to causal explanation based on logos or reasoning. Plato and Aristotle in particular laid the its foundation based on the teaching and example of Socrates, who wrote nothing.

The Greeks also distinguished episteme or conceptual knowledge from praxis or practice, e.g., the practical application of conceptual knowledge. This, coupled with Aristotle's emphasis on observation, resulted in a cultural transition when Aristotle's thought became dominant over Plato's in the Middle Ages, largely to the influence of Aquinas.

 The second stage developed into the third state when philosophical method began to be replaced by scientific method. Then observation, which Aristotle had emphasized counter to Plato, became key as instrumentation and measurement were improved through technological innovation. Gradually, the scientific age became dominant in the cultural narrative owing to the success in its application to technology and the transformation of society that it wrought, not as if by "magic" but based on understanding "the laws of nature." With Newton the initial stage of the this transformation was completed.

It was assumed that the success of the scientific method was due largely to the assumption of naturalism, which involved rejecting mythological explanation like religious dogma and theology, and also philosophical explanation based on abstract reasoning. This led to the conceptual distinctions among fields of knowledge and the "vivisection" of the organic life of society into conceptual mechanisms.

Modern economics is a result of this. It is the attempt to explain the "economic life" of society in terms of mechanistic and naturalistic principles that are based on equating naturalism as a methodological assumption with materialism as an ontological assumption. The units of society are viewed as individuals functioning like atoms in physics, so that economics is assumed to be based on laws of nature which do not differ materially from the laws of nature discovered in physics. Thus the assumption that the methodological debate is decided, with methodological individualism and microfoundations established as key assumptions along with equilibrium and rational maximization of economic benefit for the agent.

This results in mechanistic explanation over organic, and the normalization of "naturalized economics" as a definitive explanation without relation to society as a system, that is, a whole with a structural aspect and also a functional one. The result is caricature rather than science. Since economic is a policy science used in policy formulation, this has consequences for the whole of society.

The fourth period may now be waxing. This can be characterized as the age of the algorithm. It will depend on develops in computer science and technology, in particular AI. This would mark passage from the Industrial Age to the Digital Age, but probably still within the third period dominated by science.

Whether this will be apocalyptical remains to be seen. It well could be with several swords of Damocles hanging over the body of humanity. But it could also mark a transition to a new humanity.

MR Online
Apocalypse economics and economic apocalypse

Editors

Originally published: Exploring Economic History with Palgrave Macmillan by Richard Westra (July 2019)

Freedom and slavery: the birth of capital — Josh Holroyd

Lesson in economic history. Podcast and transcript.

Socialist Appeal
Freedom and slavery: the birth of capital

Josh Holroyd

FRBSL — Meet the People behind FRED

Backgrounder on the economic data charting service provided by the Fed — making economic data free for all.

On the Economy — FRBSL
Meet the People behind FRED

Robert Paul Wolff — "The Future of Socialism" (article)

I  (Tom Hickey) recommend reading this paper now that "socialism" is the new buzz word. You may recall Professor Wolff from The Poverty of Liberalism, In Defense of Anarchy, and A Critique of Pure Tolerance (with Herbert Marcuse and Barrington Moore, Jr.), which were popular at the time of the "countercultural revolution" in the Sixties and Seventies. He also published scholarly works on Emmanuel Kant and Karl Marx. He blogs at The Philosopher's Stone, which I follow and occasionally offer comment.

In what follows, I propose to take as my text a famous statement from Marx’s A Contribution to the Critique of Political Economy—a sort of preliminary sketch of Das Kapital—and see what it can tell us about the capitalism of our day. I shall try to show you that Marx was fundamentally right about the direction in which capitalism would devel- op, but that because of his failure to anticipate three important features of the mature capitalist world, his optimism concerning the outcome of that development was misplaced. Along the way, I shall take a fruitful detour through the arid desert of financial accounting theory.

Here is the famous passage, from the preface of the Contribution, published in 1859:

"No social order ever disappears before all the productive forces for which there is room in it have been developed, and new, higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society."

