An MMT vs Austrian Debate Post-Mortem Part II of V: Monetary Operations vs. Political Economy

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

As will be clear to anyone who watches the entire thing, there was very little clash by the end of the debate on the operational mechanics of the modern monetary system:

Murphy: In particular, what makes the Austrians different from other schools of thought, even other nominally free market schools like the Chicago economists – Milton Friedman, guys like that – the Austrians have a very particular view of what interest rates do.

So the Austrians say “look, the interest rate is a price, and in that respect it is like any other price – it communicates information about the real world. It’s not an arbitrary number – it really means somethingand if the market interest rate is supposed to be 7 percent and the Federal Reserve makes it 0.25 percent, that’s going to screw things up.

. . .

Murphy: . . . Suppose it’s true that Greenspan didn’t do the economy any favors, he didn’t give us a soft landing [by cutting interest rates] . . . what if that’s not true? What if all that did was postpone the necessary adjustments in real resources, and then the crisis that hit ultimately in 2008, that was far worse than what would have happened in the early 2000’s. . . .

So what the Austrians say is what Bernanke has done makes what Greenspan did look like child’s play. Bernanke has pumped in more money than all previous Fed Chairs, times two. Instead of bringing interest rates down to 1%  and holding them there for a year, which is what Greenspan did, Bernanke brought them down to basically zero, held them there for several years, and is promising to do it indefinitely until it finally starts working.

So if you think interest rates serve some sort of function, if you think they communicate information and that pushing them down messes things up, then what Bernanke is doing is really bad. And so a lot of Austrians think “yeah, it spared us the immediate crisis that would have happened in late 2008/first half of 2009, had the government just stood back and let things unravel, but it’s not sparing us the agony. It’s just postponing it.”

So we don’t know when it’s going to hit, but at some point there is going to be a reckoning, because you don’t cause genuine prosperity by printing money and giving it to rich investment bankers who made bad investment decisions, which is what Bernanke has been doing.

. . .

Mosler: Let’s talk about interest rates. Let’s just back up to the word “interest rate.” What MMT recognizes is that interest rates mean two different things, depending on whether you’re on a fixed exchange rate policy or a floating exchange rate policy.

 . . . Any foreign exchange trader – and correct me if i’m wrong – will tell you that if you go out and short forwards in the Hong Kong dollar, interest rates go up. But if you go out and short forwards in the Japanese Yen like they just did, the Yen goes down and short-term interest rates stay exactly the same.

We’ve got two entirely different things going on in the monetary system when you have a fixed exchange rate policy versus a floating exchange rate policy.

So what i’d like to say is that what Dr. Murphy is describing is arguably valid in a fixed exchange policy, which would be a gold standard, or something like the Hong Kong Dollar, or the Argentinian Peso when it was fixed to the dollar. And in fact, if you look at the original authors of Austrian economics, they were all in the general context of fixed exchange rates. Not that they always believed in them or prescribed them, but that was the general context of what was happening and that best described what was happening at that time.

Today we’re in a whole different context. We’re in the context of floating exchange rates, and it’s entirely different.

. . . 

Murphy: Let me just wrap up the policy conclusions from the Austrian perspective . . . the Austrian recommendation is to say “let market prices do their job. If the Fed has, in fact, encouraged an unsustainable boom by having artificially low interest rates, then the worst thing in the world is to push interest rates way down again and think ‘oh we’re going to have to deal with that and have a soft landing’ – you’re just setting yourselves up for another boom and bust. And so the Fed shouldn’t do so-called expansionary policy.”

. . .

Mosler: I think we’re both driven by the same thing, and I’m looking at it from a floating exchange rate, non-convertible currency context, you’re looking at it from a fixed exchange rate context. I would never say that in a fixed exchange rate, but I would in a floating, and here’s why. What is government interference in the interest rate market? It takes two forms.

It takes the form of the treasury issuing securities, and the Fed paying interest on reserves. If the Treasury does not issue securities, which is an interference in the interest rate, and if the Fed does not pay interest on reserves, then you have a zero interest rate.

So the zero interest rate is the condition in a floating exchange rate market of no government interference. Government interferes to push rates up above zero. So if rates are at four, it’s because the government pushed them to four. If they are at six, it’s because the government pushed them. It’s not because there is some natural rate of six. That would be in a fixed exchange rates. You will have that natural rate, because you have competition.

Carney: So do we have no natural rate right now?

Mosler: It’s zero.

. . .

Carney: This question is for Bob. The Austrian Business Cycle insists that capitalists are mislead by artificially low interest rates into misallocating capital. But given what we’ve sort of agreed upon about how our current system works, shouldn’t that be dead? Meaning, why would any rational businessman look at an interest rate set by the Federal Reserve and think that is indicative of the savings of the American people, or the amount of some commodity being stored up, when we know that’s not true?

Murphy: Sure. So what John is talking about is in the classical expositions of canonical Austrian Business Cycle theory, the language that guys like Mises and Hayek would use is that “when the government or the banks create credit artificially and push down interest rates, that gives the illusion that there has been more genuine saving than there really has. So that there’s more capital goods than are really available, thus the unsustainable boom starts.”

And he’s right – they do make it sound like the businessmen are fooled. And I think strictly speaking that’s not necessary to the theory – it’s the fact that prices do work, and there are incentives, and if you lower the price, that’s going to cause people to borrow and invest more than they really ought to be doing. And so, yes, even if you had a whole population wholly versed in Austrian Business Cycle theory . . . it would mess things up.

Just like if the price of oil goes to be $100 a barrel, and the government somehow makes it $40, that’s going to screw things up. That’s going to cause dislocations in supply and demand.

. . .

Mosler: I agree that a monopolist like that – for example, OPEC at the margin, they are the price-setter, and they have excess capacity and whatnot. They’ve got 3, 4 million barrels, 5 million barrels a day of excess capacity, and that does prevent market clearing and alter the market for crude oil. So anytime you have a monopolist involved, you’ve no longer got a competitive market. It’s at the opposite end of the spectrum.

Murphy’s non-response to Mosler’s claim that “the natural rate of interest on a floating fiat currency is zero” was, in my opinion, an implicit concession that the conventional Austrian Business Cycle narrative of government interference with otherwise “natural” interest rates is largely inapplicable to the current U.S. monetary system.

Hence, when Murphy reframed the Austrian critique away from interest-rate distortion and towards a general objection to the government’s currency monopoly, he effectively pivoted the debate away away from monetary policy and the realm of political theory. Interestingly, Mosler appeared quite sympathetic to Murphy’s political views:

Carney: Dr. Murphy, how do you respond to that? Is the concern over government pushing down interest rates just a hangover from commodity currencies, and not applicable now, or is that part of the problem, that government has seized control of currency?

Murphy: So yes. Even if it were true that everything that Warren is saying follows – if we start with the assumption that the Fed has such control over the banking system and the government is the issuer of our currency and its legal tender for all debts and so forth – even if everything else he said followed I would still sayok but I don’t agree that’s a good system to set up in the first place, so why are we letting the government have such control over money and banking?”

Mosler: I don’t necessarily agree either.

Murphy: Ok, we’re making progress in the debate – we’ll try and get some clash perhaps in the second half.

