Monthly Archives: December 2013

Malign Confusion about Growth, Economic Growth or “Degrowth”: Which Way Forward? – Pt 1

By Michael Hoexter

[Part I] [ Part II] [Part III]

Speaking on December 4th, President Obama, tacked once again, at least in his rhetoric, this time towards claiming that he is targeting a pro-economic growth, anti-economic inequality policy in his remaining time in office.  Skepticism is warranted for a number of reasons including:  Mr. Obama, along with Congressional Republicans and Democrats, had helped strap the US economy and government to a contractionary fiscal policy and therefore to anti-growth government spending policy for the period 2010-present.  The cleverest piece of the rhetoric in the speech:  “A relentlessly growing deficit of opportunity is a bigger threat to our future than our rapidly shrinking deficit” artfully distracts listeners from Obama’s own role in spurring on deficit hysteria in much of his time in office.  The deficit hysteria he helped foment in turn has endangered exactly the economic opportunities that Mr. Obama now claims to want to encourage.  Mr. Obama is one of the chief engineers of the current framework of acceptable discourse in Washington where almost all political actors and media figures measure the government’s success or failure by how much the deficit has been cut, a metric that in 99 out of 100 economic scenarios will lead to slowing economic growth or economic contraction.

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Essays in Monetary Theory and Policy: On the Nature of Banking (2)

By  Darren Prince*

There are different views on the importance of banks in regards to what functions banks actually perform and how they interact with other aspects of an economy.  There are two main approaches to the banking industry and also within the two approaches there are different theories.  The orthodox and heterodox approaches to banking have very different views of the banking industry and the different approaches diverge at the very beginning of their theories.  To fully understand the beliefs that are the driving force behind the nature of banking in both approaches a brief description is needed to understand where the theories diverge.  The orthodox and heterodox theories diverge in their beliefs on the subject of “money” or more specifically what the origins of money are and what role does “money” play in a capitalist economy.  This brief description is needed to understand how each theory developed what they believe to be the nature of banking considering the fact that banks and financial institutions deal with money.  The overall purpose of the paper will be to describe the nature of banking within the different approaches and how these theories lead each approach to develop policies and procedures regarding the financial industry that are believed to best serve the efficiency of the United States economy.

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Essays in Monetary Theory and Policy: On the Nature of Money (3)

By Jack Wendland*

Neoclassical economics has largely relegated money to the role of neutral medium of exchange.  A closer, more historical look at money reveals that, from the beginning, money has always been credit offset by debt, not a medium of exchange.  Although the acceptability of money follows a clear-cut hierarchy, the process by which money is created remains the same for all parties.  Running contrary to the mainstream narrative, this vision of money as credit has important implications for the fiscal policy of any state that issues its own currency.

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Essays in Monetary Theory and Policy: On the Nature of Money (2)

By Matthew Berg*


This paper argues that a monetary production credit economy must necessarily have a hierarchy of money (Foley 1983; Bell 2001) in which some IOUs are more liquid and more acceptable than others, and in which default on IOUs is possible. The imposition of a tax liability by the government is a sufficient condition not only to ensure that the government’s IOU is acceptable (Wray 2012), but also to ensure that at least some non-government IOUs will be acceptable to the degree that they can be converted into government IOUs – that is, to the degree that they are liquid.

Banks are institutions which exchange their own IOUs for the IOUs of borrowers who stand lower in the hierarchy of money than banks. Borrowers take out loans from banks for the purpose of buying goods, services, or financial asset from a third party. Banks (and central banks) act as the “ephors” of capitalism – and as the ephors of the hierarchy of money – by deciding which IOUs shall be “validated” and effectively converted into government IOUs, and by deciding when and for how long those IOUs shall be validated.

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Essays in Monetary Theory and Policy: On the Nature of Banking

By Ryan M. Pope*

Hyman P. Minsky said he thought there were as many forms of capitalism as Heinz had pickles.  The same can be said about the different types of banking within the financial system.  The system has undergone a dramatic transformation over the development of the capitalist economy, and Minsky spent a large amount of time studying this transformation.  Many economists feel the same way as Minsky did, that the results achieved by a capitalist economy can be viewed from two fundamentally different perspectives: the Smithian way and the Keynes way.  The Smithian way assumes the presence of an “invisible hand”, and therefore “intervention or regulation can only do mischief.” (Minsky 1991, 5)  In contrast, the Keynes way assumes that the economy is naturally unstable, and “… regulation and intervention can be beneficial.” (Minsky 1991, 5)  When designing economic policies, government leaders must choose between these two perspectives.  This is exactly what policy makers have done over the evolution of the capitalist economy, and their decisions have transformed the banking system in many ways.