"The Future of Socialism"
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst
Published in Seattle University Law Review [Vol. 35:1403-1428]

Peter Ireland — Modern Monetary Theory, Green New Deal Harken Us to Look Back at '70s

Thoughtful reflection on historical precedent.

These observations are particularly useful because they point to an intellectually rigorous way in which debates over the wisdom of the Green New Deal and the usefulness of MMT might be resolved: by examining more carefully the political and economic history of the 1970s. Was the high inflation of that decade a consequence of excessive money growth, engineered by the Fed to relieve budgetary pressures—the source of the “anguish” in Burns’ speech? Or was it mostly bad luck, because of shocks to imported oil and other commodity prices that had little to do with domestic economic policy, as Prof. Kelton suggests instead? MMT invites us on a trip back to the 1970s, to ask what really happened.

The inflation of the 70s has certain parallels with today, along with stark differences. Lyndon Johnson's combination of The Great Society and his and President Nixon's expansion of the Vietnam War resulted in increased government spending, which is similar to the present spending on endless war.

However, at that time the US was still on a gold standard for international settlement and there was a run to convert dollars to gold, resulting in Nixon's closing the gold window on Treasury Secretary John Connolly's advice. But this was a one-off event that likely contributed to inflationary pressure due to revised expectations.

The OPEC also imposed an oil embargo on nations supporting Israel in the Yom Kippur war. This lead to cost-push inflation as the increase in oil prices rippled through the economy. The US had recently lost self-sufficiency in oil production. Now the US has regained it. So presently, there is nothing anything like an OPEC boycott in the offing, barring a major war in the Middle East that disrupts oil production, which is, however, more than a remote possibility with the US threatening Iran.

In addition, there was a significant one-off change in employment numbers post-WWII, with women entering the workforce en masse. Moreover, the labor movement was weakening owing to both internal issues and its coming under attack from capital. Presently, labor is dominated by capital, and there is no large influx of workers in the offing, especially with immigration largely off the table.

It is always dangerous to transpose numbers across history without closely comparing situations to see how similar the context may be.

Economics 21
Modern Monetary Theory, Green New Deal Harken Us to Look Back at '70s
Peter Ireland | professor of economics at Boston College and a member of the Shadow Open Market Committee

The Delphic Oracle Was Their Davos 4/4: A Four-Part Interview With Michael Hudson: A New “Reality Economics” Curriculum Is Needed (Part 4)-John Siman interviews Michael Hudson

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
Up in Arms
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson: (Part 3)-John Siman interviews Michael Hudson

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
The DNA of Western civilization is financially unstable
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson: Mixed Economies Today, Compared To Those Of Antiquity (Part 2) — John Siman interviews Michael Hudson

Mixed Economies and Monopoly

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson: Mixed Economies Today, Compared To Those Of Antiquity (Part 2)
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson About His Forthcoming Book The Collapse of Antiquity (Part ¼) — John Siman interviews Michael Hudson

Naked Capitalism
The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson About His Forthcoming Book The Collapse of Antiquity (Part ¼)

John Siman interviews Michael Hudson

Umair Haque — The Birth of Predatory Capitalism—How the Free World Took Four Giant Leaps to Self-Destruction

A (successful) American politician who cries: “God is a white supremacist!”Neo-nazis in the Bundestag. The extreme right rising in Italy. Poland’s authoritarians purging its Supreme Court .

How did we get here? To a world where the forces of intolerance and indecency are on the rise, and those of decency, wisdom, and civilization are waning? Is something like a new Dark Age falling?

I think it has everything to do with predatory capitalism, and so I want to tell you a story. Of how it came to be born, in four steps, which span three decades.

Eudaimonia 

The Birth of Predatory Capitalism—How the Free World Took Four Giant Leaps to Self-Destruction

Umair Haque

Timothy Taylor — 58 Episodes of Hyperinflation (Venezuela is #23)

For the record.

