Monday, March 26, 2012

Joseph Laliberté and circuit — Careful with the saving terminology: a reply to JKH


The debate over saving continues to rage unabated.

Read it at Fictional Reserve Banking
Careful with the saving terminology: a reply to JKH
By Joseph Laliberté and circuit.
(The authors reside in Canada and come from two different heterodox backgrounds, namely, MMT and the post-Keynesian/circuitist tradition.)

65 comments:

Matt Franko said...

Talk about butchering some terminology, here is the latest from the NYT wrt the MFG/JPM debacle:

"But the e-mail, a copy of which was reviewed by The New York Times, did not capture the full story behind the wire, which turned out to contain customer money..... MF Global employees in Chicago had first transferred $200 million from a customer account to the firm’s house account (Ed: Whaaaaaat?!), people briefed on the matter said. Once it was in the firm’s coffers, the people said, Chicago employees then promptly transferred $175 million of the money to the MF Global account at JPMorgan in London (Ed: who the hell is the gd bank in this scenario? MFG? MFG could "transfer the money"? Whaaaaaaat?!)
— the account that was overdrawn. (Whose fault was that?)"

Now this is a real problem with semantics.... I'm going to try to put up the bat signal to our semantics superheros to get involved with this miscarriage of terminology. Will they engage?

What is "customer money"? What is a "house account"? What is a "coffer"? How can a broker/dealer "transfer the money to JPM"?

Resp,

Tom Hickey said...

Matt, I believe that if the accounting entries recording the transfer of funds from a segregated customer account originated in the US instead of London, it could be illegal. My understanding is that mingling specifically segregated customer accounts with firm ("house") accounts without permission is illegal in the US; however, it is permitted in London. The assumption had been that this had been done in London, as I understand. If there is a record of it happening in the US that could be a problem, it would seem.

Neil Wilson said...

I like this post.

The point about Gross Saving being the amount that is spent in a period and Net Saving being the amount that is accumulated for that period is well made.

But there's still the issue about what it's all got to do with the price of fish.

Deus.Ex.Machina said...

As Ramanan mentions, the issue is that it is not impossible for the private sector to save when the government runs a balanced budget. This runs contrary to what some MMT adherents have claimed a number of times in the past.

Unforgiven said...

Save what?

Deus.Ex.Machina said...

Save Net Financial Assets.

Leverage said...

No, the private sector can't net save financial assets ever as long as its not the monopoly supplier of these assets.

You guys need to think about how prices affect these assets and what a 'price' is, ie. which is the unit of account.

Private sector CAN'T net print fungible unit of accounts, it can only print liabilities and assets at the same time, so the relationship between the savings created by private sector and its value(or lack thereof) are asset prices and continued solvency (this solvency depending on an ever expanding supply of these assets & liabilities).

You could mount the same case for government bonds, the difference is that government can always print unit of accounts to buy its own bonds (like what the FED does), so there is a guaranteed stream of market liquidity and thereof complete convertibility between bonds and dollars.

Why do you keep ignoring this fact? What would happen if CB's stopped providing liquidity to an stressed overleveraged banking system? Savings would literally collapse.

I bet you almost any banking system nowadays in the world wouldn't survive longer than a month without CB assistance. And there go your 'savings', good luck in the next bank run.

Study bunk runs history. It's all there if you really want to understand.

JJ said...

Hey Tom, Mike, Matt:

How about starting a debate here about the question of the dollar/currency/money 'monopoly'? The MMRers have latched onto this as if they've found some sort of MMT Achilles heel, so it might be a good time to clarify the issue for all concerned... Different people within the MMT camp appear to approach the subject in slightly different ways, so it might be useful to establish exactly what people mean when they use these terms..

Cheers!

paul said...

"As Ramanan mentions, the issue is that it is not impossible for the private sector to save when the government runs a balanced budget…"

Here Ramanan makes no distinction between "save" and "net save" which violates his own rules of exactness.

If he's claiming that under the stated condition some agents can still net save (at the expense of dis-saving by others) then he is correct. Net saving for the economy as a whole remains unchanged.

If he is claiming that the economy as a whole can "net save" under these conditions he is wrong and his assertion violates the laws of arithmetic and closed systems. It is mathematically impossible for this to occur.

