Nathan Tankus — What if The Federal Reserve Just ... Spent Money?

Nathan Tankus is a go-to guy on the institutional side of MMT. Following Scott Fullwiler, I also highly recommended subscribing to his new blog if you are into the nitty gritty and don't want to miss anything since I will only be linking it selectively. Nathan offers a free and a premium service. Like MMT legal scholar Rohan Grey, Nathan is an up-and-comer and is already becoming a star. The MMT bench is broadening and deepening. 

Please support Nathan if you are interested and able. Here is the subscription link.

Nathan Tankus
What if The Federal Reserve Just ... Spent Money?
... could it?

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

Lars P. Syll — Esther Duflo vs Elinor Ostrom

Agnès Labrouse quote. 

The most revelant sentence: 

While Duflo and Banerjee are in line with a technocratic democracy, the Ostroms sustain a Tocquevillean democratic self-governance. For the latter, institutions emanating from democratic processes, far from being straitjackets, are the core of economic processes. They simultaneously constraint and enable human action.

Paternalism versus democracy.  That's pretty much the "compassionate conservative," liberal divide.

Lars P. Syll’s Blog
Esther Duflo vs Elinor Ostrom
Lars P. Syll | Professor, Malmo University

Peter Radford on corporations

Most theories of the firm within economics pick up the narrative with the existence of the corporation as a given. They then bend over backwards to retro-fit this highly centralized pseudo economy into the larger free market narrative preferred in all major textbooks. In so doing they blithely ignore Alfred Chandler’s famous explanation for the rise of modern business organization, which he argued became possible “only when the hand of management proved be more efficient than the invisible hand of market forces”.

Chandler, being a historian rather than an economist, was more interested in reality than in hypotheticals. He understood and tried to explain the actual landscape of large-scale business. I have always wondered what would have happened to economics had it absorbed the true gist of the challenge issued by Coase in 1937. The impudence of that challenge has never been fully understood. Coase asked simply: “why do firms exist?”. After all if market forces are as supreme as the textbooks tell us, there is no room for business organization at all. We ought be able to accomplish all our transacting through a web of contracts in the open marketplace.

Indeed the most common response of economists to the challenge represented by business organization is to argue that a business organization is simply such a web of contracts. In this view we can continue to ignore any oddities of business organization since it is indistinguishable from the market. In this view the firm exists at a “nexus of contracts” and has no special attributes that cannot be negotiated and contracted for in the marketplace.

Except this is not true....

The key to understanding corporations is to separate the economics from everything else. We need to do this because the economics, as expressed in various theories of the firm, are usually entirely idealized and bear no resemblance to reality. Economists, as usual, love to theorize about things that don’t exist but which they wished did exist....

Corporations, far from being products of the free market, are actually franchises of the state. They are sub-contracted jurisdictions.

To be a corporation is to possess a charter from the state. That charter brings privileges not available to non-corporations. The most notable privilege is that the corporation is recognized as a distinct legal entity separate from any “natural” person who may be associated with it. And because the corporation is brought into existence prior to it being populated or animated by any natural person, it is not owned by any of them. It is unowned. In this sense it is akin to a nation state, the church, most universities, and, at least here in the US, most towns, It would be odd to describe any of those bodies as being owned by the people who animate them. Yet we routinely talk of firms being owned by stockholders. It is this misattribution of ownership that leads most economists astray in their theorizing...

Peter Radford explain why this is important and what problems misunderstanding engenders.

