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Forum Post: galbraith on money

Posted 2 years ago on Sept. 19, 2012, 6:45 a.m. EST by flip (7101)
This content is user submitted and not an official statement

J.K.Galbraith (1908-2006) : “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent."

55 Comments

55 Comments


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[-] 3 points by TommyNYC (730) 2 years ago

I not sure what point you're trying to get at exactly. As I've heard it stated, the real problem with the Federal Reserve is that "regional Feds are partly governed by the very banks they're supposed to police".

http://www.huffingtonpost.com/2010/03/03/stiglitz-nobel-prize-winn_n_484943.html

I believe that our currency and monetary policies are fairly convoluted, however I do not believe that the very structure of our currency is at the root of our problems.

[-] 2 points by MattLHolck (16833) from San Diego, CA 2 years ago

we live a debt economy most money is created by loaning it out

[-] 2 points by TommyNYC (730) 2 years ago

And you learned that from the Ron Paul website? In what way are you any kind of authority to tell me about how our economy works?

[-] 1 points by MattLHolck (16833) from San Diego, CA 2 years ago

from being alive

oe cannot buy a house without a loan

most buy cars with loans

most pay credit card interest

many must borrow money to get education

even the government pays interest on its on gong debt

[-] 2 points by TommyNYC (730) 2 years ago

So what's your point? How does that have anything to do with this thread?

[-] 1 points by MattLHolck (16833) from San Diego, CA 2 years ago

we live a debt economy most money is created by loaning it out

And you learned that from the Ron Paul website? In what way are you any kind of authority to tell me about how our economy works?

[-] 2 points by TommyNYC (730) 2 years ago

"we live a debt economy" according to whom? so what?

[-] 1 points by flip (7101) 2 years ago

and how much study have you done on that subject - are you a gold standard guy

[-] 2 points by TommyNYC (730) 2 years ago

Enough to conclude that there are bigger fish to fry.

[-] 2 points by flip (7101) 2 years ago

there are not many bigger fish than the economy. if you do not have a functioning economy they can give you all the freedoms you like - speech, religion etc - they can give you the vote but without a job you starve! you are right that currency structure is not the root of our problem - the system that sits on top of us is - real functioning democracy was designed out of the system by madison (mostly). but while we need political democracy we also need economic democracy - and for that we must understand the economic system and the how currency works. if you read about the populist movement of the late 1800's you will find the same fight and education process - very inspiring what those dirt poor farmers were able to do. they almost pulled off a revolution - which is why it is not taught in school. read the wizard of oz - the oz is an ounce of gold (remember the yellow brick road) - the tin man is the industrial worker, the scarecrow is the farmer, the lion congress - and guess who the man behind the curtain was! the writer was a real socialist and populist - he wrote "brother can you spare a dime"

[-] 1 points by shadz66 (19985) 2 years ago

Very interesting comment - further to which, I append :

Further, with a view to your excellent reference to the 1900 children' book "The Wonderful Wizard of Oz", by L. Frank Baum, please also consider Bill Still's 'The Secret of Oz' :

"The world economy is doomed to spiral downwards until we do 2 things : 1. Outlaw government borrowing; 2. Outlaw fractional reserve lending. Banks should only be allowed to lend out money they actually have and nations do not have to run up a "National Debt". Remember: It's not what backs the money, it's who controls its quantity."

radix omnium malorum est cupiditas ...

[-] 2 points by TommyNYC (730) 2 years ago

I am not confident in any way when it comes to defending money lenders, but fractional reserve banking is just so central to our entire society. It seems like a very radical step and please don't take that in a pejorative way. Sometime individuals and businesses need to borrow money and without fractional reserve banking there just wouldn't be enough credit to go around.

Further, without deficit spending nation's don't have the fiscal tools that they need to fight unemployment in a slump.

[-] 2 points by shadz66 (19985) 2 years ago

"Capitalism Hits the Fan" - Richard Wolff (Video)

University of Massachusetts Economics Professor, Richard Wolff breaks down the real roots causes of today's economic crisis, showing how it was decades in the making and in fact reflects seismic failures within the structures of American-style capitalism itself.