Leverage said...

JJ if the government is not the monopoly supplier of money aka unit of accounts aka dollar/euros/etc. why is that we need central banks constantly injecting liquidity into the system for it not to collapse.

There is no discussion, the only discussion is if you are blind!?

(Respectfully.)

Matt Franko said...

Paul,

Ram: "the private sector can have BOTH Gross Saving as defined by SNA or the Federal Reserve FoF and Saving Net of Consumption of Fixed Capital to be positive with the government budget in balance or surplus. So not "impossible" per se."

They understand these systems thru language not math.

I can see where they are coming from on this lately ie 'semantics' and that's okay and probably valuable to the mission as many others out there come to understand things this way also...

But I wish they would put this S&I business to rest and get back in the fight.

For instance there is much that they can expose that is poor semantics around all of the false beliefs wrt "taxpayer on the hook", "we're borrowing from the Chinese" , etc... they can get involved in those issues when they see professional journalists, govt officials, etc... making semantic errors that are contributing to the continuance of the widespread ignorance among the public related to public finance and banking.

They can really contribute in this way if they will ever move on.

Resp,

Matt Franko said...

JJ,

That would be interesting.

I have a feeling that any Libertarianism they posses holds them back from being able to fully appreciate any sort of govt 'monopoly', ie absolute govt authority.

The more you are Libertarian, the more you probably recoil from that concept.

Like Tom often says, such a discussion often eventually comes to a roadblock over normative issues that cannot be overcome... they may just "not like" that idea of a govt monopoly.

Resp,

paul said...

Matt,

"They understand these systems thru language not math."

Which calls into question "understand". Is it possible for some of them to really understand this, and if not, how can they sell it?

The subject is confusing enough for the general population and I'm not optimistic about getting most to understand - MMT will have to build trust by being right on all the important arguments and then hopefully acceptance will come but for all the wrong reasons. Authoritarian followers will come if we could just get them to belive in us.

I agree that discussing these things is good but I've come to the point where I view many of these arguments are created by malcontents.
They are mainly interested in promoting their own point of view and are not necessarily interested in supporting a system that can help make millions of people's lives better.

paul said...

"…they may just "not like" that idea of a govt monopoly…"

Gravity can be a bitch. Tough to reject though.

MarioLa said...

Deus.Ex.Machina said...
"As Ramanan mentions, the issue is that it is not impossible for the private sector to save when the government runs a balanced budget. This runs contrary to what some MMT adherents have claimed a number of times in the past.
Save Net Financial Assets.
"

It is indeed the case. If MMR claims otherwise they are wrong.

The private sector cannot net save financial assets if the government runs a balanced budget, because the private sector always creates financial assets paired with equal financial liabilities. So it needs to increase its holdings of liabilities of someone outside the private sector (the govt) if it is to net save financial assets. The private sector can indeed save real assets, as has been obvious for everybody long before MMT was around. These are the famous Austrian coconuts that can be saved even without the government being in existence.

Leverage said...

Exactly MarioLa, but coconuts don't pay taxes NEITHER buy you goods in a modern capitalist economy, where you need fungible money (aka unit of accounts) to buy stuff.

I hope they don't come back to the discredited Say's law (discredited by Say himself later in his life!), as a lot of 'austrians' do.

Anonymous said...

Can someone just summarize this whole debate when it's over? I can't be bothered with reading all those endless texts, I just want to know the key points.

Anonymous said...

the 'saving' debate, that is.

JJ said...

Leverage, I think that these debates with the MMRers over basic points can be quite useful. Given that they've now apparently convinced themselves that there is no government monopoly of any kind worth thinking about, it might be time to have a proper discussion on the subject.

paul said...

"…convinced themselves that there is no government monopoly of any kind worth thinking about…"

monopolist or not, the U.S. government is the sole "manufacturer" or "creator" of dollars and reserves of the kind that persist in the system. Credit dollars have a date in the future at which they go "poof" and disappear.

Simultaneously those same dollars disappear from balance sheets along with the attched liability. Until such time as the loan is satisfied, the dollar payments become saving and are not available for spending by that agent.

Whether or not the government is a monopolist is, as far as the mechanics of the system is concerned, irrelevant. It doesn't change the math or accounting in any meaningful way, if at all.

