MODERN MONETARY THEORY (MMT) notes correctly that money is a creature of the state, and that important macroeconomic and policy conclusions follow from this understanding, e.g., sovereign states are not revenue constrained and spending is primarily limited by inflation. Taxes give value to state money and maintain its value (i.e., inflation can be controlled through taxes).
One (among many) key policy insight is that a job guarantee is possible. A job guarantee not only achieves what many think should for myriad social reasons be a primary goal of macroeconomics but also further creates a buffer stock that achieves an additional primary macroeconomic policy goal – stability.
However, most of the world does not operate under pure state systems of money. Most of what serves as money in most banking systems in the world is privately created credit money.
We can compare the current most common banking system with a pure state system of money:....Clint Balinger
Towards A Pure State Theory Of Money
17 comments:
Towards a Pure Clint Ballinger Theory of Money
It stands or falls on its own merits; just tooling around with some ideas to see what pushing the state theory further, along with no credit money, might lead to.
Clint, you assume under your pure state money theory, The system is inherently stable. Stability leads to optimal investment, insurance, and allocation decisions and optimal long-term growth and welfare. Redistribution of private and social gains and losses is minimized.
This is a huge assumption. Historically, there have been states that had complete control of the money in the state and they were always administered in the interest of the rulers rather than society.
The principal objection to complete govt. control of money creation is due to the very reasonable expectation of this being repeated. One would have to show how this would be overcome to make any such proposal feasible politically.
Secondly, history also shows that social systems are not inherently stable, and money is a social construct, indeed, one of the primary institutions of a society. Governments are notorious for misusing the money power.
Historically, there have been states that had complete control of the money in the state and they were always administered in the interest of the rulers rather than society.
There have been, but even that is a problematic idea. For example a medieval king might have had complete legal monetary sovereignty within his domain. However, he will not have had a monopoly on the supply of the money metals, as the Romans (mostly) did. So that was one constraint. So what they often did do is exercise their power to "debase" their coinages (circulate underweight coins). Libertarians consistently overstate the degree to which they did this. One could argue that this (contra the libertarians) was simply a legitimate form of taxation. Kings were also constrained in how far they could go in this direction due to the quite real threat of being overthrown. It wasn't until the 17th century and private banks and corporations grew powerful enough to overshadow the sovereign prerogatives that really weird things started to happen.
Tom,
What were the examples of where we had a state that was in complete control of the 'money'?
Iow seems like we're always on metals or a foreign reserve currency, or something ie not a ffnc currency... Ie the state is never in complete control...
Seems like you would have to go back quite a long way to find a situation like that and detailed records of the economic results may not be very available....
I can see where Clint is 'coming from' here a bit... But granted we might not have a lot of data to point to on that scenario if it ever indeed was tried...
Rsp
State money was generally coin in ancient times, and it was issued by the monarch or emperor under strict conditions of use, often with capital consequences for violating. A chief purpose of the state money was to pay the troops. At this time, the ruler owned the mines and controlled the mint, therefore exercised a monopoly of supply.
The split tally stick began to be used in England in about 1100 for the payment of taxes and they came into use as state money to transfer real resources for the king's use.
Credit always existed along with state money and preceded state money. But credit only becomes "money" in the ordinary sense when it is denominated in the currency as a unit of account. This is a later development.
Eventually, credit money eclipsed state money when bankers became powerful enough to wrest some of the state's sovereign power through delegation, i.e., the power to issue money denominated in the currency. The Bank of England was private until 1946, and the Federal Reserve Banks are private entities in the US according to court precedent, although quasi-governmental.
“Historically, there have been states that had complete control of the money in the state”
Tom (or David) – do you have some in mind? Also, as I think David is getting at: have there ever been any states with complete control over a non-gold standard floating fiat currency?
On Tom’s other point – I certainly agree good governance is a prerequisite for good economic policy. But that is a political and cultural question, not economic. I imagine Sweden or Barbados could run a pure state system to their benefit; I doubt Russia or Somalia could. The existing private credit money creating entities around the world likewise vary in their corruption from very good to very bad I am sure; what I am saying is that there are additional substantial negative systemic effects that (under good governance) could be eliminated.
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The US (UK etc.) banking system is already in reality a liability to the public.
We might as well reflect this reality in its organization and bookkeeping.
Right now, this reality is obscured by tradition and deliberate obfuscation to the benefit of rentiers.
