Michael Roberts Blog: blogging from a marxist economist — Minsky and socialism

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending.Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!

In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production. By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used). They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.

Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production. Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.

Michael Roberts Blog — blogging from a marxist economist
Minsky and socialism
Michael Roberts

The future of money and the payment system: what role for central banks? Lecture by Agustín Carstens

The economics of money is back in the limelight. Even five years ago, I cannot imagine that a lecture on money and the payment system could have been a subject for an event like today’s. Theoretically speaking, money is a social convention. People accept money in the expectation that everyone else will do the same. According to this bare-bones definition, anything could serve as money provided that everyone, as it were, buys in. In economic parlance, this equilibrium analysis gives rise to a theoretical notion of a currency area consisting of users in a community, as shown in a recent paper by our host Markus Brunnermeier and his co-authors. In giving further texture to the analysis of money as a convention, economists and central bankers have learned over the years that the institutional details matter when it comes to how durable and how efficient any economic arrangement can be. To define money as a self-sustaining convention is not the same as nailing down the nitty-gritty details of the monetary system’s architecture.

"...money is a social convention. People accept money in the expectation that everyone else will do the same." Right. As David Graeber showed in Debt: The First 5000 Years, the concept of "money" arose from prehistoric tribal societies that operated on the  "gift economy," when gifts were considered social obligations to be reciprocated. Adherence to such customs generated social trust, not only for "money" as a social construct but also for the rule of law (justice) over the rule of men (power) as a matter of reciprocity and fairness, in addition to utility.

Money and other constructs (arrangements) that underlie institutions later evolved into institutionalized debt and record-keeping using a unit of account, as Michael Hudson showed. "Credit money" as a social construction was developed prior to the advent of state monies that were tax-driven to generate demand. See the work of A. Mitchell Innes.

It was the temple and not the palace that seems to have given rise to institutional monies. Interestingly, the Federal Reserve is referred to as "the temple." It is the palace (state) that backs the temple. I am thinking specifically of William Greider's Secrets of the Temple: How the Federal Reserve Runs the Country.

Subsequently, the palace (state) took over from the temple. Georg Friedrich Knapp described "chartal money" in The State Theory of Money (1905). Institutionalists, Post Keynesians and MMT economists later elaborated on this, as well as legal scholars.

The highlight of the lecture is central bank money as a public good.

The monetary system is founded on trust in the currency. This is something that only the central bank can provide. Like the legal system and other public goods, the trust underpinned by the central bank has the attributes of a public good.3 To coin a phrase, I would like to refer to “central bank public goods”.

This is a huge step in the right direction. The state's power to create currency is delegated to the central bank as the government's fiscal agent. This power derives from the constitution of the state. Thus, the currency issued on this fashion is a public good rather than a private good.

The function of the central bank is also involved in the creation of the public-private institution of commercial banking, where banks are given access to the central bank's payments system and the central bank as lender of last resort. In turn, banks agree to state regulation.

Bank for International Settlement (PDF)
The future of money and the payment system: what role forcentral banks?
Lecture by Agustín Carstens General Manager, Bank for International Settlements
Princeton University, New Jersey, 5 December 2019

The Austrian Theory of Money — Murray N. Rothbard

The Austrian theory of money virtually begins and ends with Ludwig von Mises's monumental Theory of Money and Credit, published in 1912.1 Mises's fundamental accomplishment was to take the theory of marginal utility, built up by Austrian economists and other marginalists as the explanation for consumer demand and market price, and apply it to the demand for and the value, or the price, of money. No longer did the theory of money need to be separated from the general economic theory of individual action and utility, of supply, demand, and price; no longer did monetary theory have to suffer isolation in a context of "velocities of circulation," "price levels," and "equations of exchange."...

Mises Daily
The Austrian Theory of Money
Murray N. Rothbard
Originally delivered as a lecture at the 1974 South Royalton Conference on Austrian Economics. Published in Economic Controversies.

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

Lars P. Syll — Schumpeter–an early champion of MMT

Keeper quote from Joseph Schumpeter. He nailed endogenous money as "credit money" and observed correctly how "money" gets created by banks' extending credit — "they create deposits in their act of lending." This effect is now amplified through non-bank and quasi-bank financial institutions.

The contemporary financialized economy runs largely on privately created credit. This has an even greater effect than Schumpeter likely anticipated. Economists' ignoring this unduly limit the scope of their models by failing to include money & banking, and finance. The result is "surprise resulting from exogenous shock." In other words, the conventional economists were looking in the wrong direction owning to oversimplification of their models of an economy. 

To say that this resulted in "great embarrassment of the profession in the fallout from the global financial crisis would be an understatement. But conventional economists still have not dealt with it by including a correct approach to money & banking and finance. Nor have institutional arrangement been changed to prevent a repeat, perhaps on an even grander scale.