Consequently, the only remaining purely economic disagreement, to the extent it could be called a disagreement, was over the rhetorical question of whether it was appropriate to begin an inquiry into macroeconomic policy with the premise that the government enjoyed a public monopoly over currency by virtue of its coercive taxation power.

On this issue, Murphy appeared to agree in principle with Mosler’s chartalist argument that the state determines what is money when it chooses “That Which Is Necessary To Pay Taxes” (or as some MMTers call it, “TWINTOPT”). However, he argued that because taxation was coercive, MMT’s uncritical adoption of chartalist principles was equivalent to an implicit endorsement of state violence:

Murphy: As far as Warren’s proposals . . . it’s not that I think the stuff with his book is wrong necessarily, and some of it I agree with wholeheartedly. But what he’s saying is technically correct but it’s very misleading, or even more to the point, somebody might erroneously conclude from what he says that’s technically true something that’s the wrong thing to do. So let me give you this analogy:

There’s a wife and husband sitting at the table, they’re looking at the family budget, and the man says “You know what, honey, i’m looking at the family expenses and we cut this and cut that. I need to take a second job. That’s the only way we can make ends meet.” And he has an epiphany – he goes “No no no. I’m just going to put on a ski mask and go out and start holding up liquor stores. We’re not ‘constrained’ by our budget anymore.” And she says “what are you insane? You keep doing that, you push that too much, that ‘policy’ and you’re going to end up in prison.” And he goes “Ok, you’re right, but I just want us to focus on the ‘real’ constraint here. It’s not about our budget, it’s about me going to prison. So let’s just at least now we’re thinking clearly about the things constraining our behavior and our spending.”

Ok, so is what the husband there said wrong? Well, technically no, he’s right. The ultimate thing stopping you from spending too much is that you go to prison for holding up a liquor store, not that you need to get a job and income. . . . 

Mosler: What we have to look at is the difference between the issuer and the user of anything. . . . The issuer of anything can’t collect anything until after it gets it out there. Likewise, the U.S. Government is the issuer of the U.S. Dollar in this sense: the dollars used to pay taxes come only from the U.S. Government, or they are counterfeit.

. . . That’s the difference, and that’s why a household gets in trouble, because they have to collect first before they spend. The U.S. can’t be in that position with a floating exchange rate currency.

. . .

Murphy: First of all, John said to Warren “are you in favor of robbing liquor stores?” and he didn’t deny it. . . . I think this is really going to be the crux of the disagreement . . . [A]t best I would say he’s showing that “given the government is going to monopolize the supply of money, all of my things follow.” I would say, still, that’s not a good system because I don’t think the government should be in the business of producing money. Most of us agree that the government shouldn’t be producing cars, well why would we let the government produce the money, which is the most important commodity? 

Unfortunately, Murphy did not offer any explanation of why he believed an alternative currency system would necessarily be less coercive. As a result, his negative case floundered when Mosler accepted the critique on face value and challenged Murphy to articulate a better alternative:

Mosler: I like these people who get together and say “we hate government, we’re just going to get together ourselves and agree to do this.” Well that is government. And so you start off and say “well, we’d like to have an army. We’d like to have a legal system.” Well how do you get people to move from the private system to the public system?

You could ask for volunteers – it doesn’t work all that well. It’s been tried. The way that we do it – now you might come up with a better way – is you slap on a tax in something that nobody has, and in order to get the funds to pay that tax, you have got to come to the government for them, and that way the government can spend its otherwise worthless currency to provision itself. . . . the difference between litter and money is the tax man

Mosler also noted (correctly, in my view) that Murphy’s avenue of critique, while theoretically interesting, was ultimately tangential to contemporary policy analysis:

Mosler: A monopoly might not be the right way to do it and you might have a better system, which I’d like to hear, but right now we’re talking about the U.S. today, and how does it work.


My take from this exchange is that Mosler was correct to argue that the traditional Austrian Business Cycle story of government distortion of market-determined interest rates is wholly inapplicable to contemporary floating currency systems, since all interest rates are set as a policy variable and hence are all “artificial” (with the possible exception of the permanent zero rate that Mosler alluded to above).

Consequently, I am led to conclude that the contemporary relevance of Austrian theory – to the extent it is relevant at all – is limited to its normative case for the adoption of an alternative currency system that is not premised around government monopoly and coercion. This case will be explored in the proceeding section.


71 responses to “An MMT vs Austrian Debate Post-Mortem Part II of V: Monetary Operations vs. Political Economy

  1. Pingback: An MMT vs Austrian Debate Post-Mortem Part I of V: Preface | New Economic Perspectives

  2. Cheers Rohan. I was live-tweeting during part of the debate (I missed portions), and this lines up with what I heard (especially toward the end), and fills in the blanks very well, thank you.

    I find Carney’s lead in – ” … or is that part of the problem, that government has seized control of currency?” – quite odd. Gov’t owns the currency. Why would (or should) it cede control to someone else? I think that’s the real issue: control over the currency, as exercised (or rather abused) by those permitted to create credit, has essentially usurped principles that should benefit the majority of citizens, and instead only benefits a select few.

    One needs only to look at the recent market petulance over potential tapering to understand how entitled those “few” feel to continued weaning off the government’s teat. At the end of the day, it is a reflection of your conclusion – these folks exist in a world where they have no comprehension of a monetary system that is premised around “government monopoly”.

    • Gerry Spaulding

      “they have no comprehension of a monetary system that is premised around “government monopoly”.
      Well, why should they?
      Ever since the ‘government monopoly’ in 1913 established the private (gold)reserve banking system, alias – the federal reserve system, a hundred years ago, those private bankers have been issuing the nation’s money, being the real lever-pullers of the so-called boom-and-bust business cycles..
      From where would they, or anyone, comprehend a government monopoly?
      Is it because the central bank sets, excuse me – targets, interest rates?
      The private bankers get up and go to work every day thinking that they are in control of the nation’s money, and they act accordingly.
      Those in government gets up and go to work every day thinking they are in control of taxing, spending, and borrowing, and they act accordingly.
      Somebody needs to tell somebody how it actually works.

      • Do you think the Federal Reserve is part of the government or a private business?

        • Gerry Spaulding

          In parsing the status of “the Federal Reserve”, care must be taken to differentiate between both the components of the “system”, and who exactly gains from the overall operation of the “system”.
          The components that are quasi-public are of the Governors and its FOMC, where ostensibly all of its policy mechanisms (ZIRP, QE, etc.) originate. It could be said that the public gains if properly managed here.
          The components that are private are those of the Regional banks and their thousands of Member banks.
          All of the gains of their operations accrue to the private sector.
          Each Regional FRB is a private stock bankcorporate entity, as are its Members.
          While a great debate could be had re: the legality of the delegation of public power to that of private privilege, the only public-private significance is who gains, and who pays.
          The public right of direct money issuance without debt has been delegated to the private bankers who issue all of the nation’s money as a debt, c.e., and who collect rent on that money in perpetuity from the users of the system, including the government who delegated away its creation and issuance powers.
          So, in the end it’s all about private gaining, and the public paying.