Re. 'Money and Banking', I would refer you also 'TNYC', to my more substantive comment to poster 'bw' below. I regard 'High Finance Crapitalism' to now be a real impediment to real human progress and evolution. The Extreme Financialisation of The 'USUK' Economies as well as many others needs new paradigms fused with the old. The 99% need new different economic ideas as well to rediscover some older ideas - like 'Sound Money' & again, maybe "it's not what backs the money, it's who controls its quantity" that is the question. Please also see my points re. "Public Owned Baonks" below.

pax et lux ...

[-] 3 points by TommyNYC (730) 2 years ago

I should think that we all could agree on stronger regulations in the financial sector. Eg., I don't find derivative trading to be particularly useful to the human race, but to call for its outright ban would be politically untenable in the current climate.

We should unify behind strict regulation.

[-] 1 points by thoreau42 (595) 2 years ago

Did you know George W Bush added 91,000 financial regulators during his time in office? You mean more of that kind of regulation?

http://en.wikipedia.org/wiki/Economic_policy_of_the_George_W._Bush_administration

Yep, more of the same stuff that didn't work. Good plan.

[-] 1 points by shadz66 (19985) 2 years ago

We need radical 'out of the box' thinking the matter of 'Money and Banking' and thus, please reflect on this thread in its entirety when you have some time. Forum poster 'flip' goes towards much that is at the heart of problem and his substantive comments on this thread, reward a slow read and a still mind.

radix omnium malorum est cupiditas ...

[-] -2 points by TechJunkie (3029) from Miami Beach, FL 2 years ago

Unifying behind a wedge issue is a contradiction in terms. That's like saying, "we should unify behind banning abortion".

[-] 2 points by TommyNYC (730) 2 years ago

Financial regulation is a wedge issue?? LMAO!!!!! Wow you are just a shallow idiot aren't you!? Unless you are like 15 years old there is no excuse for you.

Where the hell were you when libertariot Greenspan admitted that his deregulation caused the financial crisis?

http://www.youtube.com/watch?v=1bX_vhojH8c

[-] 2 points by VQkag2 (16478) 2 years ago

Strict regulation is NOT a wedge issue. It is critical policy to watch the corps who would otherwise crash the global economy again.

Remember.

Wedge issues are abortion, Gay marriage, Stem cell research.

[-] 2 points by TommyNYC (730) 2 years ago

Medical marijuana, evolution in schools, etc.

[-] 2 points by VQkag2 (16478) 2 years ago

Also wedges. I think colorada has a good med marijuano on theballot this nov.

I say we must legalize to halt the unfair life destroying police targeting of minorities.

Evolution is a no brainer!

[-] 1 points by TommyNYC (730) 2 years ago

The problem that I have with Marxism is that it ignores the common sense reality that human beings have a natural response to reward. Commerce and trade have done alot for the world, they actually created the middle class back in England and the Netherlands in the 1700s.

I believe in a mixed economy, and I disagree with Professor Wolff's opinion that the New Deal was a failure, which he states as a fact without providing any evidence. He doesn't succeed in concealing his cynicism, which I assume guides his conclusions.

[-] 2 points by beautifulworld (22162) 2 years ago

That's interesting, flip. I am one of those people that have bought in to the idea that money, as a concept, is very complex.