Hyman Minsky was a student of Schumpter at Harvard. Minsky drew out some conclusions from Schumpter's view that became the financial instability hypothesis. Randy Wray, MMT economist and perhaps the most published author on theory of money, was a student of Minsky.

Although Schumpeter eschewed being associated with any particular economic school of thought, he is often considered as belonging to the Austrian school of economics and he was an Austrian national. Hyman Minsky also eschewed association with a particular economic school, but he is often characterized as a Post Keynesian.

MMT has roots in many previous economists and economic schools, although it is usually associated with the Post Keynesian. But here is Wray associated with Schumpeter through Minsky. MMT economists also acknowledge their debt to Abba Lerner, a student of Friedrich Hayek who is generally associated with the Austrian school of economics, too.

Incidentally, the chapter in which this quote occurs is worth reading in full. Here is the citation:

Joseph Schumpeter, History of Economic Analysis, Allen & Unwin, 1954, reprinted by Tayor & Francis, 1986, p. 1080
in CHAPTER 8 Money, Credit, and Cycles, 7. BANK CREDIT AND THE ‘CREATION’ OF DEPOSITS, pp. 1076-1083.

Schumpeter doesn't take credit for originality in this, citing Keynes's Theory of Money, for example. He does criticize Keynes for again mudding the waters in the General Theory. See footnote on page 1080.

Lars P. Syll’s Blog
Schumpeter — an early champion of MMT
Lars P. Syll | Professor, Malmo University

Maxximilian Seijo — A Response to Rebecca Spang's "MMT and Why Historians Need to Reclaim Studying Money"

Historian Rebecca Spang’s latest History News Network piececon MMT and history is both timely and thought-provoking. In addition to its biting critique of economic orthodoxy and other valuable insights, the essay sets into relief a productive ontological debate about money and its historical manifestations. Part of the present breakdown of the neoliberal consensus, the insurgent popularity of MMT in contemporary discourse has enlivened conservations about the nature of money and its role in shaping social life. As Spang rightly claims, this discourse requires historical context. As such, I welcome and applaud Spang’s intervention. However, I also wish to underscore some crucial differences between Spang's vital work (particularly on the French Revolution and the rhetoric of inflation) and the historical work being done within the MMT movement. 

History News Network
A Response to Rebecca Spang's "MMT and Why Historians Need to Reclaim Studying Money"

Maxximilian Seijo | Research Fellow for the Global Institute for Sustainable Prosperity, the Junior Member of the Modern Money Network's Humanities Division Executive Committee, and co-host of the Money on the Left podcast

Rebecca L. Spang — MMT and Why Historians Need to Reclaim Studying Money

Good read! 

Controversy over money is nothing new in US history, since it has been a lively political issue. The arguments are not chiefly about money, although couched in terms of money, economics, and finance, but rather, politics, which involves winners and losers in the policy game. Historically, sound money advocated have been the wealthy, and functional finance people have been ordinary citizens aka "the little people" (h/t Alan Simpson).

History News Network
MMT and Why Historians Need to Reclaim Studying Money

Rebecca L. Spang | Professor of History at Indiana University where she directs the Liberal Arts and Management Program, and author of Stuff and Money in the Time of the French Revolution (Harvard University Press, 2015)

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

C. George Caffentzis — Algebraic Money: Berkeley’s Philosophy of Mathematics and Money

Abstract

In the early 1730s George Berkeley began to explore the conceptual field between ideas and spirits that he previously claimed to be empty. In this field he found a rich set of concepts including “notions,” “principles,” “beliefs,” “opinions,” and even “prejudices.” Elsewhere I have referred to this phase in Berkeley’s thought as his “second conceptual revolution.”2 I believe that it was motivated by his increasing need to develop a language to discuss the social, moral and theological concerns vital to him and his circle.

This second conceptual revolution made possible two of his most important contributions to 18th century thought: The Analyst (1734) and The Querist (1735-37). Even though they were written almost simultaneously, these texts are rarely discussed together, since the former is categorized as a critique of the foundations of the calculus, while the latter is taken a tract advocating the development of a specie-less economy in Ireland.

Using new textual and contextual evidence, however, I will show with that these two texts have a common basis in Berkeley’s second conceptual revolution, in that the rejection of intrinsic values (either epistemic or monetary) and the revaluation of notions, principles, and prejudices are crucial to the critique of both Newtonian mathematics in The Analyst and Newtonian monetary theory and policy in The Querist.

Specifically, I will argue that Berkeley’s famous demonstration of the absurdities of Newton’s method of fluxions devalued geometric reasoning and gave a new pride of place to algebraic reasoning. On the basis of this revaluation in mathematics, Berkeley more confidently undermined the concept of intrinsic monetary value and suggested the development of a monetary system based on “tickets, tokens and counters” (what I call “algebraic money”).