          • “Who owns the Federal Reserve?

            The Federal Reserve System fulfills its public mission as an independent entity within government. It is not “owned” by anyone and is not a private, profit-making institution.

            As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

            However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve’s activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as “independent within the government” rather than “independent of government.”

            The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year”.


            “What does it mean that the Federal Reserve is “independent within the government”?

            The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long-run goals and do not become subject to political pressures that could lead to undesirable outcomes. So, members of the Board of Governors are appointed for staggered 14-year terms and the Chairman of the Board is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board.

            The Federal Reserve does not receive funding through the congressional budgetary process. The Fed’s income comes primarily from the interest on government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the Federal Reserve System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury”.


            • Gerry Spaulding

              Two quick comments.
              First, why the quotes around your question – I never said anything about who owns the federal reserve system. Nobody owns “the system”.
              Second, I first read both “The Federal Reserve System : Purposes and Functions”, and the Fed’s “Modern Money Mechanics” just over 40 years ago, so please stop trying to explain to me what the Fed explains ABOUT itself today. Been there. Read that.

              Anyone who read a “Purposes and Functions” edition that was printed in the 60s and 70’s will find it reported that the Federal Reserve BANKS were privately owned. They are still privately owned. Today they just ignore what is privately owned, being a public-private partnership(ahem).

              I tried to be very specific about how the Fed SYSTEM is partly governmental – the Policy part, and how part is private in nature – the PROFIT part.
              “Permit me to issue the nation’s currency, and I care not who makes its laws.”

              I don’t disagree with anything you quoted rather nicely from the Fed’s website.
              Just not sure what your point is.
              I would be glad if you found some problem with anything I wrote to make it worth discussing.

              Part fish. Part fowl.
              The Fed is a system of private money creation that operates by using the ‘governmental’ power to take money from the ‘public’ part.
              They rent the national money system to us.
              They own the national economy.
              Not sure why that is not a problem worth considering.

  3. “So the zero interest rate is the condition in a floating exchange rate market of no government interference”.

    That doesn’t really make sense. Mosler is saying is that if the government deficit-spends by ‘printing money’ and doesn’t issue bonds, then the Fed Funds rate will fall to zero. That’s what he means by “no government interference”!!!

    So according to Mosler, government deficit spending and government ‘money printing’ in the context of a government currency monopoly equals “no government interference”.


    • Auburn Parks

      All Govt spending is simply creating money through the crediting of bank accounts through the Federal Reserve system. So unless your position is that the Govt shouldn’t spend = create any money, then Mosler’s comments are completely valid and accurately describe current monetary operations. Taxes do not fund Govt spending in any real sense. All taxes do is:
      1. Give the Fed the amount and authority to credit = create X amount of money in the Treasury’s General Account at the Fed
      2. Suppress aggregate demand in the private sector, allowing the Govt the room to spend its amount of money without causing inflation

      • The point is that in Mosler’s model the fed funds rate only falls to zero because the government deficit spends without offsetting the increased money supply by issuing bonds. NOT because the government “doesn’t interfere” in the market.

        To describe ‘money-financed’ deficit spending by the government as ‘no government interference’ makes no sense.

        • If the government were to run a balanced budget, for example, the Fed Funds rate would rise over time as banks made more loans and their demand for reserves subsequently increased. To stop the rate from rising the Fed would have to lend freely at zero interest or buy enough assets from the private sector to hold the fed funds rate down. So in this case the government would have to intervene to stop the rate from rising, contrary to what Mosler says.

          This scenario could potentially happen even if the government were running a small ‘money-financed’ budget deficit, if the banks’ demand for reserves grew faster than the deficit spending- induced increase in the money supply.

          • If the government only ran a balanced budget there would be no reserves in the banking system, without which it cannot function and the net savings (in government money) of the private sector would be zero.
            There can only be a USD interbank rate if the government intervenes first to create the USD.

        • “The point is that in Mosler’s model the fed funds rate only falls to zero because the government deficit spends without offsetting the increased money supply by issuing bonds. NOT because the government “doesn’t interfere” in the market. ”

          A government that issues its own floating currency & denominates its debts in that currency never has to issue interest bearing debt.

          The only ways the interbank rate can be positive is if the government sets it by draining reserves or if the banking system on whole is short. A default will then occur at any interest rate unless the government intervenes to provide them in which case the rate is back at zero.

          Deficit spending is necessary to provide the USD net financial assets needed for a growing economy & functioning banking system.

    • golfer1john

      Clearly what Mosler said is that interference with interest rates takes two forms: not just the Fed buying bonds to drive rates lower, but also the Treasury selling bonds, and driving rates higher.

      Spending doesn’t “interfere” with interest rates.

    • Gerry Spaulding

      While I would never attempt to decipher Mr. Mosler, there is only one condition I can think of where the natural rate of interest is zero, and that is the condition where the supply of money equals, or exceeds, the demand for money.
      “Interest” is the price-cost to a borrower of using the money of a lender, and price is still determined by supply and demand.

      If collectively, the lenders are holding a supply of deposits that exceed the demand of borrowers, then the reward to be gained by holding more deposits is, naturally, nil.
      In our system, the banks “own” your deposits and with adequate money, there is zero incentive for the bank to pay anything to the depositor. The depositor may need to pay for storage, creating an incentive to invest for any gain.

      So, the basic objective of monetary policy ought to be the assurance of an adequate supply of money. An adequate supply of money levels the financial playing field. Is the achievement of a monetary policy objective of a level playing field for all players the same as government interference?
      Eye of the beholder kind of thing.

      • “In our system, the banks “own” your deposits”

        If I deposit money at a bank I am lending that money to the bank. If I have a demand deposit I can come and ask for my money at any time. The bank borrows my money, it doesn’t “own” it.

        • Gerry Spaulding

          Agreed, thus, the “quotes”.
          They ‘own’ them in the sense they can do anything with them they want, risk them and lose them, same as bank capital. My point was that as a liability to the bank, any deposit made in excess of loan demand, creates pressure for the natural rate to be zero.

  4. Auburn Parks

    To Mr. Murphy:
    First of all, nobody is forced by the Govt to use the US dollars for any purpose other than to pay taxes. If you want to use bitcoin or some other currency to transact, everyone is free to do so. The “market” simply hasn’t determined en masse that there is a better alternative to the US dollar in the USA. So from this logic, what is he complaining about. He, and the rest of his Austrian cohort are free to use whatever currency they want for their personal transactions. So what the hell is he complaining about, he wants the Federal Govt to relinquish total control over the currency it created?

    Which leads in to my second point. Monopoly control over a particular currency is in no way some outlier result. Aricle 1 Section 8 of the Constitution states:
    “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”
    To coin money and to regulate the Value thereof, I cant imagine anything regarding the establishment of a national currency system being any more crystal clear than that. If Mr Murphy, doesn’t like what the Constitution says about the Govt’s ability to create a currency, then he should take it up with the founders.
    and when it comes to private parties creating the State’s currency:
    “To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;”
    A currency is genuinely valueless (as the continental congress found out when the Brits started counterfeiting huge amount of continental money to strike a blow against our upstart Govt) if the Govt doesn’t keep people from counterfeiting.

