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David Graeber: On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics « naked capitalism

a. Just in way of emphasis: economists thus predicted that all (100%) non-monetary economies would be barter economies. Empirical observation has revealed that the actual number of observable cases—out of thousands studied—is 0%.

 

b. Similarly, the number of documented marketplaces where people regularly appear to swap goods directly without any reference to a money of account is also zero. If any sociological prediction has ever been empirically refuted, this is it.

 

[...] Meanwhile, all textbooks continue to report the same old sequence: first there was barter, then money, then credit—except instead of actually saying that tribal societies regularly practiced barter, they set it up as an imaginative exercise (“imagine what you would have to do if you didn’t have money!”) or vaguely imply that anything actual tribal societies did do must have been barter of some kind.

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Functional finance - Wikipedia, the free encyclopedia

Functional finance

Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.[citation needed ] The principal ideas behind functional finance can be summarized as: Governments have to intervene in the national and global economy; they are not self-regulating.

Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.

 

The principal ideas behind functional finance can be summarized as:

- Governments have to intervene in the national and global economy; they are not self-regulating.

- The principal economic objective of the state should be to ensure a prosperous economy.Money is a creature of the state; it has to be managed.

- Fiscal policy should be directed in the light of its impact on the economy, and the budget should be managed accordingly, that is, 'balancing revenue and spending' is not important; prosperity is important.

- The amount and pace of government spending should be set in the light of the desired level of activity, and taxes should be levied for their economic impact, rather than to raise revenue.

- Principles of 'sound finance' apply to individuals. They make sense for individuals, households, businesses, and non-sovereign governments (such as cities and individual US states) but do not apply to the governments of sovereign states, capable of issuing money.

 

Lerner postulated that government's fiscal policy should be governed by three rules:

1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.

2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.

3. If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.

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Ongoing Debate Over Currency Value « heteconomist.com

[...] as long as the government is maintaining the (domestic) value of its currency, there is little reason for the non-government not to opt for it rather than other monies.

 

This is irrespective of a nation’s level of productivity. The problem declining productivity causes for exchange rates will apply irrespective of the money in use within a nation. Using a money other than the government’s money will not resolve this problem. The difficulty in obtaining a foreign state money for the purposes of purchasing goods not for sale in domestic monies (whether the state money or private monies) will remain. The problem would be low productivity, not domestic value of the currency.

 

So it seems to me that successful tax enforcement and keeping the currency sufficiently scarce relative to the tax obligation and non-government net saving desire is both sufficient to ensure the viability of the government’s money and in all likelihood conducive to its widespread use [...].

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Vickrey, William :: 15 Fatal Fallacies of Financial Fundamentalism - A Disquisition on Demand Side Economics

Paper was written October 5, 1996 - one week before the author's death, three days before he received the Nobel Memorial Prize in Economics.

 

[...] Fallacy 7

 

Many profess a faith that if only governments would stop meddling, and balance their budgets, free capital markets would in their own good time bring about prosperity, possibly with the aid of "sound" monetary policy. It is assumed that there is a market mechanism by which interest rates adjust promptly and automatically to equate planned saving and investment in a manner analogous to the market by which the price of potatoes balances supply and demand. In reality no such market mechanism exists; if a prosperous equilibrium is to be achieved it will require deliberate intervention on the part of monetary authorities [...]

 

Current reality: The time is long gone, however, when even the lowest interest rates manageable by capital markets can stimulate enough profit-motivated net capital formation to absorb and recycle into income over any extended period the savings that individuals will wish to put aside out of a prosperity level of disposable personal income. Trends in technology, demand patterns, and demographics have created a gap between the amounts for which the private sector can find profitable investment in productive facilities and the increasingly large amounts individuals will attempt to accumulate for retirement and other purposes. This gap has become far too large for monetary or capital market adjustments to close [...]

 

In the absence of change in the flow of net foreign investment, a government recycling of income through current deficits of somewhat more than the desired growth in nominal GDP will be needed to keep the economy in balance. Curtailing deficits will correspondingly stifle growth. A balanced budget, indeed, would tend to stop growth in nominal GDP altogether, and in the presence of inflation would lead to a downturn in real GDP and a corresponding increase in unemployment.

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Macroeconomic Balance Sheet Visualizer by EconViz.com

This is an interactive graphical tool for learning how the economy works. If you are unsure how to begin, please expand and read the notes below, then click the button for the step-by-step walkthrough.

 

The goal of this tool is to provide an aid to visualizing and understanding important concepts in macroeconomics. It incorporates key points of emphasis from Post-Keynesian economics, which includes the sub-disciplines of MMT (Modern Monetary Theory, sometimes also referred to as Chartalism) and Circuitism.

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Cullen O. Roche - Understanding The Modern Monetary System

Cullen O. Roche -  Understanding The Modern Monetary System | Modern money | Scoop.it

Warning – This subject is very dense, highly complex and counterintuitive to much of neoclassical economics. Because it requires a substantial time investment I would recommend preparing yourself to spend several hours (or even days) on the material before getting overwhelmed by it. The discussion forum also covers many of the common misconceptions when first confronting this subject. Novice investors, economists and layman might be interested in reviewing the video introduction to MMT which can be found in the media section on the website. [...]