The Radford Free Press
Who “Owns” a Corporation?
Corporations Cont’dPeter Radford

Bill Mitchell — The path out of the low wage trap is limited by fiscal austerity

During my postgraduate study years I read a 1954 article by American economist Clark Kerr entitled – The Balkanization of Labor Markets – which attacked the mainstream labour market views that there was mobility within labour markets such that poverty arising from low-pay was a function of workers’ preferences for low education and more leisure (that is, unemployment). As such, there was no reason for the government to intervene to improve wages or job security. Kerr’s thesis was that there was not a ‘single’ labour market accessible to all, where individual mobility would result from personal investment in education and skill development. Instead, he argued that the US labour market was “segmented” by institutional arrangements, which trapped some demographic cohorts into low-pay and insecure jobs. Poverty could arise from these traps. The idea morphed into the segmented labour market literature of the late 1960s and early 1970s. The applications were mostly Anglo because in non-Anglo countries there appeared to be more resistance to institutional arrangements that undermined the chance for workers to enjoy job security with decent pay. However, in recent years (decade) the trend towards precarious work where certain groups (women, youth, migrants) are trapped in low pay and frequent spells of unemployment has spread, with devastating consequences. The largest European economies – Germany and France – are now bedevilled with this issue and with a bias towards fiscal austerity, the path for workers out of the trap is limited....

Bill Mitchell – billy blog
The path out of the low wage trap is limited by fiscal austerity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — MMT And Automatic Stabilizers

The recent internet debates about Modern Monetary Theory (MMT) have been interesting, but the various critics of MMT have largely missed the elephant in the room: automatic fiscal stabilisers. In my view (which may not reflect the official "MMT Party Line"), one of the keys strengths of MMT is that it is largely built around the importance of automatic stabilisers, and institutional details. The conventional view is to acknowledge the existence of automatic stabilisers, but otherwise pretend that they have no effect on the economy….

Bond Economics
MMT And Automatic Stabilizers
Brian Romanchuk

Awara — Simple Tips That Will Help You Choose the Best Accounting Company in Russia

While doing business in Russia, you might have already learned the easy or the hard way that local accounting principles significantly differ from Western practices due to requirements of Russian law.

Accounting is institutional and its rules are determined by institutional arrangements that are generally part of the legal structure in modern societies.

This can make comparison of data difficult in different jurisdictions.

Awara
Simple Tips That Will Help You Choose the Best Accounting Company in Russia

David M. Fields — New Book: Money as a Social Institution – The Institutional Development of Capitalism

Money as a Social Institution – The Institutional Development of Capitalism by Ann E. Davis and published by Routledge

Radical Political Economy
New Book: Money as a Social Institution – The Institutional Development of Capitalism

David M. Fields

Dirk Ehnts — “If I watch a football match”

Elementary institutional economics. Substitute unit of account for a central bank note and banks for the competing teams in a league in this analogy. Without understanding the rules of the game and the relationships of the teams and players, just tracking flows is meaningless.

econoblog 101
“If I watch a football match”
Dirk Ehnts | Lecturer at Bard College Berlin

Diane Coyle — Economics and its soul

Diane Coyle argues that economics has actually regained its soul by reincorporating institutionalism. So a lot of the current criticism about neoclassical economics dominating the profession is no longer valid.

Noah Smith has also been arguing that economics is also becoming a lot more data-oriented, that is, empirically based, than formal now.

The Enlightened Economist
Economics and its soul
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Michael Hudson — Rentier Capitalism – Veblen in the 21st century

As the heirs to classical political economy and the German historical school, theAmerican institutionalists retained rent theory and its corollary idea of unearned income. More than any other institutionalist, Veblen emphasized the dynamics of banks financing real estate speculation and Wall Street maneuvering to organize monopolies and trusts. Yet despite the popularity of his writings with the reading public, his contribution has remained isolated from the academic mainstream, and he did not leave a “school.” The rentier strategy has been to make rent extraction invisible, not the center of attention it occupied in classical political economy. One barely sees today a quantification of the degree to which overhead charges for rent, insurance and interest are rising above the cost of production, even as this prices financialized economies out of world markets.

Michael Hudson
Rentier Capitalism – Veblen in the 21st century

See also


L. Randall Wray, Veblen’s Theory of Business Enterprise and Keynes’s Monetary Theory of Production, <i>Journal of Economic Issues</i>

Noah Smith — Economics Has a Major Blind Spot

Noah Smith is becoming a better economist after leaving academia for the media. He is becoming an institutionalist, perhaps without realizing that this is an area that has been explored.

