Raúl Carrillo — Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt

Lawyer and Monder Money Network director Raúl Carrillo's presentation at the MMT conference. Must-read for all interested in MMT.

(1) First, I’d like to impress upon folks a theme that I’ll be stressing throughout the conference: when it comes to the economy, law is not merely a governing force (as many on the right would have economists believe) nor a reflective force (as many on the left are inclined to think). It is also a constitutive force. What I mean by that is that the law doesn’t just intervene into the economy on the back end, and it doesn’t merely reflect deeper forces in the economy either. Rather, a lot of the economic concepts we talk about not only have a particular meaning in the context of specific legal parameters, but they only exist given the deeper architecture of legal regimes, in the sense of systems design. I’m going to do my best to articulate what that means and what that looks like when it comes to consumer finance.

(2) Second, I’m going to talk about how people actually experience the government’s failure to sufficiently spend money for public purpose. People don’t experience the absence of MMT-insights as policy failures in a grand sense. They experience it as personal pain. Over time, that pain can become chronic, but at first, it’s acute. For some of us, it’s devalued assets, houses, cars, etc., but most people in this country live paycheck-to-paycheck — or no-paycheck-to-no-paycheck — and thus experience the survival constraint pain on the liability side, where their debt is expounded, compounded, and sometimes straight-up fabricated. And within this group…there is what we call “disparate impact” in the legal world. As Sandy Darity, Darrick Hamilton, and other fellow travelers consistently point out, for many folks on the periphery, especially people of color who lack intergenerational wealth, the lack of MMT informed-policy means permanent austerity and perpetual depression.

With that in mind, we must cultivate a way to talk about Modern Money from the bottom-up and from the outside-in. We have to draw maps from people’s suffering to the macro failures. I personally think we can do this best by talking about (1) consumer debt, (2) criminal justice debt (which Prof. Harris is going to cover), and (3) taxes (which Prof. McCluskey will discuss).…

Modern money is a legal institution first and foremost, as chartalism, or the theory of state money, makes clear. There is no "natural money." Money-use, initially as credit, grew out of informal custom and was later was institutionalized formally in law. and The constitution and operation of this now highly formalized legal institution has vast social, political, and economic implications, especially considering that it can be captured by special interests through a political process involving asymmetric power.

New Economic Perspectives
Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt
Raúl Carrillo, staff attorney at New Economy Project, an economic justice non-profit in New York City

J P Koning — What makes medieval money different from modern money?

Of interest to money buffs. Gives new meaning to "fiat."

Moneyness
What makes medieval money different from modern money?

J P Koning

Peter Cooper — What is Modern Money?

A modern money system, as that term is applied in Modern Monetary Theory, typically has three key features. Two of these features are always present. The third is optional but normally should be in place for the full benefits of modern money to be enjoyed: 

1. The currency is a public monopoly. Government issues the currency and is the only entity allowed to do so. 

2. The currency is nonconvertible. It is a fiat currency. The government does not promise to convert its currency into a precious metal or some other commodity at a set price. 

3. The exchange rate is allowed to float. The government does not promise to maintain a fixed exchange rate with any foreign currency. Instead, the exchange rate is ‘flexible’ or ‘floating’. As already mentioned, this feature is usually operative, but not always. 

Taking these three features together, we can say that modern money normally involves a ‘flexible-exchange-rate nonconvertible currency’, or ‘flex-rate currency’ for short....

heteconomist
What is Modern Money?
Peter Cooper

Paul Krugman — Money Makes Crazy

You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society.… 

Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. ... Paper is a check drawn by legal looters.” 

Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.

And the corollary is the gold and silver are virtue.

Paul Krugman gets this very right. It's a moral issue with some people since money and morality are joined at the hip if not synonymous. Which the basis for the double standard that allows those with wealth to follow different rules than those that don't have wealth, moral worth being equated with financial worth.

BTW, notice that Krugman uses the term "modern money."

Economist’s View
Paul Krugman: Money Makes Crazy
Mark Thoma | Professor of Economics, University of Oregon

Wonderful MMT presentation here

You may have seen this on Warren Mosler's website, but in case you haven't, check it out. It's a very well done presentation.

This Could Change Everything Copy

Public spending creates money? Taxes destroy money?

Randy Wray explains the process of creation of state money aka "currency" and destruction of previously created state money through taxation.

What is a sovereign currency? It is (mostly) a keystroke that results in an electronic entry on a bank’s balance sheet. (Yes it can also be shiny coins, paper notes, and watermarked checks—but those are increasingly less important.) To be more accurate, it is two entries: an entry in the deposit account of the fighter plane’s producer and a reserve credit at the central bank for the producer’s bank.

In the case of a modern “fiat” sovereign currency, what does the government promise? To “redeem” its currency in tax payment. When the fighter plane producer pays taxes, the keystrokes are reversed: the deposit is debited and the bank’s reserves at the Fed are debited. Presto-change-O the sovereign currency disappears in redemption.

The fighter plane ends up at the government. That, of course, was the whole purpose of the keystrokes.

Now let’s take Bradford’s example. Instead of keystroking a deposit, the government issues a “tax credit” to be used later in redemption of its tax liability. When tax time comes, the tax credit is sent on to the Treasury (presumably, it will be an electronic entry so little electrons pulse their way to Washington). Presto-change-O the tax credit is gone.

Yep, [David] Brooks has that part right. It is exactly the same thing. The fighter plane is moved to the government.

After all, that’s what it is all about, right? From inception, the purpose of the monetary system is to move resources to the public sphere.

Global Economic Intersection | Op Ed
Sovereign Currency as a Tax Credit: Confusion for David Brooks
L. Randall Wray
(h/t beowulf in a comment at MMR)

Public sector expenditure adds financial assets to the domestic private sector by marking bank accounts. Taxation withdraw financials assets previously created through public expenditure by marking down bank accounts. Account entries appear with spending and disappear with taxation. Public spending "creates money," and taxation "destroys money."

Note: For those wondering about notes and coin, government does not issue either notes or coin directly into the private sector. Banks exchange reserve balances for vault cash to meet window demand.

Modern Money And Public Purpose Seminar Series — Columbia Law School

2012-2013 Seminar Series On Contemporary Issues In Law And Political Economics
Modern Money And Public Purpose
Columbia Law School
(h/t money4publicpurpose, RT Scott Fullwiler via Twitter)

The first seminar is scheduled for September 11, 2012 and will feature L. Randall Wray and Michael Hudson on the history and evolution of money and debt.