    In summary, Mr. Murphy, what the hell are you even talking about? You don’t like the Constitutional authority that gives the people, through Congress, the right and power to establish our own national currency? So, instead you want the people to come together to establish a different currency that Govt (We The People) cannot control, what the hell sense does that make? We’ve already tried a market based approach to the quantity of money, AKA the gold standard, and it was an unmitigated disaster, so once again, Mr. Murphy; what the hell are you even talking about?

    • golfer1john

      Even under the gold standard the government controlled the price. It’s not at all clear to me what Murphy thinks should be “money”, if not the thing that government demands in payment of taxes. And if there are to be taxes and government money, who but the government should control its issue? What is the alternative, in Austrian theory, to chartalism?

    • I think that US chartered banks are required to hold dollar-denominated assets and liabilities, and to conduct their business in dollars. National banks, for example, are required to be members of the Federal Reserve System, with everything that entails.

    • reserveporto

      If Bitcoin transactions were anything but a curiosity, Congress would be obliged to quickly find a way to tax it, thereby eliminating their purpose.

  5. Auburn Parks

    And one more thing, as long as I’m ranting. Why is that conservatives and libertarian types hate the Govt so much. They are constantly railing against the Govt as if its some foreign actor, WE ARE THE GOVT! If the people decide that (in MMT fashion) we are much too highly taxed given economic conditions and the size of our Govt, and WE decide that FICA is unnecessary to fund SS, so WE eliminate FICA, allowing ourselves to keep an estimated $1 trillion extra dollars of our earnings each year, then who do the Austrians think they are to say that we shouldn’t be able to do that through the people’s congress with our own currency?

    In other words, I thinks it so telling from conservatives that they dont embrace MMT. There is no other economic school of thought that you can use to justify as low of taxes as MMT. The fact that they dont is telling because it shows that they care more about maintaining the current national ignorance about national financing because tax cuts and receipts and be used to justify cutting Govt programs that we “cant afford”. So its all about cutting Govt (whatever that means) and lower taxes are just a side benefit. If it were not so that every conservative should be up in arms about paying as much in tax as we already do and demanding immediate tax cuts to allow the market to allocate all the additional purchasing power that the American people would now have from a FICA suspension.

    • As a libertarian, Auburn, I can tell you that until very recently I had never even heard of MMT, and so could not have embraced it any sooner than I did. I think that is the case for most conservatives and libertarians, and Democrats and Republicans, too. Despite a bit of recent mainstream exposure, MMT is still just a voice crying in the wilderness.

      As for the attitude toward government, it was best expressed by a statement often attributed to Jefferson, who would have agreed with it if it had been said during his lifetime: “That government governs best that governs least.” Our Constitution was designed to limit government power, which was unlimited in the previous system (monarchy). The 10th amendment has been honored only in the breach, as over the years the Federal government has seized powers to which it has no Constitutional right. You need only to look to the recent actions of IRS and NSA to see that we, the people, have lost control of the beast.

      As to whether it is reduced taxes or reduced spending that is the goal, absent understanding of MMT they are considered quite closely coupled. Republicans have recently not made much noise about reducing government, and even the most restrictive Ryan budget proposal maintains and increases current programs, but just grows them more slowly. Only one candidate in the 2012 election proposed cutting taxes, and it was Romney. Despite the lack of understanding of MMT, it is the Republicans who have proposed, and enacted, the only MMT-friendly tax policies since 1971: the Reagan and Bush 43 tax cuts.

      What is so telling to me about some people who claim to be in favor of MMT is that they express such virulent opposition to the only people who even begin to approach the practice of it: the self-proclaimed conservatives. And they reserve their most hateful rhetoric for the two who enacted the only MMT-friendly tax policies. It leads me to think that what they really favor is simply Progressive politics, regardless of the economics, and that MMT is just an excuse for them to push their political agenda.

      • nicholas a. evans

        “It leads me to think that what they really favor is simply Progressive politics, regardless of the economics, and that MMT is just an excuse for them to push their political agenda.”

        I think perhaps it’s because the consequences of MMT are not *only* that we need to lower taxes for our current level of government in order to get sufficient aggregate demand. MMT also tells us that money is innately a tool of the state. And in a state that claims to care about democracy, it ought to be utilized for public purpose. What defines the “public purpose” will largely be seen and defined through your own political prism, but arguably getting the public purpose is and ought to be the end goal… regulating aggregate demand is merely a means.

        And there’s a case to be made that e.g. excessive spending on military contractors and tax breaks going disproportionately to the wealthy, although this can work to regulate aggregate demand, might not be our best step towards the public purpose. Likewise, criminogenic deregulation of finance doesn’t make *any* sense in an MMT framework. I’m not sure that the Democrats in power have actually performed any better on these points, but they are more likely to at least *talk* like they care about the public purpose (during election season).

        If you’re playing the short game, then it might make sense to back the team that keeps making mistakes and doing a partially good thing in spite of their own rhetoric. But if their rhetoric is almost diametrically opposed (e.g. pushing hard for “balanced” budgets), then you aren’t very well going to campaign on their behalf. “Please vote for these guys: we disagree on almost everything, but they’re lying scoundrels, so we’re pretty sure they’ll still do 20% of our policy prescriptions.”

        All of that said, I do agree that many MMT bloggers and commenters lose the ability to communicate with conservatives by their rhetoric, even when the same point can be made in a way that ought to appeal to both sides of the spectrum. Perhaps if they imagined talking with their misinformed but intelligent and much loved friend rather than yelling at or about their bitter enemies or the idiot sheep, they’d hit a better tone. Mosler does the best at this, I think.

      • Gerry Spaulding

        Not sure the Reagan-Bush(1) tax cuts were really aimed at increasing aggregate demand. Arguably, the George W. $600 per head was definitely so.
        Temporarily, it did make a small contribution, although, being financed by debt-issuance, it removed in-kind from the private sector. And Clinton balanced the budget by robbing Peter. So, all of that is indeed “politically” complex.

        My take on the conservative-libertarian position vis-à-vis either the present system, OR that embraced by MMT, has to do with its view of the private-government monopoly issuance of debt-based money.
        Most C-Ls argue to eliminate fractional-reserve banking and restore the lending of deposits(accumulated savings) as a core move to restoring a level playing field to the field of finance. No lending by creating assets.

        This latter position is supported by progressive economists as well(See the Chicago Plan proposal to FDR and Fisher’s “100 Percent Money”) , with the difference being that C-Ls want to use the existing money supply, operating on scarce money and deflation, while progressives support public money creation and the stable purchasing power of the currency as essential to financial stability.

        Full-reserve banking has been recently supported by Governor King of the BoE.
        Non-debt based public money issuance has recently been supported by Lord Adair Turner in his Overt Permanent Money Finance proposals.
        Having a debate about the monetary system should involve much more than interest rate policies.

    • Well said Auburn, completely agree. The same shenanigan is being applied in every country that MMT can be applied to right now, and that seems like a little more than a coincidence.

  6. “that’s going to cause people to borrow and invest more than they really ought to be doing. And so, yes, even if you had a whole population wholly versed in Austrian Business Cycle theory . . . it would mess things up”.