So the question then becomes "why should we care?" and "what does this "insight" bring to the table?'

Other than in the context of a country being sovereign in it's own currency, which the U.S. is, the monopolist argument has no mathematical relevance.

paul said...

"become saving" should be "become taxation or the equivalent"

Tom Hickey said...

JJ: "Hey Tom, Mike, Matt:

How about starting a debate here about the question of the dollar/currency/money 'monopoly'? The MMRers have latched onto this as if they've found some sort of MMT Achilles heel, so it might be a good time to clarify the issue for all concerned... Different people within the MMT camp appear to approach the subject in slightly different ways, so it might be useful to establish exactly what people mean when they use these terms.."

First , that is for the MMT economists to address since they are the experts. Warren has said, for example, that his key insight is the government's currency sovereignty implying it is the monopoly provider of is currency.

Secondly, I have written about this is some detail based on my understanding, which is as a non-expert. I have nothing further to say. Time to move on.

Tom Hickey said...

Paul: "So the question then becomes "why should we care?" and "what does this "insight" bring to the table?'

Other than in the context of a country being sovereign in it's own currency, which the U.S. is, the monopolist argument has no mathematical relevance."

The question does have relevance because a monopolist has the capacity to set price. The US government (consolidating the Fed and Treasury) sets price through setting the overnight interest rate for example. It can do this because it controls quantity of reserves. The Fed could just set the price directly, too, by paying IOR. Or it could chose to set the price to zero.

The Fed can also set price along the yield curve if it chooses.

There are a lot of other control levers involving price-quantity and regulatory capacity, too, that are characteristic of a monopolist. But this is sufficient for the moment.

JK said...

On the topic of the extent to which the U.S. government is a monopoly supplier of currency, I framed a question over at MR that I didn’t get as clear of an answer as I’d hoped for. Maybe someone here would like to address it:

Would it be fair to make a loose comparison between the monopoly power of the FRB on interest rates and the monopoly power of the U.S. government on money. Meaning…

Although the FRB doesn’t have monopolistic control of interest rates, by setting the FFR, they effectively create (and manage through operations) a yield curve. Is this comparable to what the U.S. Gov. would do by instituting a Job Guarantee? Would the U.S. Gov effectively set a baseline wage/benefit package, from which a “yield curve” of wages/benefits would stem from?

It seems the main MMR critique of the MMT/JG combination is that the U.S.Gov. would be trying to exert monopolistic control over something that it doesn't actually have monopoly control. But doesn't the FRB effectively do the same sort of thing?

Salsabob said...

The comments here should be required reading for our MMR friends - maybe 3 or 4 times.
Good stuff.

However, I can't believe someone bringing up the coconuts! ;-)

Matt Franko said...

This from Warren on "price setting" with a view towards the govt's monopoly powers:

"With the currency a public monopoly, the price level is necessarily a function of prices paid at the point of govt spending and or collateral demanded when govt lends."

When Warren writes "when govt lends", I take it to mean "the banks". Banks get their authority from/thru the government.

Link:

http://moslereconomics.com/2011/11/30/cb-announcements/

Govt sets ALL prices, in effect, is the way I interpret Warren's comments here. Either by directly paying prices to provision itself or it's wards; or by allowing it's banks to value collateral for loans at a certain price (if banks start lending $1M against mobile homes then mobile homes are suddenly priced at $1M).

Govt sets ALL PRICES. This is how I interpret his comments and I for myself can see how he gets there and agree with it...

Resp,

STF said...

I’m not sure how any non-MMT economists are interpreting the MMT view of “monopoly money” (and I don’t really care—there are blogs by MMT economists that can answer and authoritatively discuss that question rather easily for those interested, so I’m not quite clear on why there’s any interest in relying on secondary sources), but here’s what it actually means:

1. By virtue of naming the thing that settles a tax payment (i.e., reserve balances in the US, which provide the final settlement of tax payments; while the IRS and govt accept checks drawn on private bank accounts, these are not what is actually transferred to the Treasury’s account at the Fed), there is a demand created for this particular “thing.” Note that this is ‘sufficient’ to create such a demand, though not necessarily ‘necessary AND sufficient’ for doing so. Also, ‘naming the thing that settles a tax payment’ presumes tax payments can be enforced—i.e., in a democracy, the people in the aggregate have submitted to this. It’s a state theory of money, not a theory of the state (that would be the realm of politics and political theory, by the way).