Bloomberg View
Economics Has a Major Blind Spot
Noah Smith

Brad DeLong — Musings on “Just Deserts” and the Opening of Plato’s Republic – More

Greg Mankiw Defending the 1% proposes what he calls the “just deserts” theory of social justice:

What you have gained and hold by playing by the economic rules is yours: social justice consists in not cheating or injuring people, and not being cheated or injured in turn.

This is an old theory: we see it first in the western intellectual tradition nearly 2400 years ago, in the opening of the dialogue that is Plato’s Republic. It is advanced by Kephalos…

Socrates dismisses it out of hand.

WCEG — The Equitablog
Musings on “Just Deserts” and the Opening of Plato’s Republic
Brad DeLong

See also

Counterpunch
The Magical Invisibility Cloak Utilitarianism Wears in the Age of Neoliberal Capitalism
Fred Guerin

Scientific American
How Morality Changes in a Foreign Language

Julie Sedivy

Understanding Society
Profit and Gift in the Digital Economy
Dave Elder-Vass | Lecturer in Sociology at Loughborough University

Nicolas Colin — Brexit: Doom, or Europe’s Polanyi Moment?

Brad DeLong calls this a must-read. I agree.

It's mostly about the current historical period, which Nicholas Colin interprets and as a "Polanyi moment" (my phrase). It's insightful and contains a lot of useful links. It's historical and institutionalist, as well as forward looking. Colin also provides some insights about revising the political compass relevant to current events.

A bit longish, covering a lot of ground. But it is a very worthwhile read, at least down to the section of Brexit at the end, which may be more of interest to Brits.

TheFamily Papers #22
Brexit: Doom, or Europe’s Polanyi Moment?
Nicolas Colin
ht Brad DeLong

ProMarket — Is There a Crisis in the Economic Theory of the Firm? Participants at Harvard Business School Conference Agree: Firms Try to Change the Rules of the Game

A novel conference at Harvard Business School brought together top scholars in order to answer the question: Is Milton Friedman’s dictum that firms that maximize shareholder value maximize social value as well still relevant in a post-Citizens United world?

With "experts" like these, we are in trouble. Sounds like a theology conference to me.

ProMarket
Is There a Crisis in the Economic Theory of the Firm? Participants at Harvard Business School Conference Agree: Firms Try to Change the Rules of the Game

ht Mark Thoma at Economist's View

Peter Radford — Why Trump?

Not really about Trump.

For those of us who value economics as an understanding of a critical part of social reality we must insist that those inhabiting that alternative world take full responsibility for the outcome of their ideas if, and when, those ideas are allowed to seep into actual policy making. They must be blamed. And we ought to demand an explanation as to why the imposition of fanciful ideas onto an unsuspecting world, with the core consequences now becoming apparent, is at all ethical.

You see, Polanyi was right. At least in so far as he projects the blame for extreme politics, in a major part, onto the shoulders of those who advocate policy based upon theories that stand not so much on solid foundations but in midair.

It is not possible now, nor has it ever been, to extract economics form its socio-political context. It is not possible to remove history. Nor is it possible to remove the panoply of institutional, cultural, geographic, intellectual, or technological frameworks within which economic activity takes place. Those things frame every single transaction. They channel them. They constrain them. And they create the pathway along which an economy travels. If we ignore such things then the consequent study is a sterile amoral technical exercise of little practical value.…

The Radford Free Press
Why Trump?
Peter Radford

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 

ht David Fields

Russ — Religion is All Good and Well….

This is a nice short post on abstraction and reification of ideas. Most of what we deal with today in the "Antropocene epoch" is human artifacts, some of which actually exist along with natural objects as modifications of natural objects. But many and many of the most significant are mental constructs. These mental constructs then take on a reality of their own through the social construction of reality.

While you are reading this, keep Citizen's United in mind and remember than the people who gave it to use are dressed in robes and sit in high seats.

Voltaire
Religion is All Good and Well….