    That seems to undermine the austrian theory. This generally claims that if market participants receive the ‘correct information’ in the form of ‘free-market’ prices then they will ‘correctly coordinate’ their plans and actions, leading to optimum outcomes as the result of unfettered market processes, because markets are basically perfect and the government is evil, etc etc.

    But Murphy is arguing that even if market participants know or suspect that market prices (interest rates) are actually ‘wrong’, they will nonetheless choose to act in a way which ultimately leads to bad outcomes. This isn’t because they are ‘misled’ or ‘confused’, but simply because they are able to get away with it – i.e. they are tempted by low interest rates and choose to borrow more than they “ought to”, even though they know or suspect that in the end this will lead to bad consequences.

    So Murphy’s version of austrian theory could be summarised as follows: “the problem with low interest rates is that they allow people to borrow more than they should be allowed to borrow, and people will inevitably borrow more than they should be allowed to borrow because people are irrational, crazy and stupid, and just out to make a quick buck. Therefore we need high interest rates to stop people from borrowing more than they should”.

    In other words it has nothing to do with ‘correct information’.

  7. Gerry Spaulding

    Rohan, thanks.
    By “contemporary floating currency systems”, do you mean what we have had since the date when Nixon abandoned the Bretton Woods Current-account settlement process (using gold at a $US price) in 1971?

    If so, was that the date when the government became the monopoly issuer of the currency, thus negating any possible validity of the Austrian business-cycle theory? If not, then when?

    If that was the date (or on whatever date that was) we entered the ‘contemporary floating currency system’ and this contemporary system enabled the government to become the monopoly issuer of the currency, then what actually happened to government financial accounting standards and currency-issuing practices such that Austrian business-cycle theory, as relates to the CB setting interest rates, was no longer valid?

    And, before that date, whatever date that was, was there a different monopoly issuer of the currency, and how did they issue the currency?
    Just trying to nail down this ‘monopoly issuer of the currency’ thing as relates to any significance at all with interest rate setting and business-cycle theory.
    What exactly happened?

    • Yes, can someone point to more discussion on this question. I like MMT and state theory of money, and I do think acknowledgment of floating exchange rate policy vs fixed is integral to why MMT holds together so well when challenged like this. But I’m not sure I’ve seen the clearest of answers from MMT on Gerry’s question here. 1971 is when foreign exchange of dollar stopped being linked to Gold, but 1934 was when convertibility of dollar to gold was suspended for US entities. I have seen MMT authors refer to war periods and the suspension of gold during these times as evidence for a sort of underlying fiat issuing authority of any government, but I could still use further clarity here.

      The old myth of barter has certainly not held up over time. I get that. But the origin of money from the state (in the sort of general parable that Mosler and others tell) doesn’t necessarily convince 100% either, if currency was historically tied to a finite resource such as gold. I certainly can see that over time there have been instances of fiat money as the origin of some markets (hut tax etc), and I’ve read Graeber’s Debt which I found fascinating, but I think MMT could really use a sort of clarification on the historical context — of when these principles became applicable, or if forever innate throughout history, maybe a little more of why this is necessarily true. It’s a tough sell to say “hey in 1971, these principles became true by definition” when no one really noticed this happen. Can someone point me to what I’m missing?

      • nicholas a. evans

        Mosler’s “What is money” (from his mandatory readings section: contains a lot of the answers you are probably looking for (as did Graeber’s “Debt”). I’m also interested in anything else for my reading list to supplement those two.

        • The ‘What is Money?’ text is by Alfred Mitchell-Innes. It was first published in 1913.

        • Yes, this is helpful. Gold as money being a brief detour in history from the vast historical landscape of money as credit, with times of great chaos/war causing society to feel safer accepting metal as money. Still would like to see this connection be more clearly articulated by team MMT. Like, it’s not just the the gold standard (or other fixed exchanged rate systems) are disastrous (which they seem to be over time — deflationary), but it’s the fact that society by representative government entrusts the government to play a role in managing the money system (because when they don’t, bad things happen).

          Maybe, what I’m looking for is a better acknowledgement from some corners of MMT that money isn’t necessarily a creation of the state (history shows us that credit originated — or at the very least existed — in the private sector without government issuance), but rather that society is better off when the public purpose of a well functioning payment system is fully monopolized by representative government. And then, given that most modern societies have entrusted government as the monopoly issuer, all else can follow from that? Like, given this massive responsibility for public good, the government MUST fully realize the mechanics of fiat money, lest they weaken overall societal well-being.

          • Credit is a promise to pay. In a state money system it’s normally a promise to pay state currency.

            “Money” isn’t necessarily a particular object, it’s more like a system of accounting.

            In a state money system the state determines the ‘unit of account’ – i.e. “a dollar”, and then issues liabilities denominated in that unit of account, such as Federal Reserve notes and Treasury bonds. Private sector agents also issue liabilities denominated in that unit of account (know as ‘credit’), and these liabilities are normally promises to pay state liabilities.

            • Right, I guess my point is there seem to have been plenty of examples of credit systems (and some currency systems, and some but very little barter economies) existing prior to states monopolizing the currency (perhaps prior to a state sanctioned unit of account). Mosler and others’ story (which I like) is that the state levies a tax in the state unit of account in an effort to procure real resources from the private sector for the public good (or perhaps more nefariously for the King’s good). But perhaps, what I’m wondering is whether this is less of an origin story (in the beginning there was government and the government issued currency in the unit of account), and more of a societal development.

              When someone like Murphy scores some points by asking “should the government be the monopoly issuer of the currency?” and it resonates with some sect of the audience (maybe not many), isn’t it time for someone in the MMT realm to defend in a more clear and thorough manner why the government monopolizing the money supply is a good thing?

              It certainly wasn’t always a good thing I suspect. There were plenty of kings/emperors who have done harm by their monopoly of the currency, but it also seems like something that we’d want a representative government to have a say in (that is to say, it is definitely a worth public good to keep an eye on the money system). Surely, the global good has been advanced by fiat floating exchange rate systems over strict bankrupting gold standards or fixed exchange rate systems.

              I just think perhaps until this whole argument is laid out with its proper context in history and philosophy, then these common place ideas or “gut feelings” that governments should govern the least, and that money should not be controlled by the government, and furthermore that deficits are horrible will always resonate with a majority of the nation.

              • If the majority of the population thinks that the state has an essential role to play in providing public goods and services then the state will have to demand some sort of payment, which will inevitably take the form of some sort of compulsory payment or tax. So the question then becomes whether the state should demand payment in something which is privately produced, and thereby provide special legal privileges to private parties, or whether it should demand payment in something it produces itself. The latter is more in keeping with the principles of equality before the law, whereas the former is a type of cronyism or fascism.

          • nicholas a. evans

            My (simple, probably overly reductionist and under-researched) understanding is that “credit/debt money” is both simpler and more natural than “barter/commodity money” for nearly everyone… except for merchants who trade (i.e. barter) between different societies. Unfortunately it was the merchant class that informed much of the world’s early economic literature, and so they put the “Metallic theory of money” forward, because it most closely matched their experience.