[-] 2 points by flip (7101) 2 years ago

a few more things here to try to move this forward a bit. i will send you what i think is important from one of hudson's talks. the first thing to know it that the gold standard, fiat currency thing is just one element of control by the rich - the golden rule - those with the gold make the rules. as i said before this was all played out in the late 1800's by the populists. a big part of that movement was the teach ins for the farmers on the subject of money. anyway the gold standard people are wrong and i think it can be seen in the latest economic crash (along with many other panics and crashes). what happened? why did your house decrease in value, why did people stop buying cars and flat screen tvs. did we run out of steel or oil for the cars. did anything happen in the real world to cause this. no - it all happened because for some reason people did not have paper dollars to buy what they needed and wanted. paper dollars were in short supply and yet we have a printing press in our basement. i am hoping hudson will explain it better but read some of this stuff and let me know what questions you have - that might work better. when we throw our hockey party in november you can come and i will explain what i think in person (i may get odin here - he lives close!) - i think i could do a better job that way. i understand it pretty well - articlulating what i know is another can of worms! here i hudson - “In America, President Obama and Treasury Secretary Timothy Geithner, say the economy cannot survive without bailing out the banks, without bailing out the debt, without making the gamblers and the cleptocrats whole on what they have taken. The production economy, the consumption economy, the real economy is being sacrificed to the financial sector. But matters don’t have to be this way. There is an alternative. And we will be spelling out the alternative in the next two days................“So, what you are seeing today is a new kind of warfare. It is a financial warfare against the entire society, not only against labour, but against industry and, most of all, against government. And a tool in this warfare is to convince people that government money creation is going to be inflationary. You have all seen in the last 30 years here in Italy that your prices have not gone up much; your wages have not gone up much. And what has gone up is the price of your houses, the price it takes to buy a house—that you have to take on a lifetime of debt in order to get a place to live. In America, students have to take a decade of debt to get an education, in order to get a job, instead of the government financing education freely, as was the ideal a hundred years ago.

(c. 35:14): “In the textbooks, it is as if the economy operates without debt and on a barter basis. The reason they don’t discuss what we are discussing here today is that they don’t want you to realise that there is an alternative to commercial bank credit creation and a power grab. The Belgian poet, Baudelaire, said that the devil wins at the point where society believes that he doesn’t exist. The financial sector wins at the point where you don’t see that the prices that the banks are inflating are asset prices—real estate prices, bond and stock prices—and that the role of commercial banks is to increase the power of wealth over the rest of society, over labour, over industry, to create a new ruling-class of bankers that are even more heavy than the landlords that were criticised in the last part of the 19th century. “What we are trying to do in this meeting today is to give you a new view of how the real economy works today and teach reality economics, instead of the parallel universe that you have in economic textbooks. At the beginning of Paul Samuelson’s textbook—which is used to indoctrinate students in the United States—he says that the criterion in economic theory is whether its axioms are consistent. This is what I was told when I studied literature in college. If you’re reading a novel, you have to suspend disbelief. You have to believe in the science-fiction or the characters that the author writes and imagine that it’s all consistent. You know when you go to a movie and after you come out of a thriller, or a mystery movie, you think, ‘Wait, a minute. There’s something wrong with that picture. They forgot how it happened. What Mr. Samuelson did not say was that these assumptions have to be realistic. So, instead of learning how the economy operates, students are told how a parallel universe might operate on a different planet, if there were no government, if there were no fraud, if the entire economy operated on barter, if there was no debt, and that everybody wanted to help everybody else, that nobody inherited money, that everybody earned all of the income and wealth that they have. The reality is the opposite, but it seems to be talked about only in novels these days.

(c. 54:27) “Whenever you have a misunderstanding of reality year after year, decade after decade, and now for a century, when a false picture of the economy is painted you can be sure that there is a special interest benefiting. A false picture of reality does not happen by nature; it is subsidised. And the banking sector has subsidised a junk economics that is taught in the universities, broadcast from your newspapers, mouthed by the politicians, whose election they sponsor, to try to make you believe, that you’re living on Mars in a different kind of a world—instead of the actual country that you’re living in—and to pretend that there is no financial class that is trying to grab what belongs to the public at large. This is what ends up with a difference between central bank creation by the government with the government aims of economic growth and full employment, as compared with commercial bank credit that aims at economic shrinkage, at austerity, at lower wages, at lower output, so that it can do to you what the commercial banks are doing to Greece, to say give us your ports and your land and your tourist areas and your water and sewer systems, so we can charge you for water and sewer. And we can take the money that you had expected to get in pensions and we can scale it down, so that we can pay ourselves.

(c. 56:10) “This is what it took an army in times past. And today it’s done without an army, as long as you will be passive and believe the science-fiction of the world that banks are painting.

[-] 2 points by beautifulworld (22162) 2 years ago

It is good that you are laying all of this down for us to read and absorb. Thanks, flip.