Russ

Timothy Taylor — Douglass North and Instititions

In some ways, North's emphasis on institutions has become so embedded in economic thinking that it runs the risk of sounding obvious. By now, everyone is familiar with the big idea that institutional traits like property rights and the rule of law play a central role in economic performance. But every big insight--like "institutions matter"--sounds obvious when it is raised to a high level of abstraction. The more lasting insights come from a double process: first digging down into the specifics of different times and places so that you can be specific about which institutions mattered at which times and for reasons, and then taking the next step of looking for commonalities and patterns across the landscape of these specific studies. North led the way in showing how to do these kinds of studies, and did far more than his fair share of them. But as North wrote at the end of his JEP essay in 1991:

The foregoing comparative sketch probably raises more questions than it answers about institutions and the role that they play in the performance of economies. Under what conditions does a path get reversed, like the revival of Spain in modern times? What is it about informal constraints that gives them such a pervasive influence upon the long-run character of economies? What is the relationship between formal and informal constraints? How does an economy develop the informal constraints that make individuals constrain their behavior so that they make political and judicial systems effective forces for third party enforcement? Clearly we have a long way to go for complete answers, but the modern study of institutions offers the promise of dramatic new understanding of economic performance and economic change.

My favorite line:

North also pointed out how groups in power could use institutions to perpetuate their authority, and that such groups had an incentive to act in this way and hold on to power. even if the overall effects on growth were negative.

Conversable Economist
Douglass North and Instititions

Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Siobhan Austen and Darren O'Connell — Nobel Laureate Douglass North’s work leaves a strong legacy for economics

North focused on economic history in the belief that we need first to develop an understanding of what determined the performance of economies through time before we can an attempt to improve their current performance.

North’s analysis of the economic performance of nations focused on the role of institutions. He asserted loudly that institutions matter. Indeed, he argued that institutions are the underlying determinants of economic performance; more important that other factors commonly ascribed key roles, such as changes in technology or relative prices.

Institutions are “the humanly devised constraints that structure human interaction”. They comprise all those elements of the social environment that regulate how we can interact with each other. Institutions include laws, rules and constitutions, as well as social norms and conventions.

North argued that institutions matter for economic performance because they affect transaction costs. Transaction costs include the costs involved in designing, negotiating and enforcing trade contracts; the formal and informal contracts involved in buying and selling goods and services. When institutions are missing or weak; for example, when laws are poorly specified or not enforced, the costs and risks of engaging in trade will be high and the prospects for economic expansion will be low.…

In later work North applied his notions about the importance of institutions more broadly and ambitiously. For example, in collaboration with John Wallis and Barry Weingast in 2006, North attempted to use institutional theory to reinterpret the last ten thousand years of human history. They described how the formation of small groups of elites and militarised coalitions within tribes limited outsiders’ access to land, labour and capital within territorial zones, and protected valuable activities such as trade, worship and education.

This generated rents for elites, which, in turn, encouraged cooperation, specialisation and trade – rather than warfare - between neighbouring territories. North and his colleagues argued that this equilibrium proved both profitable and persistent, to the extent that “limited access orders” came to dominate the behaviour of these societies; that is, the stable state became the de jour “natural state”.

An important theme in this narrative is that institutional change is likely to come about when powerful economic or political agents perceive that they can capture additional gains. This reflects North’s close ties to the rational choice tradition, which suggests that institutions evolve in response to the needs and interests of individuals. However, North also recognised that people’s perceptions are influenced by their current cultural context and flows of information. He argued that the development of institutions and economies will be “path dependent” - constrained by the existing set of institutions and incentives – and not necessarily, or usually, optimal in terms of economic efficiency. North emphasised that time matters in the determination of economic performance, as well as institutions.

The interesting thing is that North worked within a neoclassical framework to show that neoclassical assumptions about the "invisible hand" of natural market forces leading to spontaneous order is wrong. History, culture, institutions, and organizations are key economic factors.

The Conversation
Nobel Laureate Douglass North’s work leaves a strong legacy for economics

Siobhan Austen, Associate Professor, School of Economics & Finance, Curtin University, and Darren O'Connell, Sessional Lecturer, Curtin University