2. If the “thing” that settles tax payments is also something that the govt itself can create costlessly (i.e, via keystrokes), then there is no limit to the govt’s operational ability to spend, and neither tax revenues nor bond sales actually finance the government’s spending. Further, the govt’s “money” is its own liability in this case (as opposed to if it were to name gold as the “thing”) and also an asset of the non-govt.

3. The state can set the bid and the ask for its liabilities and thereby control the interest rate on its own liabilities (i.e., the federal funds rate in the US). Other rates will generally arbitrage to varying degrees against this rate, but the state can only set these other rates in a more precise manner by actively entering those markets. So, there is a monopoly over the “own” interest on the state’s liabilities, but not necessarily on other rates.

continued below due to character limit

STF said...

continued from above

4. The state can set the price that it will pay to purchase goods and services, and this will have some effect on the aggregate price level. How much depends on how significant the state’s purchases are relative to purchases others make. (In the case of the Job Guarantee, for instance, this effect wouldn’t be overly strong—the stabilization effect on aggregate prices in that case comes mostly from the functional finance nature of the spending on the program. Setting the JG wage has the effect of not pushing up private sector wages, but it does not itself mean private sector wages won’t rise—that effect will mostly be tempered by the countercyclical spending on the program, and even then there are other things in the economy that can affect costs and prices. The claim is that the JG will not be inflationary and will be somewhat stabilizing, not that it will set the aggregate price level—and again, even in that case the effect is through functional finance, not setting the wage.) So, “monopoly” here is simply monopoly over the prices of the things it buys or sells, which in the real world states often don’t exercise at any rate.

5. The state cannot directly control the quantity of non-state liabilities (such as bank liabilities) that circulate as media of exchange. And it shouldn’t try (those that think it should try are called Monetarists, or at least traditional Monetarists). This is quite clear in Randy Wray’s first book, Money and Credit in Capitalist Economies, as well as in the horizontalist/circuitiste literature that we largely agree with. So, there is no “monopoly” of non-government monies. They have always existed—Randy’s very clear that private credit money pre-dated state money—and are created endogenously.

6. The state cannot directly control the quantity of state liabilities circulating. As we’ve noted many times, the government’s deficit is endogenous—attempting to balance the budget or run a surplus in a recession, for instance, could lead to even larger deficits.

7. So, overall, beyond the fact that it is not operationally constrained given 2 above, the state's "monopoly" is generally a monopoly over the price of its own money--the interest rate on its money--and the price of things it purchases or sells. Nothing more than that. Nothing less, either.

Hope this helps some.

Scott Fullwiler

STF said...

Matt,

As I just wrote, I would not interpret Warren's words that way whatsoever.

STF said...

Warren write:

"the price level is necessarily a function of prices paid at the point of govt spending and or collateral demanded when govt lends."

True, but the price level is not ONLY a function of prices paid by govt. One should be VERY clear on that point. It is ONE of the things that affects the price level. Otherwise, the size of the deficit wouldn't matter at all, only the price the government set on what it buys/sells or the lending rates it sets. You could run the deficit as high as you wanted as long as you set prices low--obviously that's not true.

STF said...

Be aware that Warren speaks in metaphors, and is always trying to find the simplest, most direct ones to use to get a point across. By their very nature, though, they are thus simplifications and should not be taken literally.

STF said...

Kind of like when he says the state puts a gun to your head and makes you pay taxes. Obviously not something to be taken literally.

paul said...

Tom,

"…The question does have relevance because a monopolist has the capacity to set price…"

Exactly and we already know these things. Regardless of what "they" want to call it, under current institutional arrangements the conolidated Fed/Treasury is the DE-FACTO monopoly supplier of the unit of account and has the ability to set price (even though they aren't actually consolidated).

Making a claim otherwise requires specifics backed by a logical fact-based argument. Making the claim that it is a "game-changer" alone doesn't cut it.

MMT proponents/sympathizers recognize what is in place as a monopoly because it behaves as one. Some group saying that it doesn't can't influence the operation at all.

