"...but governments must first spend before they collect revenue."
This doesn't stand up to historical scrutiny. When the Federal Reserve was founded in 1913, the US government's share of the credit markets was approximately 3-5%. This means that more than 95% of credit creation was private and invested in numerous companies. The pool of private income generation was comparatively large, so there were sufficient tax collection options to finance the then-modest government needs.
Furthermore, the Federal Reserve is prohibited from directly lending money to the government, and purchasing bonds directly from the government is also forbidden. Businesses and households weren't waiting for the government to spend; reasonably functioning credit and money markets already existed when the Federal Reserve was established.
The chartalist view that the government is the origin of all economic development has never been true, is not true, and never will be true. It has always been the case that the state has appropriated existing instruments for its own benefit, but it has never been the origin of any development. The fact that this is now called MMT doesn't make it any better; it merely obscures the hidden agenda behind it.
Renée, you are looking at 1913, which was indeed an appropriation.
But I'm persuaded by David Graeber, so I'm looking at 3,000 BC. We must presuppose the state's units of measurement (and the state's legal enforcement!) in order to have private credit markets, no?
I'd be REALLY interested in your response! Thanks for the comment
There is another function of Treasury bonds, an insidious one. Michael Hudson in SUPERIMPERIALISM relates how when the US ran out of gold to fund its Asian wars, it sold Treasuries for the same purpose. For years, dollars accumulated in the world due to America's overseas military adventures, from bases to wars to regime change ops. Foreign central banks then exchanged dollars for interest-bearing T-bills and other debt instruments. And while for many years, trade imbalances were entirely military, lately Treasuries work to fund all those imports that the US no longer produces.
Ah, yes, another great point! I believe the phrase used by Hudson is something like "we compelled our military adversaries to pay for their own military encirclement". I could have used that point to bolster this essay (although I already left a lot on the cutting room floor in a failed attempt to keep the length reasonable).
Nathan, the money quote is "1. English bankers actually achieved the alchemical dream of “creating” gold during the 17th century." They did so by the 'magic' of compound interest, a mathematical concept that should never have escaped into the real world. Unless there is some function of charging interest that escapes me, I count that 'interest' is the fulfillment of easy greed that most troubles our modern world. The Abrahamic religions forbade usury for good reason, and it was simply renamed 'interest' so the Pope could finance his Crusades. [Michael Hudson]
Awesome comment, as usual. Thank you, Tedder! Of course, I'm inclined to agree with you and the great Dr. Hudson. The tool of compound interest must be paired with periodic forgiveness to avoid its disastrous effects.
However, I do believe we could and should wrest control over money printers from the international banking houses. Instead of printing money to pay interest on treasury bonds, finance wars, and bail out corrupt financial institutions, we COULD print money to create infrastructure like roads, bridges, and houses that lower production costs and bolster economic efficiency.
Could we, in other words, cut out the corrupt middleman when it comes to currency creation? I wonder what you think?
We absolutely should 'print' money for infrastructure as well as for public good. That is what governments are for if we view them in long history. We can find a model in the existing public banks in the US (North Dakota) and in China. I believe that private money creation is an artifact of feudalism as it does not serve industrial capitalism, only financial capitalism, which more than I consider to be neo-feudal.
This line: "Throughout history, ruling classes have used their authority to define reality for lower economic classes” and now we’re watching that architecture come undone in real time. Between the internet, TikTok and AI, it’s getting harder to hold a single narrative in place long enough to manufacture mass consent. For the first time in known history, more than half the people on Earth can reach each other directly, one-to-one, without a gatekeeper and when people talk, reality stops being something that can be handed down from above. It gets negotiated in the open, tested against lived experience and corrected in real time.
The only thing I could POSSIBLY think to add to such a succinct description of our plight is to compare the effects of internet, as observed by you, to the effects of the printing press on the late Middle Ages. Both pieces of information technology effectively cut out the authorities by destroying their monopoly over the flow of information.
"...but governments must first spend before they collect revenue."