David,
So-called 'debasement' could not have been accomplished until we discovered new metals (Tin?)...
iow thru around just past the year zero we only had Iron (oxidizes rapidly, heavy), Copper (bronze is a copper alloy with Iron), silver, and gold.
So you cant debase with "lesser metals" if you dont have any. And I would point out that the whole concept of "debasement" only is an idea applicable to a disgraced human caught up in "metal love" in the first place...
The subjection of ourselves to metals is the same as the subjection of ourselves to the Fed.
iow back before our morons turned our authority over to metals, they simply USED metals as a useful tool to keep track of things in quantitative measures... look at Augsutus epitaph here:
http://classics.mit.edu/Augustus/deeds.html
He is "setting the bar" for posterity... he is saying "look what I accomplished, can you do better?" And he used monetary quantities to facilitate and document his accomplishments to challenge posterity to do better.. ie "Try to beat these numbers!"
Then somehow, this got flipped over and humans became subject to the metals themselves, ie the "toolmaker" literally became subject to the "tools"...
(btw This is the same thing that is setting up for robotics as we speak.... you watch someday the morons will say: "We're out of robots!" "We're borrowing robots from our grandchildren!"...)
The Fed is the "fiscal agent" of the Treasury. The Fed is the "tool", our govt made this "tool" via the Federal Reserve Act. They are the govts "agent", ie the Fed works for all of us via our govt in the form of the democratic republic we have.... they keep track of things quantitatively in our unit of account, that is all, no big deal...
Then, somehow, right on cue, morons get in there and eventually you have the "toolmaker" subjecting himself to the "tool".... and these morons lose the view of the Fed as being subject to the govt....
These contemporary absurd statements: "We're out of money!" "We're borrowing from the Chinese!" are logically the same thing as saying: "We're debasing!" centuries ago ... they are statements traitorous to human authority and dangerous.
rsp,
y said...
"Towards a Pure Clint Ballinger Theory of Money"
Has a nice ring to it. I'll start following it the TM sign ;)
Clint, I would say that when King Henry decided to issue split tallies instead of coin, his realm was like one in which state money was the sole "coin of the realm" and I don't believe it was convertible into gold or silver at the king's treasury. Anyway, from what I can see searching online some think that this is an instance of fiat money issuance.
Split tallies were not officially withdrawn in England until the early 19th century. Tallies had a remarkably long run there as money.
wSo-called 'debasement' could not have been accomplished until we discovered new metals (Tin?)...
Matt, I wasn't talking about substituting other metals, but circulating a "light" coin of the same metal. Libertarians use the term "debasing" to refer to that practice. I was talking about its use as an exercise of sovereignty that could only be done within certain acceptable limits, lest severe political consequences be risked.
Tom (or David) – do you have some in mind? Also, as I think David is getting at: have there ever been any states with complete control over a non-gold standard floating fiat currency?
Clint, we have a few ancient examples (early Roman Republic, Sparta, maybe a few other "city states") but it seems that in those cases it was a matter of a cohesive community acting collectively to preserve their independence in the face of powerful neighbors and the like. Other fiat currencies have been imposed by a much stronger power on a dependent nation. (England on Ireland in Elizabethan reign, Rome on the poorer citizens) Rome may have had the power to impose a true fiat throughout the empire at its height, but they didn't. I don't think there is really a historical parallel to the situation we have now.
Tom and David - thanks! I have always meant to look into tally sticks in greater depth as they pop up always precisely in this interesting context, but I have never gotten around to it.
But weren't they for large scale projects, not daily use? (still relevant of course). I will have to read up on this.
Clint, check out Glyn Davies, A History of Money From Ancient Times To The Present Day, p. 147ff. (Free download)
Thanks Tom, I have been meaning to read Davies and delve deeper into some of the other good money histories, but don’t have easy access to English books at the moment (in China), so the link to the full text PDF is extremely useful.
This excellent article by Chris Cook could hardly be more relevant, mentioning tally sticks in precisely the context raised in the comments here.
The Myth of Debt
“In fact, one could argue that the creation of £375 billion of quantitative easing (QE) reserves – upon which the Bank of England pays interest at 0.5% pa – has partially achieved such a consolidation by the back door.
These reserves of 'fiat money', created and used by the Bank of England to buy and hold gilts, are assets which are functionally equivalent to gilts, since both are created as claims over future tax income, just like the broken tally sticks from days long forgotten.”
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