If someone wants to make an argument that a system doesn't behave as MMT has described it that person/persons must be specific in how their model is different and the implications of that difference.
Otherwise we will continue to get lost in semantic arguments that are irrelevant.

Saying that gravity doesn't exist, the Earth sucks is just poor communication and/or faulty logic. Making a claim doesn't affect the real-world system, only those that might believe it.

Anonymous said...

STF,

Can you frame the MMR "position" (criticism) of MMT in your own words, and follow with how/why you think that position is mistaken?

Or, if you've done that elsewhere… can you link us to it?

MMR of recent has been making a point of downplaying the U.S.gov's monopoly power. What are they misconstruing?

thanks.

Tom Hickey said...

JK: "It seems the main MMR critique of the MMT/JG combination is that the U.S.Gov. would be trying to exert monopolistic control over something that it doesn't actually have monopoly control. But doesn't the FRB effectively do the same sort of thing?"

As Scott says above, yes. The FRB sets "the interest rate," that is, the Fed funds rate (FFR) or "overnight interbank rate" in the US. The rate is called the "target rate" since it is the rate that the Fed seeks to hit using open market operations (OMO), which adjust the quantity of bank reserves in the overnight market to "set price" at the desired interest rate.

Tom Hickey said...

BTW, "STF" is Prof. Scott Fullwiler, one of the MMT economists.

Thanks, Scott, for the elucidation. I'll promote it to a separate post for the record.

JJ said...

THanks Scott. Pretty crystal clear.

Sorry for bringing it up again Tom.

Anonymous said...

I think Wray goes a bit further however, by refering to 'money' itself as a 'public monopoly'.

"Much confusion is generated by using the term “money” to indicate a money “thing” used to satisfy one of the functions of money. I will be careful to use the term “money” to refer to the unit of account or money as an institution, and “money thing” to refer to something denominated in the money of account—whether that is currency, a bank deposit, or other money-denominated liability."

http://neweconomicperspectives.org/2009/08/money-as-public-monopoly.html

I think this is perfectly reasonable, but when MMR-type people read something like that they blow their top and start screaming nonsense like "No there is no money monopoly because banks create credit which is money therefore the government does not have a money monopoly so is not a price setter and therefore there is no rationale for the JG, which is a total game changer once you connect all the dots like we're doing here by simply trying to clarify things and take a more balanced approach because we are apolitical and MMT is a theory built around a policy proposal and therefore is far far leftwing coercive socialist because Mosler talks about holding a gun to a childs head in a typical MMT obfuscation."

I mean, how the hell does one respond to people who argue in this way? Is it even worth it?

STF said...

Anonymous,

Clearly that would be a simple misinterpretation.

Some of the confusion might be what Wray is alluding to--the money "thing" and the money of account.

Monopoly money as I just described above is the monopoly over a certain money "thing," but simply means the ability to create it without financing, ability to set the rate on it, and the ability to set the prices paid by the govt.

I did neglect to mention the money of account that Wray describes. Here, the "monopoly" is the ability to name the money of account--i.e., the "dollar" is the unit of account in the US. It's rather obvious that state's have the right to name this. It's just as obvious that states aren't the only one's that create "dollars"--obviously banks do, and Wray's 1990 book is very detailed in explaining why this can't be controlled by the govt.

Further, just because the state names the unit of account doesn't mean other units of account don't appear--there are dozens of community currencies in the US alone, like Ithaca Hours, for instance. The point is that the state can say "only 'dollars' settle a tax liability" and can also say "only 'dollars' held in reserve accounts at the Fed will provide the ultimate settlement of tax liabilities with the state," and consequently there will exist a non-trivial demand for the balances in these reserve accounts. Again, 'dollars' held in other forms can and will circulate and be media of exchange, and even non-dollars (i.e., Ithaca Hours) can, too. There is no contradiction.

I did a paper in 2004 titled "Setting Interest Rates in the Modern Money Era" that dealt with several of these points, but many of them should be clear from other MMT academic literature, too.

Hope that helps.

JJ said...

"It's just as obvious that states aren't the only one's that create "dollars"--obviously banks do,"

I don't really get this. I tend to think of bank credit as a claim on dollars, rather than dollars themselves. If I give someone an IOU for $10 dollars, for example, I haven't created $10 dollars. Sorry to ask, but could you possibly explain this? Also, how does your statement relate to Mosler's claim that "the dollar is a simple public monopoly"? Sorry for the basic questions.