[-] 2 points by Builder (4202) 2 years ago

This American is on a tour in Australia, touting his new book, "The End of Growth". Name of Richard Heinberg. Very interesting content. Here's a snippet;

http://richardheinberg.com/museletter-242-the-end-of-growth-update-part-2

The social dimensions of the end of growth are coming into clearer focus with each passing month—from last year’s Occupy uprisings, to the recent NATO demonstrations in Chicago, to mass demonstrations in Spain, and on and on. Also clearer is the desperate strategy of the powerful, which consists primarily of the militarization of the police and the criminalization of dissent.

[-] 2 points by beautifulworld (22162) 2 years ago

Nice. Thanks, builder.

[-] 1 points by flip (7101) 2 years ago

i will try to stop sending you things - i do the same thing in my work - overkill! from my girl stephanie - "The next thing I want to do is talk to you about functional finance. It’s not a very interesting sounding topic. In English, the opposite of functional finance is dysfunctional finance. And that’s what, I would argue, most countries in the world deal with today. And I think the reason is because none of us that have sovereign currencies understand exactly what that means. And we act as if we face the same kinds of constraints—governments act that way—that households and businesses face. We’re told all the time that government should have sound fiscal policies, should live within its means, should exercise fiscal discipline just like a household must. But, hopefully, by now you understand that a country that operates with its own fiat currency, that is a non-convertible currency—government does not pledge to convert the currency into gold or into some other country’s currency—it doesn’t have to behave like a household. It can use its powers differently. And that’s what functional finance is all about.

[-] 2 points by beautifulworld (22162) 2 years ago

Okay, how does this all compare with say the use of cowrie shells in ancient times as a means for exchange? Back then money was just an IOU. Today it seems to be operating as much more than that.

[-] 1 points by flip (7101) 2 years ago

i don't really understand your question - if you read graeber he says that the first economic transactions were not barter transactions but systems of accounts that were settled at the end of the month or so. not sure how cowrie shells make any difference - if it is a dollar bill or a shell it is still the same iou being passed around. so try to run that by me again and see if i do any better!

[-] 2 points by beautifulworld (22162) 2 years ago

I like Graeber and how he reaches back in history to simplify what money and debt really are in their roots. They are both really very simple concepts on their face, but have become complex and manipulated to benefit certain groups.

[-] 0 points by shadz66 (19985) 2 years ago

Very educational thread re. Money and Banking & am re-posting / splicing two previous comments from another thread, here in contribution :

Occupy The SEC ( http://www.occupythesec.org/ ) is a critical, technical arm of "Occupy" & well worth consideration. I can not speak highly enough of these dedicated young people.

I also copy here, a few words by Noam Chomsky - "On Banks" :

"Before the 1970s, banks were banks. They did what banks were supposed to do in a state capitalist economy: they took unused funds from your bank account, for example, and transferred them to some potentially useful purpose like helping a family buy a home or send a kid to college. That changed dramatically in the 1970s. Until then, there had been no financial crises since the Great Depression. The 1950s and 1960s had been a period of enormous growth, the highest in American history, maybe in economic history.

"And it was egalitarian. The lowest quintile did about as well as the highest quintile. Lots of people moved into reasonable lifestyles -- what’s called the “middle class” here, the “working class” in other countries -- but it was real. And the 1960s accelerated it. The activism of those years, after a pretty dismal decade, really civilized the country in lots of ways that are permanent.

"When the 1970s came along, there were sudden and sharp changes: de-industrialization, the off-shoring of production, and the shift to financial institutions, which grew enormously. I should say that, in the 1950s and 1960s, there was also the development of what several decades later became the high-tech economy: computers, the Internet, the IT Revolution developed substantially in the state sector.

"The developments that took place during the 1970s set off a vicious cycle. It led to the concentration of wealth increasingly in the hands of the financial sector. This doesn’t benefit the economy -- it probably harms it and society -- but it did lead to a tremendous concentration of wealth."