            And I might be misremembering it, but Graeber’s Debt also mentioned something about the special Chinese demand for gold (basically via temple taxes) during the early mercantile period. This would have dramatically increased global demand for gold, since the European world had strong demand for Chinese goods, and the Chinese were otherwise completely uninterested in anything Europe had to offer (until opium). So even it seems to me that the global demand for gold was significantly inflated by taxes (rather than the more nebulous “shared money illusion” or “double coincidence of wants”) from the start.

            Credit and debt (in the abstract) isn’t a state monopoly. But if your IOUs (letters of credit, whatever) are going to be useful, then you’ll need to get a bunch of other people to accept them as payment. Within a small close-knit community, IOUs can be enforced e.g. via social pressure. But outside of the original context, IOUs lose their value rapidly.

            As I understand it, the major insight of MMT/chartalism is recognizing the demand driven by taxation and other legal obligations (e.g. compensation awarded in lawsuits). If you are going to have an effective government, then you are going to have taxation (and lawsuits). That taxation is going to add significant demand for That Which Is Necessary to Pay Taxes (twintopt). This doesn’t necessarily preclude the existence of private money (or simply trading in money-like commodities such as gold and silver), but it can easily add such a strong demand for twintopt that it will become the dominant (or in some cases, the only) money used in the payment system. This would be true even before you get to more coercive and complicated laws about legal tender and money laundering. This is true even if your twintopt is a commodity (like gold) rather than government tax credits (fiat).

            (BTW, thanks for the corrected attribution, philippe. It was right at the top of the page, and in Mosler’s first comment. Not sure how I missed it. After a quick google, I now see that Mitchell-Innes had a followup essay, which I’ll need to read too:

            • nicholas,

              Randall Wray synthesizes the basic ideas of Alfred Mitchell-Innes and Georg Friedrich Knapp in ‘The Credit and State Theories of Money’. However some have attacked him, and MMT, for this. The American Monetary Institute, for example, which is headed by Stephen Zarlenga, claims that Mitchell-Innes’ views are completely anathema to what you might call ‘pure’ chartalism. They claim that ‘money’ is NOT a debt, whereas Wry argues that it is. Needless to say lots of people have different views on this subject even though a lot of them are quite similar. David Graeber also rejects elements of Wray’s theories about the nature of money whilst generally accepting MMT and its policy proposals .

              G.F. Knapp: ‘The State Theory of Money’


              L.R. Wray (ed.): ‘The Credit and State Theories of Money’, (see link above)

              AMI: ‘A Critique of Innes’ Theory’


              • nicholas a. evans

                Thanks! More for the reading list. 🙂

              • Gerry Spaulding

                Very good explanation, and thanks for linking to AMI’s evaluation of A. Mitchell-Innes’ ideas.
                AMI has no problem whatever with Knapp’s state theory of money.
                Zarlenga has high praise in his book, “The Lost Science of Money” for Knapp’s truly revolutionary postulation that money is, and can only be, a legal, state-run political-economic construct.
                On Mitchell-Innes “debt-credit” theory of money, a minor point.
                The US issued Greenbacks as currency. They were money. They were not, ever, a debt.
                They were ‘equity’ money to the nation, remaining in circulation at par with debt-based currency for over a hundred years.
                So, that money IS debt ought to be more of an open question.
                I always wondered what would have happened to that foundational component had Mitchell-Innes failed to declare what money was.

                • “The US issued Greenbacks as currency. They were money. They were not, ever, a debt.”

                  There were, from an accounting perspective, an non-interest bearing debt of the government.
                  Every credit must have a corresponding debt.

                  Even as equity, which violates the rules of accounting, it remains on the liability side of the balance sheet.

                  However recorded, they represented, just as other IOUs, both a credit to the holder and a liability to the government that was redeemable in payment of any tax obligation.

            • nicholas a. evans: I think you have it right. Something like barter / commodity exchange was only ever important in foreign trade. Gold & silver were only ever so valuable because they were backed by state credit, not vice versa.

              SG:Right, I guess my point is there seem to have been plenty of examples of credit systems (and some currency systems, and some but very little barter economies) existing prior to states monopolizing the currency (perhaps prior to a state sanctioned unit of account). Mosler and others’ story (which I like) is that the state levies a tax in the state unit of account in an effort to procure real resources from the private sector for the public good (or perhaps more nefariously for the King’s good). But perhaps, what I’m wondering is whether this is less of an origin story (in the beginning there was government and the government issued currency in the unit of account), and more of a societal development.

              Credit/debt is primeval, deep. It is a way that even non-human primates understand reality. But money, fully negotiable or standardized credit pretty much coincides with the development of states. “Money is a Creature of the State”. The Mitchell-Innes volume is a great place to start, with both of A M-I’s papers, scholarly apparatus, introductions and papers. It IS an origin story, as much as one could expect, and for any reasonable origin story, distinction between it being “created by the government”, and “a societal development” isn’t too useful. As an “origin story” close to Mosler’s as described above, I particularly like John Henry’s account there of money in Old Kingdom Egypt & before. The money/unit of account was what the Pharaoh/ Big Cheese accounted the receipts of his taxation-in-kind payments from the villages he ruled in, granting them credit in his Treasury, according to his pricing. If there was a good harvest, a village could overpay and get credit applicable to the next year. Makes it very clear how government spending = real taxation = taxation in kind. All the other papers – Ingham, Hudson, Gardiner, Wray, Kelton etc are great on origin stories etc. Geoffrey Ingham’s book The Nature of Money is also invaluable. The most basic point is that money is and always has been and always must be a social relation of credit, not a thing, a commodity like gold.

              • Thanks, this is great. As simple as it sounds, I do think this idea of debt/credit being primeval as you say it is vital to framing the whole discussion. Sorry to slow us down at this foundational level, but if it were this clear cut, I don’t think we’d have the awkward challenges to what naturally follows once one assumes government is monopoly issuer of currency. I realize there has been plenty of academic thought published on the nature and origin of money and debt, and I appreciate the links greatly, but in a lot of the more mainstream outreaches for the cause of MMT that I see pop up in the limited media that pays attention, this sort of foundational level is often not given enough due. I think it makes the often repeated soundbites and highlights a little more digestible. Wonder if anyone else sees same way, or cares I guess. Perhaps not. Thanks for the help all.

                • SG: My apologies for replying so long after, and not saying much. But I think you are very, very much on the right road here, thinking of things the exactly right way. I see it exactly the same way, and think you should care a lot about these vital points. “Slowing down at the foundational level” is exactly the right idea, it MUST be done, again and again, to really understand, to teach. To my mind, to really understand, you have to have what Ingham & Keynes call “Babylonian Madness”, which a lot of people could do more with. Otherwise, subtle mistakes are repeated, that have time and again landed us up in the present position – like the dark age of economic “thought” since the oh-so-close Enlightenment of the Keynesian era.