STF said...

Let me summarize, then, by noting that when the state names the money of account--"dollars"--it also can name the money "thing" that settles a tax liability. And, returning to my first post above, if the money "thing" is something the state can create without cost, it is operationally unconstrained, can set the price this "thing" (i.e., reserve balances) will be borrowed/loaned at, and can set the prices for things it purchases/sells with this money "thing."

Again, this does NOT mean (a) there are no other media of exchange denominated in 'dollars' that will circulate--obviously that already happens, (b) there are no other non-'dollar- media of exchange that will circulate--obviously that already happens, (c) the state can directly control all interest rates in the economy without direct intervention--obviously it can't, as the crisis showed, (d) the state can control all prices in the economy unless it were to be the marginal purchaser of all goods/services in the economy, (e) the state can directlycontrol the qty of non-state 'dollars' or non-state-non-'dollars' that circulate--these are created endogenously, and (f) the state can directly control the qty of the state's own form of 'dollars' created via keystrokes--deficits are endogenous. All of those--a through f--are NOT what is meant by "monopoly" and all of those are false. There is no contradiction.

STF said...

JJ,

A bank creates a liability--deposits--denominated in dollars by the simple act of creating a loan. You are confusing what Wray called the money "thing" with the money of account.

"Dollars" are the unit of account, but deposits are a money "thing." The state can name the former, but cannot control the qty of the latter. And even when it sets the money of account, that doesn't mean other monies of account won't circulate--again, consider Ithaca Hours.

STF said...

So, it appears that in essence Wray specifically draws a distinction between the money "thing" and the money of account, and then somehow everyone interprets him as if he in fact had not made that distinction at all. Weird.

JJ said...

ok, thanks!

STF said...

JJ . . my last comment wasn't necessarily directed at you.

Anonymous said...

There’s no such thing as anyone having a monopoly on money. Not even in a monetary system like ours. The govt has a monopoly on specific forms of money. Reserves, notes, bonds, etc. But credit makes the economy go round and the govt doesn’t have a monopoly on credit. I believe MMT conflates this point and tries to marginalize the horizontal in order to build up their monopolist argument and hence their policy arguments. In my opinion, a broad idea of monopolist should never be implied. It simply does not exist except maybe if we formed one pure vertical component with nationalized banking etc. MMT says there is a money monopolist and they use this belief to push ideas reinforcing or supporting a highly involved govt. MMR is not afraid to use govt (in fact we encourage it), but we don’t think it’s right to abuse concepts like a monopolist concept to push these ideas forwards. They do this through ideas like printing over the current account deficit, the JG, etc. I fully understand and acknowledge that the govt CAN do these things, but that doesn’t mean they should. MMT takes the concept of a monopolist for instance and says “monopolists are price setters”. Ie, they should set prices because that’s what they do. Personally, I think they abuse the terminology and position of power the govt is in order to push their policies forward. MMT tries to build this crazy economic model around their full employment policy and I don’t think the evidence is actually there to support it as a standalone economic position. MMT rationalizes the govt setting the price of labor (if even a small portion) because they claim the govt has a money monopoly. I think they distort this relationship and abuse it for political purposes by describing the govt as a monopolist even though it only has a monopoly on very specific parts of the money supply.I’m not saying what’s right or wrong. I am just saying what is. Our govt is arranged to disperse power across different entities. This is also true for money. There is no monopolist. The term does not apply. And it’s not even fully applied in the case of the Fed, the Tsy or entities that actually have monopoly powers over certain things. So I don’t buy the argument of setting the price of NFA’s just because you believe the govt has a money monopoly. The system is not designed for this type of power to be exerted. The system could be flawed for all I know. Maybe it is. But there’s no money monopolist. I am just pointing out that the term need not be used to justify the policy because it’s not truly applicable.

Tom Hickey said...

I would simply add that a great deal of the kerfuffle over the federal government's monopoly over money among other things is based largely on a distrust of government power. This is particularly characteristic of the US, which was founded as an escape from the long history of government abuses in Europe, including Britain.