Further, and in order to gain very important insights into the attitudes, behaviour and machinations of 'High Finance Crapitalism' and to realise how and why we are in the mess we are in, try to refer to :

a) http://retheauditors.com/ ;

b) http://www.teribuhl.com/ ;

c) http://www.nomiprins.com/ ;

d) http://michael-hudson.com/ ;

e) http://rt.com/programs/keiser-report/ ;

f.) http://rt.com/programs/capital-account/ ;

g) 'Money As Debt 1' : http://www.youtube.com/watch?v=PlxKtDOkEj4 ;

h) 'Money As Debt 2' : http://www.youtube.com/watch?v=grrFkh0qCeg ;

i.) 'Money As Debt 3' : http://vimeo.com/35743293 &

j.) "MODERN MONEY MECHANICS" - A Workbook on Bank Reserves and Deposit Expansion ; from The Federal Reserve Bank of Chicago (For Real Insights Into Fractional Reserve Banking) :

Any "Austrian School Economics" that doesn't reference 'Carl Menger' is a sort of Cultic Fraud !!! Von Mises, Hayek and onto Chicago School, Freidman BS - are all a weak foundations but huge theoretical super-structure, pseudo-intellectual, house of cards without Carl Menger's ideas about 'sound money' !! WTF 'Economic Theory' can anyone really have - without some critique of "The Theory of Money" ?!

Further, with reference to "The Theory of Money", please do try to catch the new, insightful & excellent Video Documentary :

When money drives almost all activity on the planet, it's essential that we understand it. Yet simple questions often get overlooked - questions like : Where does money come from ? Who creates it ? Who decides how it gets used ? And what does that mean for the millions of ordinary people who suffer when money and finance breaks down ?

People should have an opportunity to bank with ethical (& perhaps publicly owned) banks. The best ethical practices should be present in the 'market place' and should be promoted, incentivised and rewarded 'in the market place' so we the people - The 99% - can make informed choices and perhaps only 'Publicly Owned Banks' can do this - which is exactly why The Infernal Banksters will fight this idea tooth and nail !!!

Finally, some points on the matter of 'Publicly Owned Banks' :

1) Democratic Accountability and Oversight over behaviour such as led to The 2008 Financial Crisis ;

2) Prevention of a culture of short-termism, 'moral-hazard', 'perverse incentives' and 'regulatory capture' ;

3) Profits to be ploughed back into "Society" rather than to 'private shareholders' (Foreign or otherwise) ;

4) Driving out 'bad banking practice rewarding greed' and favour / instil 'ethical' practices and behaviour ;

5) Genuine rewarding of savers - NOT fleecing them and driving them towards 'sharks' ;

6) A far more fair, rational, longer-term & more socially responsible outlook for lending ;

7) Reigning in dubious practices ("Innovative Financial Products" - CDOs, CDS's, 'Mortgage Backed Securities', et al and outright fraudulent behaviour - Bernie Madoff / Jon Corzine / MF Global, et al) ;

8) Re-instilling Public Confidence by Accepting / Realising that Banking & Financial Services can NOT just be left to 'Selfish Short-Term Profit Motives' & Banking to be seen as a 'Strategic Public Utility'

9) Have you ever heard of 'The State Owned "Bank Of North Dakota ?' IF NOT, then why not d'you think ?! ( http://en.wikipedia.org/wiki/Bank_of_North_Dakota and http://banknd.nd.gov/ ) ;

10) The urgent reintroduction of 'Glass Steagal' AND a 'Financial Transaction / Tobin Tax'.

There is some degree of overlap in my points and almost guaranteed that one could argue the toss, so from a purely US perspective - I end with something more substantial to read, reflect & ruminate upon :

fiat lux ...

[-] 1 points by beautifulworld (22162) 2 years ago

Thanks a lot, Shadz. That is a lot of great info. And, well, I'll say one thing. I'm glad I bank at a credit union. I know that is a good thing to do.

[-] 0 points by shadz66 (19985) 2 years ago

Your point is very sound as actually 'voting with your money' is what The 'Scum' Corporate Banks actually really understand & I append some hopefully useful links for others if not you :

Thanx for your kind words btw 'bw', which make up for my long comment being 'stinkled', lol.

pax, amor et lux ...

[-] 2 points by beautifulworld (22162) 2 years ago

Voted down to zero for going after the banksters. Hmmm. Thanks for all the great links here. Great work.