      • Gerry Spaulding

        I always hope that the gap can be narrowed in this understanding.
        The consensus seems to be that on one day certain there was no longer an obligation on the monetary system to settle accounts on the basis of any gold-value based exchange standard for the national currency, and the nation thus began operating on a flexible exchange rate mechanism with our trading partners, and we became a truly ‘sovereign’ fiat money system.
        While I don’t agree on the ‘sovereignty’ definition here, I agree that the money-nature of our settlement of international trade transactions had changed. MMT propounds that in making that change, we became ‘monopoly issuers’ of the currency.
        So, whatever date that was, on the day before we(GUV) were non-monopoly issuer and not money-creators, and I guess that means someone else was, at least partially, issuing the currency. I think the who, how and when of this transition is important to clarify.
        Especially important is the question of when and how exactly the government began issuing money by paying its Bills. Imagine, one day you are not issuing currency when you are paying your Bills, and the next day you are creating money. I’m sure there was a memo that went around. Changes to some accounting norms and financial operations would seem in order.
        So, when exactly did the GUV become the monopoly issuer of the currency?

        • golfer1john

          There is only one legitimate issuer of any currency, or any debt. You can’t issue IOUs in my name, nor I in yours. We are each monopoly issuers of our own currencies (although we can’t get them as readily accepted as some others). The US government issues US Dollars. The US Government is, and has been since the advent of the US Dollar, the monopoly issuer of US Dollars. Banks issue deposits, and only B of A can issue a B of A deposit. When there was no national bank, most of the money in circulation was issued by a large number of private banks, each of which was the monopoly issuer of its own banknotes.

          One of the important points about the “monopoly” statement is that US Dollars are not made in China and borrowed from the Chinese dollar-makers by the US government.

          What happened in 1971 was not a change in who issued dollars, but in the constraints on the number of dollars issued. MMT does not date the “monopoly” characteristic to our exit from the gold standard.

          When the government pays its bills in its own currency, it is issuing that currency. When it pays in gold, or foreign currencies, it is not.

          • Gerry Spaulding

            Jeezum, golfer, respectfully.
            Where to begin?

            The US GUV has issued all the ‘dollars’?

            Dollar is the unit of account.
            Currency is that which legally carrries the unit-of-account denomination into circulation, where it serves as the universally accepted means of exchange in the place of issue.
            Currency is “that which”.
            I have written here before, being contrary to what you wrote, (that: “”The US Government is, and has been since the advent of the US Dollar, the monopoly issuer of US Dollars.””) that in reality, beginning with the ‘advent’ of the dollar-unit, the GOVUS was $6 Million DOLLARS in debt to the private bankers before we issued our first plug nickel coin.
            So that, ‘you need to issue it to tax it back’ thing didn’t seem operative.
            We didn’t issue the dollar-denominated debt-based instruments (that)which, in the process, created that $6 Million in purchasing power, which served as exchange media in the economy.
            The Private Banks issued their Banknotes as money and they loaned it to the US government so the government could pay its bills.
            If that’s true, the question becomes, since when have private Banknotes, and their computerized ‘functional equivalents’ ever “not” been issued as the nation’s money in exactly the same manner, given the legal definition of money?
            Pretty much, except for coins and Greenbacks, never.

            One can readily ‘declare’ as (sovereign, fiat) truism that only the government can constitutionally issue the nation’s currency, but through its powers of delegation, that same government can empower anyone else to do the same, as through the FRA.
            Thankfully, being still sovereign, we can reverse this error and restore the money creation and issuance power back to its natural heritage – of the people, and their government, where it will forever stay.

            The private banks have the power to issue the nation’s money and lend it to the government at interest so the government can pay its bills.
            The private banks exercise that power all day, every day.
            That’s how, in this country, today, money is created and issued into existence.

            • Yes, I’ve seen you write all that before. And I’m sure you’ve seen what I’ve written before.

              Maybe you could explain how the US government, on its first day of existence, owed $6M US Dollars before the US dollar was defined by the US Government? Before a US government even existed, and could define a US dollar? Perhaps they owed Spanish dollars or British pounds, hmm?

              So, if you have $1M in your bank account, and the bank goes broke, what do you have? Not US dollars, and you never had them. You had the promise of a bank, a private sector business, to pay you (or to pay someone at your direction) in US dollars. If they run out of US dollars, they cannot do that. The US government can do that. The US government, unlike a private bank, can never “run out” of US dollars. It creates them at will.

              For most of our history, prior to the Federal Reserve Act, private banks issued money in the form of their own bank notes. Those were, like the bank deposits of today, promises of the bank to redeem them in US dollars. Those bank notes were money, for sure, they were denominated in the unit of account, the US dollar, but they were not US dollars. They were convertible, contingent upon the solvency of the bank, into US dollars. Just like bank deposits today.

              • I don’t think Gerry is saying the US owed US dollar denominated assets on day 1. Could be wrong. He’s probably saying they were lent the equivalent of [$6M US dollars] in private bank credit (in whatevers), or enough credit collateral to convince the private sector to offer up its real resources to the government. These banks would have been institutions with reputation enough such that if the US Dollar was in someway backed initially (even if this ceased to be true after its origin) by this credit, the private sector would accept US dollars as payment for real private sector resources (labor primarily I guess).

                Seems to me though, that once the US government is truly empowered by the people — not sure how long this process takes — fiat money would have the backing of the people (by their willingness to accept that everyone should pitch in — be taxed). At this point, the backing of some origin bank would be irrelevant. That said, not only am I very unsure of the facts of this pseudo-theoretical history, I’m fairly ignorant of generally accepted historical facts as well, so maybe this doesn’t hold up.

            • To add to golfer1john’s reply:

              that in reality, beginning with the ‘advent’ of the dollar-unit, the GOVUS was $6 Million DOLLARS in debt to the private bankers before we issued our first plug nickel coin.

              So what? (Reference?) What does this have to do with the US government as a currency issuer? Anybody can issue currency. The problem is getting it accepted. At the government’s inception, the “acceptance” was iffier. Now it is rock-solid. Early bankers accepting US government credit for other assets is something of a sign of the early US government’s monetary strength, not its weakness.

              So that, ‘you need to issue it to tax it back’ thing didn’t seem operative. That the $6 million indebtedness contradicts “issuance first to tax it back” is a complete non sequitur, if anything it supports the trivial, irrefutable MMT sequence of events. The US government had to incur the 6 million debt FIRST in order to repay it (tax it back/ settle it / sell something to the private sector) later.

              The dollar, a coin, a greenback, a US note, is a “dollar denominated debt instrument”. Debt free money is a contradiction in terms. Never existed, can’t exist. Talking about media of exchange signals confusion. “Medium of exchange” basically means “I’m trying to think in terms of the commodity theory of money. ” The worst scientific theory of all time. There is no medium of exchange – to quote Mitchell-Innes. Too lazy to look up his exact words.

              Bank reserves and Treasury checks are examples of the US government issuing money. Please, for now take the Fed as part of the government, for simplicity.

  8. The debate is tepid because the monetary contrast has not yet been correctly characterized.

    IMHO, the debate should be between a system with a stable money supply and a system of pure printed money, with no long term value to the pure printed currency.

    The stable money supply system is defended by Murphy. The stable money system is what we use daily in our household budgets.

    The system of pure printed money is not accepted by Mosler but he recognizes that elements of the pure printed money system are present and are mixed into our seemingly stable monetary system. His arguments are not crisp for lack of more direct recognition of the way a pure printed money system would work.