The issues posed by the transition from a specie-based to a specie-less currency were clearly some of the most important and controversial in the Age of Enlightenment. Berkeley’s contributions to understanding the significance and feasibility of such a transition and its benefits for Ireland certainly add support the claim that he was “the
most engaging and useful man in Ireland in the eighteenth century.”

Academia
Algebraic Money: Berkeley’s Philosophy of Mathematics and Money
C. George Caffentzis

Christopher Kent — Money – Born of Credit?

As I mentioned earlier, the vast bulk of broad money consists of bank deposits. These banking liabilities are created when an Australian household or business has funds credited to their deposit account at an Australian bank. One way this can occur, for example, is when a business deposits currency it has earned with its bank. Again, such transactions add to deposits but do not create money because the bank customer is simply exchanging one type of money (currency) for another (a deposit).

Money can be created, however, when financial intermediaries make loans. Accordingly, the concepts of money and credit are closely linked in a modern economy, albeit not one for one. When a bank extends a loan, it makes money available to the borrower, for example, to buy a car, a house or equipment for a business. The bank may credit the deposit account of the borrower, who withdraws the funds to make their purchase. Alternatively, the bank may directly credit the deposit account of the seller on behalf of the borrower. In either case, the loaned funds will tend to find their way into a deposit somewhere in the banking system. This process adds to the supply of money.

If I stopped here, you might be left with the impression that the process of lending allows the banking system to create endless quantities of money at no cost. However, the process of money creation is constrained in numerous ways and depends on the behaviour of borrowers, banks and regulators, as well as the stance of monetary policy....

His accounting gets somewhat funky.

A single bank may make loans by drawing on its liquid assets, yet not receive the corresponding deposits created in return. Before extending further loans, that bank would need to raise funds in other ways – for example, by issuing debt or equity securities or by waiting for its deposits and liquid assets to rise via other means.

Customer deposits are bank liabilities, not assets.

Reserve Bank of Australia

Money – Born of Credit?

Christopher Kent | Assistant Governor (Financial Markets)
Remarks at the Reserve Bank's Topical Talks Event for Educators
Sydney – 19 September 2018

Claire Connelly — What are taxes actually for?

MMT.

Claire Connelly — Medium

What are taxes actually for?

Claire Connelly | Lead writer @ Renegade Inc. Founder of Hello Humans

Bruce Bower — Conflict reigns over the history and origins of money

Thousands of years ago, money was a means of debt payment, archaeologists and anthropologists say.

Useful summary of the history.

Science News
Conflict reigns over the history and origins of money
Bruce Bower

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

Martin Armstrong — The First Representative Form of Money

Egypt’s monetary system began with barter. It was primarily based on agriculture – grain. This evolved into official Graineries and a farmer would then take his crop to the Grainery and receive a receipt. With time, the monetary system evolved where people would then accept these receipts (paper money) in payment.

The receipt  would have been a credit slip representing the liability of the granary.

Armstrong Economics
The First Representative Form of Money

Martin Armstrong

Jonah Ho — TheBitcoin Fallacy-Back to the Gold Standard

MMT.

Makes Mogul
TheBitcoin Fallacy-Back to the Gold Standard
Jonah Ho

Nathan McDonald — Bitcoin Proves You Cannot Have Your Digital Cake and Eat it Too

Read the comments, too. Just like most economists, Bitcoin fans overlooked transaction costs.

Wolf Street
Bitcoin Proves You Cannot Have Your Digital Cake and Eat it Too
Nathan McDonald, Sprott Money

also

The EU is targeting bitcoin anonymity, saying the measure is needed to tackle tax evasion and other crimes. Anonymity of the cryptocurrency holders is a built-in feature that the EU hopes to undermine.

The new rules concerning cryptocurrency passed on Friday by the European Parliament and the European Council are part of a larger package, which also target prepaid cards and trust funds. The agreement is meant to be enshrined in legislation within 18 months by EU members.

Once they become law, the rules will require cryptocurrency exchange platforms and wallet providers to identify their clients. Identifying individuals and entities holding bitcoin and other digital currencies will presumably help to prevent tax evasion, money laundering and financing of terrorism.

As Yves Smith has said, "prosecution futures."

RT
Crypto-crackdown: EU agrees on new rules to curb bitcoin anonymity

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 — Should We Care About Seigneurage?

I believe I have a better understanding of Eric Lonergan's arguments regarding whether fiat money is a liability of a state with currency sovereignty. (This discussion does not apply to commodity money, or a state using a money issued by an entity not under its direct control.) If I am correct, I would phrase his argument as: the existing accounting treatment of money is incorrect, since it does not account for seigneurage revenue. (Seigneurage has multiple English spellings; I was using the French spelling on Twitter -- seigneuriage.)...

Bond Economics
Should We Care About Seigneurage?
Brian Romanchuk

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

Ramaa Vausdevan — The Significance of Marx’s Theory of Money

Link to paper by Ramaa Vausdevan

Radical Political Economy

The Significance of Marx’s Theory of Money

Posted by David Fields