[-] 2 points by flip (7101) 2 years ago

like many things it is and at the same time not really. when you go to the store and charge new shoes on your credit card there is that much more money in the system. when you pay off your card the money disappears. it is an iou passed from one person to the next. not sure if this makes sense to you but it is at the heart of the problems we are facing today. the point is often made (on many issues) "we can't afford it" - social security or medicare - teachers pay and on and on. if you look at the history of ww2 - it was financed mostly by the government giving money to the banks and then the banks loaning it back to the government. the same thing is being done today - the fed is buying treasuries to fund the government. not sure if i am making sense but i think it is absolutely crucial that we understand money if we hope to solve our problems. is you read about the populists of the late 1800's you will find that they learned the same lessons. greider's "secrets of the temple" is really good and readable. hudson is the best on this specific issue i think. sorry for the over kill!

[-] 2 points by beautifulworld (22162) 2 years ago

No over kill. This is something I have always wanted to understand but always seem to get mixed up on. Thanks, flip.

[-] 2 points by flip (7101) 2 years ago

ok beauty, this is the crux of the matter i think -“As long as the state has the power to enforce its tax laws, the people will need the government’s money. The currency will have value. People will work to sell things—goods and services—to the government in order to get government money. Whatever the government accepts in payment to itself becomes the ultimate, ‘definitive,’ money in the economy. It is the only way to settle a debt. You must use government money. We can imagine in any economy a hierarchy of money. But not all money is created equal. The most acceptable money sits at the top of the pyramid. Those are the IOUs that everyone accepts and everyone must accept. Those are the IOUs that are ultimately needed to pay our debts. Those are the government’s IOUs. The rest of us can go in debt, issue IOUs, but our debt is not as good as government debt. It’s not as acceptable. It can’t be used to pay for things.

(c. 10:25) “In the U.S., the hierarchy looks like this: The government’s IOU—the United States dollar—sits at the top of the pyramid. It is a fiat currency. The United States government is the monopoly issuer of the U.S. dollar—the only entity on the planet that can legally create the currency. The U.S. government taxes in dollars. It spends in dollars. And it controls its own currency. Why is this important? What are the benefits of issuing your own currency? They are extraordinary.

(c. 11:19) “The government, when it issues its own currency, and goes into debt in that currency can always pay its debt, can never go broke, can never run out of money. It can afford anything that is for sale in that currency. It doesn’t need to borrow its own currency. And it can set its own interest rate. It does not have to pay what markets want. It does not become a victim to speculation, to bond vigilantes. It has additional policy space. It can do things for its economy and for its people that a government that does not have a sovereign currency cannot do.

[-] 2 points by beautifulworld (22162) 2 years ago

LOL @ beauty! Too funny.

Thanks for trying to explain, flip, but honesly, I think I need "Money for Dummies." I just find this all very confusing and believe it or not I have a minor in economics. LOL! What a waste of an education.

[-] 2 points by flip (7101) 2 years ago

ok, so how about this - inflation helps debtors and deflation (or stable money, low inflation, gold standard - tight money) helps creditors. since those with the money are the creditors and they have most of the power in this world - the whole system is geared to convince us that inflation is BAD - can you pick one part and tell me what does not make sense to you. it is a very important issue to understand. you can have all the freedoms and votes that they will give you - if you do not have a job or a functioning economy you are in trouble.

[-] 2 points by beautifulworld (22162) 2 years ago

Unless it's a typo, it does not make sense that both inflation and deflation would help creditors. And, isn't inflation only good for the average guy if his wage is inflating also?

[-] 2 points by flip (7101) 2 years ago

yes typo - sorry inflation helps debtors - that is why our government will most likely inflate the currency over the coming years. if you own a house your house will go up in value and your mortgage will be paid in cheaper dollars. your point is correct to some extent - usually inflation is mostly wage driven and now because of what alan greenspan called "worker insecurity" workers are not pushing for raises as much as in the 70's. again that is one of the reasons the owners like high unemployment! the coming inflation will probably be commodity driven - oil and copper etc which throws another monkey wrench into the whole process. anyway the main point is still the same - workers in general benefit from inflation and owners benefit from deflation. as with most things there are always winners and losers so broad generalities are just that. a strong dollar is good for importers and bad for exporters and so on - does that make any sense?