    So what would a pure printed money system look like? Zimbabwe today and Germany of the 1920’s are two examples. A conjectured story of a local-government-supported-counterfeiter would be another parallel. To my mind, such a system could never work except as a short term deviation of a stable monetary system. On the other hand, elements of the pure printed money system seem to appear repeatedly in our “stable” monetary system, causing distortions.

    A pure printed money system would require a point-of-entry into the stable monetary system, AND, the pure printed system would require currency identical to the currency used in the stable monetary system. A closer examination of point-of-entry conditions should be fruitful.

    • You’ve made some vague assertions but demonstrated no real understanding of the subject as yet.

    • Gerry Spaulding

      Totally agree that the monetary system contrast has not been characterized in this debate, but neither in your comment.
      While true that Weimar and Zimbabwe involved pure ‘printed money’ regimes, these regimes increased the national money supply by 150 BILLION TIMES in one year, so any attempt to compare this with anything going on right now is an egregious error. Here, if we increase ANY money measure by one-tenth of 1 time (10 %) the present supply, claims of monetary failure abound.
      If you want to apply the ‘pure printed money system’ critique to a system where it actually applies, use that proposed by Congressman Dennis Kucinich here:
      The Kucinich proposal is for permanent equity-based money issuance, digitally created, at a quantity determined by a Monetary Authority.
      No need for a paper-money hyper-inflationary straw-man, and no need to invent how it might work with today’s system. It’s all in the K-Bill’s real-money proposal.
      So, what was your point about such a system exactly?

    • “The stable money supply system is defended by Murphy. The stable money system is what we use daily in our household budgets. ”

      Every household I’m aware of uses government money in its daily household budget. I have no idea what you are talking about.
      You seem to be implying that there is no difference between a currency issuer & a currency user. This is incorrect. There is no analogy between a household/firm and the federal government.
      For a currency user income must precede spending.
      But for a currency issuer spending must precede income (taxation, bond sales).
      Before government spending, there is no money, to collect (taxes, bond sales).

      • ” IMHO, the debate should be between a system with a stable money supply and a system of pure printed money, with no long term value to the pure printed currency. ”

        By “system with a stable money supply” I was trying to describe a system which does not print it’s own money, such as a household. This in contrast to a money system in which money is printed at will, with little or ineffective attempts at maintaining value for the currency.

        I agree with you that currency must exist before issue. The establishment of credits and liabilities is part of the mechanism to establish and maintain value for a currency. Printing-of-notes- by- the-Fed in exchange for a Treasury contract of debt is accounting even if the contract says nothing more than “I have your notes”.

        • Roger Sparks: “By “system with a stable money supply” I was trying to describe a system which does not print it’s own money, such as a household.”

          So by “stable money supply” you really meant “no money supply”?

          Roger Sparks: “This in contrast to a money system in which money is printed at will, with little or ineffective attempts at maintaining value for the currency.”

          All monetary systems issue currency essentially at will. The value of government money is created & maintained by the imposition of taxes payable only in government money.

          Roger Sparks: “The establishment of credits and liabilities is part of the mechanism to establish and maintain value for a currency.”

          Again, it is taxation payable only in government money that ensures the value of a currency.

          • Vilhelmo

            Again, it is taxation payable only in government money that ensures the value of a currency.”

            I think most economist would look at “taxation” as a process, not an event. Most non-economist think of “taxation” as an event that reduces their purchasing power and enhances government spending ability. Economist would agree with that narrow view but then go on to look at “taxation” as a process.

            “Taxation” as a process is a method of adding and removing money from an economic system. Negative taxation removes money from the system. Negative taxation occurs when the currency issuing government has tax receipts greater than expenditures. Positive taxation occurs when government spends more than it collects, thus increasing the amount of money in circulation.

            I think we agree that taxation-as-a-process is used to control the value of a currency. Taxation is not the only method of controlling the value of a currency.

            • “I think we agree that taxation-as-a-process is used to control the value of a currency. Taxation is not the only method of controlling the value of a currency.”

              I agree.

  9. charles fasola

    @AP, you miss the point that neo-liberals and the libertarian cultists do fully understand the realities of the monetary and economic systems. They actually love big government and the free lunch provided by it to those who currently set and insure through legislation written by those who receive the benefits bestowed on them by our fully captured “leadership”. Without the benefits criminally controlled by those you rant against, their entire con game would dissolve into the pile of shit it actually is. The leaders you depend upon to create changes that would benefit the commons rather than the .01% have been bribed to put into place only policies which insure the gap between them and the rest continues to widen. Demand from your representatives what you wish; realize your demands will accomplish nothing. The focus is manipulated into the amount of money, always, not on what that money is actually directed toward; not on what and where it should be. In today’s system, I do not agree that the US Treasury creates the majority of money in circulation, it is done so by private banking and investment corporations through debt issuance and counterfeiting of existing securities.. Not to mention criminal manipulation of asset and interest costs. My last gripe is a personal one with Mosler. He like others in the 0.01% want to be a full-fledged participant in the system which mostly extracts from the real economy while

  10. charles fasola

    proposing to change it. having his cake and eating it too. The entire system is rotten and criminogenic. He’s a capitalist through and through. Unfortunately, capitalism and democracy along with protection of our rapidly deteriorating environment and concern for future generations cannot co-exist. [Personal attack removed]

    • what’s your solution then?

    • Charles,

      here’s some comments by Mosler from the debate:

      “The financial sector is entirely parasitic and we let it get way out of hand,”

      “you can’t allow banks to do anything you can’t regulate”

      “You have to make sure it serves a public purpose.”

  11. Any particular reason why my comments haven’t been published?

    • All comments are moderated and at times takes awhile to get through them

    • The MMT assertion that the issuer of a currency can never run out of money is not an argument, it’s simply an observation that there’s a computer or a printing press over there in the corner. What about it ? What’s so amazing about that ? If a venture capitalist suddenly can start printing legal tender, there is no indication it will make him/her a competent investor.

      • What’s so amazing about that?

        What’s so amazing is that people continue to act and talk as if that were not the case. In particular, they treat the debt limit as if it were a thing that matters and act as if insolvency were an actual possibility and believe the market could drive up U.S. Treasury bond rates against the desires of the Fed.

        If a venture capitalist suddenly can start printing legal tender, there is no indication it will make him/her a competent investor.

        Anyone can issue their own money. The problem is getting it accepted. This doesn’t require appealing to “legal tender” laws.

        If a concert venue (or a movie theater, or a fair, etc) prints their own tickets and people want to see the concerts (or see the movies, or ride on the Ferris wheel, etc), then there will be demand for their printed tickets. If a government prints its own money, and people have tax liabilities or any other legal obligations which can only be paid with the government’s money, then there will be demand for the printed money.

        At any rate, aren’t most dollar denominated financial assets created by private banks? In that sense, capitalists have been “printing money” for quite a while.

  12. With regards to Mosler’s comment about the natural rate of interest being zero, he wrote a paper about that: “The Natural Rate of Interest is Zero”. It does require some explanation, which Mosler apparently did not explain in the debate. His paper made sense, to me (although I was skeptical at first).