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Essays in Monetary Theory and Policy: On the Nature of Money

By Vincent Huang*

I. Introduction

The discrepancy between the orthodox (primarily neoclassical) and the heterodox (Post Keynesian, Chartalism, MMT, etc.) schools of thought rests fundamentally in their different perception in the way the capitalist economy functions.  Such discrepancy can be described in the contrast between C – M – C’ and M – C – M’.  The orthodox school holds the former view that depicts a barter economy in which the end purpose of production is consumption.  Individuals innately engage in production because of the urge to truck and barter.  Money merely facilitates the exchange of goods and services and cannot affect production decisions.  The heterodox school, however, asserts the latter view that depicts a monetary production economy in which production is always financed through money and would not take place unless more money expects to be realized through sale of goods and services.  Hence, the orthodox school asserts money neutrality (at least in the long run) since money is simply the medium of exchange.  The heterodox school rejects money neutrality since money not only finances production but also serves as its end goal.  The distinction between the barter and the monetary economy, as discussed above, thus necessarily implies a very different understanding of the nature, origin, and role of money between the orthodox and the heterodox school of thought.  The purpose of this paper is, through examining the nature and origin of money in a historically grounded context, to demonstrate that the orthodox school of thought has completely mistaken the nature of money and consequently misinterpreted the nature of the capitalist economy.  Such theoretical misunderstanding is devastating because it manifests wrong policies that continually fail to address economic and social problems threatening a capitalist society.  Based on the heterodox theory of money, the paper also intends to shed light on alternative guiding principles behind monetary and fiscal policies.

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The Kansas Regents’ (Unintentional) Honesty about Academic Freedom

By William K. Black

I published a column this morning about the Kansas Regents’ effective elimination of academic freedom of tenure.

In thinking about the rule I realized that I had failed to make in blunt terms five points about how radical a rule it was.  I circulated these five points about an hour ago to a number of my contacts.

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The Kansas Regents (Casually) End Academic Freedom

By William K. Black

Wednesday, December 18, 2013, the Kansas Board of Regents drastically curtailed tenure and academic freedom.  The state attorney general aided this action.  The Regents decided that when university faculty use common forms of modern communication (“social media”) they no longer have the protections of tenure and academic freedom.  The Regents’ policy change does not even mention tenure or academic freedom.  The Regents acted without consulting the faculty and without any open debate.

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Slapping Trillions of Obligations Into the Diapers of the Next Generation

By Stephanie Kelton

I get a huge volume of e-mail, but I don’t get the kind of hostile stuff that guys like Joe Weisenthal and Paul Krugman sometimes joke about.  I got one today, though, and boy is this guy steaming over my MMT coloring book!  Here’s the message:

It’s hard not to sympathize with a guy like this.  He apparently has kids, and he’s scared to death that his children and grandchildren will suffer real harm because Washington won’t get its fiscal house in order.  And why wouldn‘t he think that?  I mean, really.  Politicians on both sides of the aisle have spent decades labeling the government’s finances a “fiscal train wreck” that will leave future generations with a “crushing burden of debt.”  The mainstream media hypes these fears on a daily basis, and even NPR appears to be shilling for the debt scolds.

So it’s no wonder a guy like this is blasting me. He had probably never before encountered anything that rejects, so forcefully, the entire compilation of debt and deficit tropes.

He doesn’t strike me as a particularly open-minded guy, but I think I’ll send him this list of suggested readings anyhow.  Maybe he hasn’t finished his holiday shopping.

Recommended Inoculation

Freedom From Debt by Frank Newman

7 Deadly Innocent Frauds of Economic Policy by Warren Mosler

Understanding Modern Money by L. Randall Wray

Also these short articles:

Does Debt Matter? by Robert Skidelsky

Balanced Budgets and Depressions by Frederick Thayer

* I did bother to reproduce, by the way.  These are my little burdens of joy.  Both will find copies of the coloring book in their stockings on Christmas morning.


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Democratizing Sovereign Spending

By J.D. Alt

This past month I have been diligently working to complete my entry in a design competition to envision the “Residential Tower of the 21st Century”. At first, I did not intend to enter the competition because I have believed, for many years, that the challenge of future architectural development was horizontal rather than vertical—how to organize and “enable” high density , “piecemeal development” into horizontal communities (using people-mover technologies as a “horizontal elevator” core.) I even named this development model “The Horizontal Skyscraper”.

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