This was addressed in the drafting of the US Constitution. Immediately, there were objections that the Constitution left too much implicit and there was a demand for a Bill of Rights as a list of amendements specifically detailing points of contention.

Similarly, after the approval of the founding documents by the states, there were disagreements over the interpretation of the documents. One of the disagreements was over the relationship of state sovereignty to national sovereignty, which eventually led to the Civil War. That kerfuffle is again coming to the fore in the US.

There was also a debate over whether the Constitution only granted enumerated powers or additionally granted implicit powers. Alexander Hamilton's faction won this debate and the Supreme Court has created substantial precedent around it since.

At issue was the monopoly power of the federal government over currency and its extent under Article 1, section 8 and 10, specifically regarding the establishment of a central bank. Hamilton also won this round, and a central bank was established instead of direct currency emission by the Treasury as some had advocated. President Lincoln did resort to direct currency emission to fund the Civil War.

Moreover, the US government has garnered enormous power over the economy under the interstate commerce clause, for example, which the Supreme Court has ratified.

In extremis, the government is permitted to regulate the economy highly, e.g., with wage-price controls. Banks are highly regulated as public-private partnerships and corporations are also regulated by the anti-trust act, for instance.

In addition, the government can and has adjusted commodity prices through the use of buffer stocks.

While people may not like it, history shows that even in a supposedly free market economy the federal government has enormous power when it chooses to use it, and generally the courts have gone along with this.

Like it or not, a sovereign nation is, well, sovereign. This is bridled by the rule of law as set forth in the founding documents and subsequent legislation and judicial interpretation. However, in extremis there is little that government cannot aggregate to itself in the name of national security, as recent events reveal. Even the rule of law can be suspended "temporarily." But when there is unending war, that changes the meaning of "temporarily."

So we have to separate fact from emotion — what is from what we would like to be. Or course, people are always free to work through the political channels to effect the changes they desire. but until those changes are made, we have to be realistic and go with what we've got.

Anonymous said...

wise words

Anonymous said...

unlike the confused rantings above

Tom Hickey said...

Anonymous: "I fully understand and acknowledge that the govt CAN do these things, but that doesn’t mean they should. MMT takes the concept of a monopolist for instance and says “monopolists are price setters”. Ie, they should set prices because that’s what they do."

That is not what they do at all. What MMT shows is the role of government in macro under the existing monetary system and shows how it can use this policy space consistently with macro to achieve managerial effectiveness and efficiency wrt to formulating economic policy, rather than either relay on bad macro or simply rely on the supposed invisible hand of the "free market" when the "free market" is a chimera in a complex modern economy dominated by large institutions vying for market dominance. GE's managerial policy. for example, is to dominate any market it enters.

You have to play with the cards you are dealt and there are different ways that the cards can be played, for better or for worse. The big different in this game under the existing monetary system is that the government holds wild cards that no one else has. Since the government is ostensibly playing for the "house," i.e., public purpose, why shouldn't it use its wild cards to play to win?

Ramanan said...

"Here Ramanan makes no distinction between "save" and "net save" which violates his own rules of exactness.

If he's claiming that under the stated condition some agents can still net save (at the expense of dis-saving by others) then he is correct. Net saving for the economy as a whole remains unchanged.

If he is claiming that the economy as a whole can "net save" under these conditions he is wrong and his assertion violates the laws of arithmetic and closed systems. It is mathematically impossible for this to occur."

Flat out misrepresentation. Where? When?

STF said...

Anonymous at 2:57pm writes:

“The govt has a monopoly on specific forms of money. Reserves, notes, bonds, etc. But credit makes the economy go round and the govt doesn’t have a monopoly on credit”

As I explained above, MMT’ers don’t suggest otherwise.

Anonymous then writes, “I believe MMT conflates this point and tries to marginalize the horizontal in order to build up their monopolist argument and hence their policy arguments.”

Again, this person clearly doesn’t understand MMT. Again, one can simply look at what I wrote above.

STF said...

Anonymous at 2:57pm writes:

"The govt has a monopoly on specific forms of money. Reserves, notes, bonds, etc. "

Again, that's exactly what I said above. But I even qualified that, since the govt cannot control directly the quantities of even these.

Matt Franko said...