[-] 2 points by beautifulworld (22162) 2 years ago

Yes. And, capitalists also like unemployment. It keeps the workers weak and unable to fight for a fair wage. This is one of the reasons why we have government, to protect the citizens from exploitation, but ours has failed us miserably.

[-] 2 points by flip (7101) 2 years ago

start with this from stephanie kelton form a talk she and hudson gave in italy - really interesting confenence and you can watch her here if you like - www.youtube.com/watch?v=5vQOk1VOU6k (c. 5:22) - also google keynes money in bottles and that might help - let me know if i can help in any way. we all need to figure this out (and i have a few months head start on you but do not understand it completely - and few do). here is part of her talk - “So, let’s begin with the first lesson. What is money? All money exists as an IOU. It’s a debt. When we say, ‘I owe you,’ we mean two people are involved in every monetary relationship. The ‘I’ is the debtor. The ‘U’ is the creditor. I Owe You. IOUs are recorded in what we call the money of account. The money of account in Australia is the Australian dollar. The money of account in the U.S., the U.S. dollar. The money of account in Japan, the Japanese Yen. In Britain, the British pound. In Italy, the Euro. Do you see a difference? You will by the end of this talk.

(c. 6:21) “The money of account is something abstract, like a metre, a kilogram, a hectare. It’s not something you can touch or feel. It’s representational, something only a human could imagine. In any modern nation the money of account is chosen by the national government. MMT emphasises the state’s power over money. This is not something new. It dates back as far as Aristotle. You can find it in Adam Smith and in the work of John Maynard Keynes. I will read a brief quote from Keynes who said:

“‘The age of chartalist, or state money, was reached when the State claimed the right to declare what thing should answer as money of account. Today, all civilised money is, beyond the possibility of dispute, chartalist’—state money.

“A sovereign government defines the money of account. A sovereign government imposes taxes, fees, and other obligations to be paid to be paid to the state. A sovereign government decides what it will accept in payment to itself. And sovereign government chooses how it will make its own payments to others. Most governments in the world today choose their own unique money of account. And they issue their own unique currency. One nation, one money, is the rule in almost every corner of the world today. U.S. dollars, bills and coins. Mexican pesos, bills and coins. British pounds, notes and coins. Most governments also require that taxes be paid in a currency that the state has the exclusive power to issue. These currencies are sovereign money.

(c. 8:50) “As long as the state has the power to enforce its tax laws, the people will need the government’s money. The currency will have value. People will work to sell things—goods and services—to the government in order to get government money. Whatever the government accepts in payment to itself becomes the ultimate, ‘definitive,’ money in the economy. It is the only way to settle a debt. You must use government money. We can imagine in any economy a hierarchy of money. But not all money is created equal. The most acceptable money sits at the top of the pyramid. Those are the IOUs that everyone accepts and everyone must accept. Those are the IOUs that are ultimately needed to pay our debts. Those are the government’s IOUs. The rest of us can go in debt, issue IOUs, but our debt is not as good as government debt. It’s not as acceptable. It can’t be used to pay for things.

(c. 10:25) “In the U.S., the hierarchy looks like this: The government’s IOU—the United States dollar—sits at the top of the pyramid. It is a fiat currency. The United States government is the monopoly issuer of the U.S. dollar—the only entity on the planet that can legally create the currency. The U.S. government taxes in dollars. It spends in dollars. And it controls its own currency. Why is this important? What are the benefits of issuing your own currency? They are extraordinary.

(c. 11:19) “The government, when it issues its own currency, and goes into debt in that currency can always pay its debt, can never go broke, can never run out of money. It can afford anything that is for sale in that currency. It doesn’t need to borrow its own currency. And it can set its own interest rate. It does not have to pay what markets want. It does not become a victim to speculation, to bond vigilantes. It has additional policy space. It can do things for its economy and for its people that a government that does not have a sovereign currency cannot do.