This doesn't stand up to historical scrutiny. When the Federal Reserve was founded in 1913, the US government's share of the credit markets was approximately 3-5%. This means that more than 95% of credit creation was private and invested in numerous companies. The pool of private income generation was comparatively large, so there were sufficient tax collection options to finance the then-modest government needs.
Furthermore, the Federal Reserve is prohibited from directly lending money to the government, and purchasing bonds directly from the government is also forbidden. Businesses and households weren't waiting for the government to spend; reasonably functioning credit and money markets already existed when the Federal Reserve was established.
The chartalist view that the government is the origin of all economic development has never been true, is not true, and never will be true. It has always been the case that the state has appropriated existing instruments for its own benefit, but it has never been the origin of any development. The fact that this is now called MMT doesn't make it any better; it merely obscures the hidden agenda behind it.
Renée, you are looking at 1913, which was indeed an appropriation.
But I'm persuaded by David Graeber, so I'm looking at 3,000 BC. We must presuppose the state's units of measurement (and the state's legal enforcement!) in order to have private credit markets, no?
I'd be REALLY interested in your response! Thanks for the comment
There is another function of Treasury bonds, an insidious one. Michael Hudson in SUPERIMPERIALISM relates how when the US ran out of gold to fund its Asian wars, it sold Treasuries for the same purpose. For years, dollars accumulated in the world due to America's overseas military adventures, from bases to wars to regime change ops. Foreign central banks then exchanged dollars for interest-bearing T-bills and other debt instruments. And while for many years, trade imbalances were entirely military, lately Treasuries work to fund all those imports that the US no longer produces.
Ah, yes, another great point! I believe the phrase used by Hudson is something like "we compelled our military adversaries to pay for their own military encirclement". I could have used that point to bolster this essay (although I already left a lot on the cutting room floor in a failed attempt to keep the length reasonable).
Nathan, the money quote is "1. English bankers actually achieved the alchemical dream of “creating” gold during the 17th century." They did so by the 'magic' of compound interest, a mathematical concept that should never have escaped into the real world. Unless there is some function of charging interest that escapes me, I count that 'interest' is the fulfillment of easy greed that most troubles our modern world. The Abrahamic religions forbade usury for good reason, and it was simply renamed 'interest' so the Pope could finance his Crusades. [Michael Hudson]
Awesome comment, as usual. Thank you, Tedder! Of course, I'm inclined to agree with you and the great Dr. Hudson. The tool of compound interest must be paired with periodic forgiveness to avoid its disastrous effects.
However, I do believe we could and should wrest control over money printers from the international banking houses. Instead of printing money to pay interest on treasury bonds, finance wars, and bail out corrupt financial institutions, we COULD print money to create infrastructure like roads, bridges, and houses that lower production costs and bolster economic efficiency.
Could we, in other words, cut out the corrupt middleman when it comes to currency creation? I wonder what you think?
We absolutely should 'print' money for infrastructure as well as for public good. That is what governments are for if we view them in long history. We can find a model in the existing public banks in the US (North Dakota) and in China. I believe that private money creation is an artifact of feudalism as it does not serve industrial capitalism, only financial capitalism, which more than I consider to be neo-feudal.
"private money creation is an artifact of feudalism as it does not serve industrial capitalism, only financial capitalism"
Good point, Tedder!
This line: "Throughout history, ruling classes have used their authority to define reality for lower economic classes” and now we’re watching that architecture come undone in real time. Between the internet, TikTok and AI, it’s getting harder to hold a single narrative in place long enough to manufacture mass consent. For the first time in known history, more than half the people on Earth can reach each other directly, one-to-one, without a gatekeeper and when people talk, reality stops being something that can be handed down from above. It gets negotiated in the open, tested against lived experience and corrected in real time.
What a great comment! Thank you, Tracy!
The only thing I could POSSIBLY think to add to such a succinct description of our plight is to compare the effects of internet, as observed by you, to the effects of the printing press on the late Middle Ages. Both pieces of information technology effectively cut out the authorities by destroying their monopoly over the flow of information.