Anon,

From Warren's quote above: "With the currency a public monopoly..."

It has a monopoly on the currency, perhaps to your point, not on "money".

Resp,

Tom Hickey said...

While it is true that the federal government as a monopoly on currency as the currency sovereign (US Const., Art. 1, sec. 8,10 and SCOTUS decisions), it does not exert a monopoly on money creation. However, like it or not, the US government has the legal power to control the financial sector through legislation and regulation. Moreover, even though there are many forms of money and money-things, they have to reported in the unit of account, i.e., USD, for tax purposes, even barter transactions in which no money or money-thing serves as a medium.

Now one can call this what wants, I suppose, but it is a very high level of potential control, should the electorate select political representation that chooses to use these levers of power.

Just because this potential is available doesn't imply that it should be used. But it is available if the electorate decides to select representatives that favor this approach.

It should also be noted that both Presidents FDR and Nixon unilaterally abandoned the gold standard, essentially asserting US sovereignty in doing so.

The issue is not monopoly but sovereignty. The sovereign has enormous power at home and abroad, in fact virtually absolute power, should it choose to use it, as the US is constantly displaying both domestically and internationally. But the sovereign also has to be credibly able and willing to back up that power with control.

While the libertarian in me sympathizes with the emotional rants against government control, the realist in me has to admit the reality of the situation, which will continue to exist as long was we have nation state that claim national sovereignty. And that is not going away any time soon. The only way to bridle this power is though the rule of law, and that is an imperfect means. So get used to it.

paul said...

Ramanan

from above @ March 27, 2012 3:18 AM

Deus.Ex.Machina said...

"As Ramanan mentions, the issue is that it is not impossible for the private sector to save when the government runs a balanced budget. This runs contrary to what some MMT adherents have claimed a number of times in the past."

You have others repeating what you have been hammering us on for months and they are obviously confused by it. Based on Deus' comment (I know it wasn't you) I responded and gave two possible interpretations.

No reputations were disparaged.

Notice I said "if" you said that…it might be wrong depending on how you meant it.

You have created many monsters.

Anonymous said...

STF: "Again, this person clearly doesn’t understand MMT"

Yeah, the person in question is mr. Roche. They're his comments.

Ramanan said...

Paul,

OK.

Anyway in your @March 27, 2012 5:09 PM

you should have quoted BOTH

@March 27, 2012 2:51 AM
@March 27, 2012 4:12 AM.

which is precisely what MarioLa did @March 27, 2012 9:01 AM

STF said...
This comment has been removed by the author.
STF said...
This comment has been removed by the author.
Deus.Ex.Machina said...

I apologize to all concerned about inadvertently causing this friction.

After a two month absence from the MMT/MMR debate I have been trying to get up to speed again.

Paul, you could be right about the confused part, but perhaps "monsters" is a bit dramatic.

I am just simply curious whether the private sector can net save while the government runs a balanced budget.

Unforgiven said...

Not in Net Financial Assets. Perhaps in Nyet Financial Assets.

paul said...

Deus,

You didn't do anything wrong, no need to apologize.

I like the friction, so…

I don't think you are a monster. My comments were not aimed at you in any serious way.

I was just throwing a little snark at Ramanan. I couldn't resist.

Sorry.

paul said...

Unforgiven

"Nyet Financial Assets" :-)

Anonymous said...

Joseph Laliberte to JKH. Right to the point:

"I have seen comments from you and maybe other MMRers where you mention that the private domestic sector is really about optimising or maximising S (i.e. satiating its gross saving desire). On this, you have been highly critical of MMT as it sees the private domestic sector as driven by its desire to accumulate net financial assets (accumulate “S-I”). You also suggested that this kind of presentation may fit MMTers’ normative view (or something to this effect; maybe you were referring to their view on the role of government (?)).

Now, let’s take the corporate sector seeing that you are quite familiar with corporate accounting: would you really argue that the corporate sector seeks to maximize the present value of corporate gross saving (plus dividends, since these are netted out when calculating gross saving)? OR, would you say that it seeks to maximize the present value of its free cash flow, which can be approximately defined as “Corporate Gross Saving minus Corporate Gross Investment” (plus dividend)? I would respond the latter. Arguably, from this perspective, MMT’s position on this is still on solid footing."