 

In this paper I will explain why Functional Finance and Modern Monetary Theory best describe most modern fiat monetary systems. The systems that are applicable to this discussion include nations which are monetarily autonomous, are monopoly suppliers of their own currency and exist within a freely floating exchange rate system. For this discussion, I will focus primarily on the USA although this subject can be applied to many other nations throughout the world.

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Keynesian Deficit Doves vs. MMT Deficit Owls

Differences for policy activism between a Keynesian approach employed by people like Paul Krugman, Brad DeLong, and Robert Reich and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva.

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Modern Monetary Theory Wiki

"It would be useful if the basic principles of modern monetary theory, if the work of Wynne Godley and his followers insisting on models that maintain stock flow accounting consistency and if Minsky's instability principles were at the core of understanding of these matters. But it is obvious that they are not." — James K. Galbraith

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WARREN MOSLER - 7 Deadly Innocent Frauds of Economic Policy

WARREN MOSLER - 7 Deadly Innocent Frauds of Economic Policy | Modern money | Scoop.it

Free PDF copy of Warren Moslers' book.
Deadly frauds:

 

1. The government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.


2. With government deficits, we are leaving our debt burden to our children.


3. Government budget deficits take away savings.


4. Social Security is broken.


5. The trade deficit is an unsustainable imbalance that takes away jobs and output.


6. We need savings to provide the funds for investment.


7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.

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Critique of Central Banking by Henry C K Liu

Critique of Central Banking by Henry C K Liu | Modern money | Scoop.it

Central bankers are like librarians who consider a well-run library to be one in which all the books are safely stacked on the shelves and properly catalogued. To reduce incidents of late returns or loss, they would proposed more strict lending rules, ignoring that the measure of a good library lies in full circulation. Librarians take pride in the size of their collections rather than the velocity of their circulation.

 

Central bankers take the same attitude toward money. Central bankers view their job as preserving the value of money through the restriction of its circulation, rather than maximizing the beneficial effect of money on the economy through its circulation. Many central bankers boast about the size of their foreign reserves the way librarians boast about the size of their collections, while their governments pile up budget deficits [...]

 

Central banking insulates monetary policy from national economic policy by prioritizing the preservation of the value of money over the monetary needs of a sound national economy. A global finance architecture based on universal central banking allows an often volatile foreign exchange market to operate to facilitate the instant cross-border ebb and flow of capital and debt instruments. The workings of an unregulated global financial market of both capital and debt forced central banking to prevent the application of the State Theory of Money (STM) in individual countries to use sovereign credit to finance domestic development by penalizing, with low exchange rates for their currencies, governments that run budget deficits.

 

STM asserts that the acceptance of government-issued legal tender, commonly known as money, is based on government's authority to levy taxes payable in money. Thus the government can and should issue as much money in the form of credit as the economy needs for sustainable growth without fear of hyperinflation.

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What is Money?

From The Banking Law Journal, May 1913.
By A. Mitchell Innes.

 

The fundamental theories on which the modern science of political economy is based are these:

 

That under primitive conditions men lived and live by barter;

That as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable and which therefore, everyone will take in exchange for the things he produces or the services he renders and which each in turn can equally pass on to others in exchange for whatever he may want;

That this commodity thus becomes a “medium of exchange and measure of value.”

That a sale is the exchange of a commodity for this intermediate commodity which is called “money;”

That many different commodities have at various times and places served as this medium of exchange—cattle, iron, salt, shells, dried cod, tobacco, sugar, nails, etc.;

That gradually the metals, gold, silver, copper, and more especially the first two, came to be regarded as being by their inherent qualities more suitable for this purpose than any other commodities and these metals early became by common consent the only medium of exchange;

That a certain fixed weight of one of these metals of a known fineness became a standard of value, and to guarantee this weight and quality it became incumbent on governments to issue pieces of metal stamped with their peculiar sign, the forging of which was punishable with severe penalties;

That Emperors, Kings, Princes and their advisers, vied with each other in the middle ages in swindling the people by debasing their coins, so that those who thought that they were obtaining a certain weight of gold or silver for their produce were, in reality, getting less, and that this situation produced serious evils among which were a depreciation of the value of money and a consequent rise of prices in proportion as the coinage became more and more debased in quality or light in weight;

That to economize the use of the metals and to prevent their constant transport a machinery called “credit” has grown up in modern days, by means of which, instead of handing over a certain weight of metal at each transaction, a promise to do so is given, which under favorable circumstances has the same value as the metal itself. Credit is called a substitute for gold.


So universal is the belief in these theories among economists that they have grown to be considered almost as axiom which hardly require proof, and nothing is more noticeable in economic works than the scant historical evidence on which they rest, and the absence of critical examination of their worth.