(c. 12:18) “Think about what the hierarchy would look like under a gold standard. Many governments operated under gold or silver or both for some period of time in our world history. Under a gold standard, the government promises to convert its currency into gold. In that situation, what sits at the top of the pyramid is not the state’s currency, but the gold reserves. This means that the government must be careful about how much it spends. If it spends too much of its own currency, it can jeopardise the entire system because it may not be able to convert currency into gold as promised. You have to limit your spending and limit what you do with your policies. Governments operating under a gold standard do not have sovereign currency

[-] 2 points by beautifulworld (22162) 2 years ago

Thanks a lot, flip. That is very helpful. I copied it to a word document so I can refer back as I'll probably refer to it again. So, the libertarians, Austrians, say we need to revert back to the gold standard to end the fiat money matter. What do you think about that? I find that very confusing as well, because I can see what they mean. It makes sense on it's face but I don't know the deeper issues and consequences.

[-] 2 points by flip (7101) 2 years ago

it is insane - all that does is help those who already have lots of money - no time to get into it now but if you write me later i can try to help. one thing to think about is that inflation redistributes wealth - this economy is different but during the 70's - those terrible years, most of the middle class did really well. they got cost of living raises - thier houses increased in value and their mortgage payments were going down. the bankers and bondholders (the wealthy) watched as their wealth was redistributed to the middle class. if you have a big pile of dollars the gold standard (defaltion - since there can be now more dollars in the system with a rising population - fewer dollaars per person) helps you to buy more things with that pile. inflation on the other hand helps debtors since you pay your debt back in cheaper and cheaper dollars. remiind me and i will try to be more coherent and steer you to some interesting reading material. but here is the punch line - they are wrong and the economists are beholden to the rich!

[-] 2 points by beautifulworld (22162) 2 years ago

Thanks again and keep up the good work, flip. Education is an important part of all of this. Also, I definitely agree with your last sentence.

[-] 2 points by flip (7101) 2 years ago

this might be of some help - then i am off to work. the 1st thing to think about is how does it make sense that we can afford to build a bridge or support the retired if we happen to stumble on some gold buried in a hole in the ground. then we can print more dollars and send them to my 93 yr old aunt - and if we don't find that gold we don't have the dollars to send her. or the dollars to buy the concrete for the bridge or pay for the workers. makes no sense - we can print all the dollars we need - just look at what is happening now - the fed is buying treasuries - that is how we are funding the government - japan has been doing it for 25 yrs and their currency is just fine. read or watch stephanie kelton and then hudson and then watch it again. ok, gotta go - here is krugman on money in bottles - "Time for bottles in coal mines"

President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.

Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.

Paging Keynes, who pointed out the problem with projects that are of some use besides their role as stimulus. Such projects

because they are not wholly wasteful, tend to be judged on strict “business” principles.

He then went on to propose an alternative:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.

[-] 2 points by beautifulworld (22162) 2 years ago

Interesting stuff. Thanks again.

[-] 1 points by TheRoot (305) from New York, NY 2 years ago

The advocates of MMT want sovereign governments, not the 1% and their banks, to be the new base from which to leech the energies and work of its citizens. MMT's proponents are basically saying, "The debt created by the central banking system (and legislated as money) doesn't work. Now with the MMT bat in hand, it's the government's turn at the plate." Either way, fiat is fiat and the citizens get whacked.

[-] 2 points by flip (7101) 2 years ago

you should learn one thing at least that the populists understood - inflation is good for debtors - deflation is good for creditors (that would be the bankers and the bondholders) so you are advocating a money system that is good for those with the money - the 1% well not really more like the .01 or maybe even .001% - do you realize that?

[-] 1 points by flip (7101) 2 years ago

sorry but you not understand what you are saying - read graeber "debt the first 5000 yrs" and then say something intelligent - or read about populism - those dirt poor farmers understood money - fiat my ass

[-] 1 points by TheRoot (305) from New York, NY 2 years ago

Been on the road. Still am. I'll circle back later.

[-] 1 points by jrhirsch (4714) from Sun City, CA 2 years ago

The creation of extra money is a symptom. The underlying selfishness that unfairly distributes money to the rich is the cause.

[-] 1 points by TheRoot (305) from New York, NY 2 years ago

Hear, hear.