Conversable Economist
58 Episodes of Hyperinflation (Venezuela is #23)
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Adrian Kuzminski — Understanding Populism

American populists are largely reactive and somewhat confused. They don’t know what hit them. And they don’t know their own, often forgotten, history. Nineteenth-century American populists were not socialists, but small-scale capitalists. They were farmers, artisans, and professionals. Private enterprise was central to their values, and they wanted to preserve it for ordinary citizens like themselves. The ideal was to own your own business, not to work for a corporation. Populists fought to keep private enterprise widely distributed among many small, independent producers, as it still was in their day, and to resist the emergence of dominating monopolies which threatened their economic security....

To remedy this sad state of affairs, the populists demanded the conversion of key infrastructural sectors into public utilities repurposed to facilitate rather than exploit small producers. Railroads, they argued, should be run on a regulated, non-profit basis to ensure low-cost access to markets by their customers. Similarly, banks should be run on a non-profit basis as to ensure low-cost credit to borrowers. Populists also called for the federal government to directly issue currency to pay for its expenses (instead of borrowing to do so).

The basic idea was to turn enterprises with too much monopoly power into accountable public utilities, but otherwise to allow the free market to run its course. The aim was to save free enterprise. If many independent producers have to use the same infrastructure (like railroads or the internet), or rely on a common provider of essential products or services (like energy companies or banks), those businesses, populists said, ought to be transformed into public utilities under public control....

Counterpunch
Understanding Populism

Adrian Kuzminski

Michael Hudson — FT: Wiping the slate clean: is it time to reconsider debt forgiveness?

I don't link to FT since it is behind a paywall (although FT Alphaville is not, but free registration may be required). Michael Hudson provides access to a recent article by Gillian Tett on debt forgiveness.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
FT: Wiping the slate clean: is it time to reconsider debt forgiveness?
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Michael Hudson — Mutual Aid vs Moral Hazard

Creditors argue, for instance, that if you forgive debts for a class of debtors – say, student loans – that there will be some “free riders.” Students freed from debt will benefit, while students who were able to carry and pay off their debts had to “meet their obligations.” It is further argued that if student debts are forgiven (or “junk mortgage” loans written down to fair real estate valuations), people will expect to have bad loans written off. This is called a “moral hazard,” as if debt writedowns are a hazard to the economy, and hence, immoral.

This is a typical example of Orwellian doublespeak engineered by public relations factotums for bondholders and banks. The real hazard to every economy is the tendency for debts to grow beyond the ability of debtors to pay. If large numbers of students remain liable to pay student loans without having obtained well enough jobs to pay, this will prevent them from being able to qualify for mortgage to buy a home and start a family. Many students today are obliged to keep living with their parents, and are unable to marry. The result is deepening economic austerity as a result of the debt overhead.

Meanwhile, defaults on student loans to for-profit colleges are projected as rising toward 40%. Is it worth it to say that to prevent giving these impecunious students a “free lunch,” it is worth keeping a large swath of the population poor and unmarried?....

The basic moral financial principal should be that creditors should bear the hazard for making bad loans that the debtor couldn’t pay — like the IMF loans to Argentina and Greece. The moral hazard is their putting creditor demands over the economy’s survival.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism

Mutual Aid vs Moral Hazard
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

John Siman — Everything You Thought You Knew About Western Civilization Is Wrong: A Review of Michael Hudson’s New Book, And Forgive Them Their Debts

Must-read.

Naked Capitalism
Everything You Thought You Knew About Western Civilization Is Wrong: A Review of Michael Hudson’s New Book, And Forgive Them Their Debts

John Siman

Nicolai Starikov — Who Really Put up the Berlin Wall?

Again, follow the money, here the conversion of the Reichsmark to the DM. Very interesting from the monetary point of view — who controls the money, and all that.

I think some of you may have heard on more than one occasion about how that bloodthirsty tyrant Stalin set up a blockade of West Berlin in 1948 and how the freedom-loving nations organized the Berlin airlift to circumvent it. But today we’ll let you in on what really happened....

Russia Insider
Who Really Put up the Berlin Wall?

Nicolai Starikov