Stephanie Kelton Virtually Speaking

NEP’s Stephanie Kelton appeared on Virtually Speaking with Jay Ackroyd February 7. You can listen with the player below or visit Virtually Speaking on Blogtalk Radio. The conversation begins with the platinum coin and the the nature of fiat currency.

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9 Responses to Stephanie Kelton Virtually Speaking

  1. What about cost of living adjustments that perpetuated 70’s inflation?

  2. 70’s inflation was caused by the tremendous increase in oil prices.


    • The cost of living was increased, because OPEC set a higher price for crude oil. To enable us to buy the same amount of oil, more money had to be created, otherwise if the money supply had remained constant, the price of other goods and services would have fallen.

  3. And union demands. Here we have UAW demanding at least 14% increase in 1970, plus some other compenent that was not even quantified:

    Oh, and retirement after 30 years of servise, so if you started at age 15 you could retire at 45. Not too shabby?

  4. She gives props to Graeber. Nice.

    • Very nice.

      For others’ benefit [starting after TDC-PCS discussion; from 7:15 to 18:05]:

      JA: The reason I bring this up is that … what it illustrated is that really we just create money.

      SK: Well, yeah, … in fact, the only place the U.S. dollar … the only place the currency can come from is from the U.S. government. I mean you and I don’t have the authority to create the currency. If we try to do it within our basements at home … and they catch us … they’ll arrest us. It’s called counterfeiting … we’re not allowed to do that.

      JA: They’ll express dismay at least.

      SK: The idea that somehow the currency isn’t already coming from the United States Government is really sort of baffling in some respects … because it can’t come from anywhere else.

      JA: Well that’s why I found … people’s reaction to the trillion dollar coin so interesting … it’s that they were … for the first time, I think … coming to grips with the fact that … this is fiat currency … and fiat currency has no backing other than the faith of the federal government, right?

      SK: Yeah, it’s an unsettling bit of information … when you finally come to this realization, it does shake people … to their core. I mean, I give a lot of talks … and I travel the country … and I talk about this sort of thing. And people do find this … when you explain it, they will accept this … I don’t leave large audiences with people saying “I don’t believe the U.S. dollar comes from the U.S. Government.” They do believe it when you stop and you begin to probe. But it is unsettling … on some level that … as Gertrude Stein said, “There’s no there, there” … for these people begin to wonder … “How can this make sense?” And is it sustainable? And there’s really nothing behind it. There’s no gold-backing. There’s no … gosh, it does’t seem trustworthy in some respect.

      JA: Right, except … and it’s deeply confusing … I think it’s just an enormous amount of cognitive dissonance … because people want to believe … the thing they have in their hand that they can exchange for goods is actually worth something … because they can

      SK: And it is

      JA: Right … but they only can because of these mutual agreements to exchange articles that are worth something … somebody else will accept them back. That is, if I buy a ham sandwich from my deli … the guy at the deli is buying his ham with the same currency … or, even, numbers on a credit … card … stored away there

      SK: Yeah … but what we like to think … we like to ask people to think about … is “why is that?”. It isn’t a sufficient explanation to say it isn’t sufficient to say that I can pay my mortgage … why does my mortgage company take dollars? Well, because they know that they can pay their workers. Why do their workers take dollars? Because they know that they can go to the grocery store. Why dotes the grocery store …? It becomes what we refer to as an infinite regress problem. You go to infinite backwards and you never get to a quite satisfactory answer about what it is that gives value to the currency … what drives the acceptability. And so, what my colleagues and I have been doing for a number of years is not reinventing the wheel by any stretch of the imagination is … we’ve gone back all the way back to Aristotle and all the way through Adam Smith and into Keynes and beyond and James …

      JA: Before that, when Graeber’s book …

      SK: yeah

      JA: “The First 5000 Years of Debt” … the totting up preceded the creation of currency.

      SK: the what … I didn’t catch that …

      JA: “totting up”, the exchanging of debts. If you look at, you know, the ancient Mesopotamian cultures, that they were working out debt in advance of their actually have currency.

      SK: Yeah, so the people who were really good at this are definitely not the economists and Graeber takes note of that in the early chapters. He has some rather … unpleasant things to say about the scholarship coming from the academic community within the economics discipline … although he does cite a number of works from people at UMKC … I think four of us are cited in his book as exceptions

      JA: [laughter]

      SK: … to that and he does draw on some of the work that many of us have done on the history and early origins and nature of money. But for the most part, the really good work in this area comes from the anthropologists and the sociologists and these people who call themselves numismatists who study the history of numbers — and why did people invent writing and numbers for keeping track of debts and debits and credits, you know, track payments and obligations owed — early forms of debt.

      And this is all traced out really beautifully in the early parts of Graeber’s book. And so, yeah, there’s this really rich story about how you can take an economy that is, you know … well, I shouldn’t even say an “economy” … that is a society, that is, a primitive society that does not have “private property”, that does not have “money”, that does not buy and sell labor and so forth … and you can monetize and economy like that by having an authority come in … could be a palace community … could be an early nation-state. But somebody comes in to one of these areas that has previously not been monetized and imposes liabilities in the form of fines, fees, and taxes, and then says … to the population … in order to settle these obligations to me, you must provide … and then they state how the debt can be settled … and suddenly these populations … who would never have worked and produced and provided resources to earn the British currency for example … the African population said … OK, I guess, we’re subject to a village tax, a hut tax, a head tax, whatever it is … we’re going to work and produce for the British pound … which is intrinsically worthless but suddenly imbued with value because we need that thing to settle our obligations to the Crown.

      And so, you can drive a currency. You can get people to work and accept the currency … which is what we were talking about before … why does it have value … why do people work and produce things in order to get it … And the reason is the state accepts it in payment of liabilities which are imposed on you.

      JA: Right … so the idea is … and the essential theme … I don’t know what the right word is … a central tenet of Modern Monetary Theory is that money is created by government in order to assess taxes … in order to pay for, well, first, armies, right?

      SK: yeah, yeah, I mean, mercenaries, historically, were, yeah

      JA: … and they needed to be small denomination currencies because they didn’t want to spend a whole lot on mercenaries. So the original … the original reason to create a currency was in order to impose taxes on people in order to pay mercenaries or citizens to be in the army.

      SK: yeah, and to move …

      JA: … or to … to feed them …

      SK: right, right, and to move resources … to get the private sector producing things for the public sector. So to move resources from private domain into public domain.

      JA: Now this follows, of course … and I’m going to be a pain the neck for just a minute … is that centralized agriculture really drives this. When you were saying earlier that people in Africa were ?? … well, they had not adopted centralized agriculture … and this whole stuff starts out in the Mesopotamian cultures where they adopted centralized agriculture rather than hunter-gatherer or other kinds of economic models, right?

      SK: yeah, I mean there’s a lot of history here. My colleague, Michael Hudson, has written really great, wonderful long books looking at ancient Babylonia and so on. But, right, it’s with the rise of the surplus … until you have agriculture developed well-enough that there’s a surplus that can be extracted … then the rest of this sort of follows.

      JA: Right … and then you end up with the hierarchical service model …

      SK: right

      JA: and a few people at the top and the use of money is, in part, to extract, … is in part, to make it possible for the serfs to pay you off … and that money was “debt” before it was “currency”. That is, the serfs in the Mesopotamian society were responsible for a certain amount of produce a year … they were sharecroppers, essentially, right?

      SK: right

      JA: And so there would be notches in sticks or there would be other methods of keeping track of what fraction of grain they’re supposed to deliver. And that preceded the existence of currency is the argument the MMT people make. Is that right?

      SK: Exactly … and people like Graeber and Michael Hudson … who I mentioned a coupe of minutes ago … they do this beautifully … the tally system and so forth … so credit comes first … the use of, you know, simple balance sheet entries to keep track of obligations owed … debits and credits and payments and so forth … without the use of any physical coin or anything circulating … credit definitely comes first, yeah.

      JA: So even the idea of “stock” … that word comes from the breaking off of a piece of wood, right?

      SK: That’s right … the stock and the stub … one stays with the debtor, the other with the creditor … matched up at time of payment … debt … is

      JA: Now, and the other idea that he talks about is that currency becomes more important when the transaction becomes more and more anonymous.

      SK: That’s right. That’s right … it become impersonalized … when you can trade those third-party liabilities.

      JA: I mean a stock and stub is hard to trade because the borrower and the lender knew who they were … or the creditor and the debtor knew who they were … if you want to put it that way. But when you got … and one of the things Graeber says … at times of dislocation … at times of war …currency becomes much more important … because you need to be able to trade with people you don’t know.

      SK: uh-huh, and this history is so rich … It’s not really my area … but then you have the whole history of debt forgiveness … and the wiping of the slate clean … and the periodic … the jubilee … and so forth.

      JA: And don’t we need that right now … for everybody under 30. …

  5. Benedict@Large

    There were 3 separate inflations in the 70s. The decade started with an economy overheated by production for the Vietnam War, and this of course was followed by the two oil price shocks. Each of these three is distinct, displaying it’s own peak and subsequent easing of the inflation rate.

  6. This is off topic, Stephanie. On the recent Chris Hayes show I was dismayed to hear Paul Krugman say he agreed with MMT except that govt spending should slow as the economy approaches full employment, as if that wasn’t what MMT teaches. Chris didn’t correct him. Maybe he didn’t know or he didn’t want to divert the discussion. I saw the show that you were on and you were great by the way. Maybe you could contact Chris and try to have this corrected on air. Maybe go on and do it yourself if possible. It’s bad enough that it is so hard to get MMT ideas out to the public, but that when it is brought up on a national show it’s misrepresented. And it’s misrepresented by someone who has as high credibility as Krugman, who should know better. Or if you can’t be on the show, maybe write a post here about it. Thanks, I’ve learned a lot from NEP.

  7. Hello Stephanie:

    I caught a few minutes of an interview with Tom Hartman this morning. He kept trying to get you to respond to the fact that since we have gone off the gold standard, it takes more dollars to buy the same stuff. I felt you were evading the question. He left for a break, and you the interview did not continue, so maybe you finally did answer the question.

    Here is a simple example. In Jan. of 1971, two idealistic 18 year olds decided to join the Peace Corps, and did not know how long they would be gone. Both had $35,000, and wanted to put it away safely. The first buys 1000 ounces of gold. The second takes 350 $100 dollar bills and stashes them away. Both end up in Africa or wherever for 42 years, and come back to the US.

    The first one sells his gold, and ends up with $1.6 million dollars. The second one has $35,000.

    Another example. In 1964 a 1964 quarter would buy a gallon of gas. In 2013. a 2013 government issued quarter buys 1/16th of a gallon of gas. The same 1964 quarter (90% silver) is worth 20-25x face value in silver, so is worth $4, and will still buy a gallon of gas.

    See my article:

    What Do Silver and Gold Buy?

    The only way to “save” fiat currency” is to be actively investing it and increasing it to keep up with its depreciation over time. This may work for certain philosophical outlooks, but makes things like retirement, etc. very difficult. I do not know if a pure gold standard is the best economic system or not, but clearly a pure fiat one is not.