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Progress and Poverty by Henry George
http://www.henrygeorge.org/pcontents.htm


Classics of Political Economy
https://www.marxists.org/reference/subject/economics/index.htm

The State Theory of Money by G.F.Knapp, 1924 edition (pdf)
http://ideas.repec.org/b/hay/hetboo/knapp1924.html

 

John Maynard Keynes Reference Archive | marxists.org
https://www.marxists.org/reference/subject/economics/keynes/

 

Marriner S. Eccles Papers - FRASER
https://fraser.stlouisfed.org/archival/?id=1343

 

Hyman P. Minsky Archive | Levy Economics Institute of Bard College
http://digitalcommons.bard.edu/hm_archive/

Sovereign money | Website for New Currency Theory and Sovereign Money | by Joseph Huber
http://sovereignmoney.eu/

IDEAS: Economics Working Paper Archive, Levy Economics Institute
https://ideas.repec.org/s/lev/wrkpap.html

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Pavlina Tcherneva - Monopoly Money: The State as a Price Setter, 2002

CONTENTS

 

1. Introduction

2. Colonial Africa: An Introductory Model of a Tax Driven Currency

3. Further Historical Examination of State Currency

4. Present-Day System: The Integration of the Banking System and the State

5. Mathematical Model: Analyzing the Implications of the State as a Single Supplier of that Which it Demands for Payment of Taxes

6. Conclusion: The Employer of Last Resort Option

 

Today’s currencies exist within the context of State powers. These powers endowthe State with the ability to move desired resources from the private to public sector using economic policies targeting full employment and price stability. This paper explores the basis for understanding modern monetary systems as rooted in the monopoly powers of the State. In the first section, the case of colonial Africa will be used to demonstrate howState powers are used to give value to the currency. The second section further exploreshistorical issues in the development of these powers and their institutional basis. The present-day monetary system and the role played by the government are then examined.In particular, the way in which certain powers of the State turn bank money into Statemoney is explored in this section. This third part is intended to alleviate any doubts withregard to the government’s monopoly powers in the presence of bank credit creation. Inthe fourth part, a mathematical framework is employed to demonstrate the exogenous pricing power of the State. Finally, a conclusion is offered in which the employer of lastresort approach is identified as an appropriate policy framework for full employment and price stability.

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Central bank independence – another faux agenda | Bill Mitchell – billy blog

Central bank independence – another faux agenda | Bill Mitchell – billy blog | Modern money | Scoop.it

[...] the policy approach that took us into the crisis will remain largely intact along the road to the next crisis. Monetary policy will remain the dominant counter-stabilisation tool, despite the uncertainty about whether it actually is very effective, and fiscal policy will become passive again.

 

The pools of underutilised labour resources will remain high for years to come as a result of this policy mix.

 

If I was in charge I would merge the central bank with the treasury, release thousands of bright former central bankers via retraining into the workforce to use their brains doing something useful, and also dismantle the public debt issuance machinery.

 

Fiscal policy would become the dominant tool and short-term interest rates would be set at zero. Please read my blog – The natural rate of interest is zero! – for more discussion on this point. I would control inflation via a Job Guarantee.

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Mathew Forstater, 1999 - Functional Finance and Full Employment: Lessons from Lerner for Today

This paper reviews fifteen lessons to be learned from the work of Abba Lerner. These lessons, which fall under the general categories of functional finance and full employment, are as relevant today as they were when they were first put forward some five decades ago. They include insights into the workings of the macroeconomy that provide a basis for analyzing current macroeconomic developments and for formulating effective macroeconomic policies.

 

1. Full employment, price stability, and a decent standard of living for all are fundamental macroeconomic goals, and it is the responsibility of the state to promote their attainment.

 

2. Policies should be judged on their ability to achieve the goals for which they are designed and not on any notion of whether they are "sound" or otherwise comply with the dogmas of traditional economics.

 

3. "Money Is a Creature of the State"

4. Taxing is not a funding operation.

5. Government Borrowing is not a funding operation.

 

6. The primary purpose of taxation is to influence the behavior of the public.

 

7. The primary purpose of government bond sales is to regulate the overnight interest rate.

 

8. Bond sales logically follow from, rather than precede, government spending.

 

9. "Printing money" in and of itself has no impact on the economy whatsoever. For Lerner, there are six (or three pairs of) fiscal instruments of government: taxing and spending, buying and selling, and borrowing and lending. "Printing money" is not independent of these.

 

10. Without a full employment policy, society cannot benefit from labor-saving technological advance, that is, efficiency becomes inefficient. With a full employment policy, labor-saving technical advance becomes truly beneficial to society.

 

11. Without a full employment policy, a country must suffer over its trade balance. With a full employment policy, there is no need to worry about importing "too much" relative to exports.

 

12. Attempts to argue that the deficit and debt are not really as big as they look, or that if we measure them differently or keep a capital account they are not really that bad, are counter-productive.

 

13. When there is unemployment, jobs and money, not resources and goods, are scarce.

 

14. Functional Finance is not a policy; it is a framework within which all sorts of policies may be conducted.

 

15. To achieve full employment, government spending may have to include direct job creation.

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beowulf: Michael Hudson - Super Imperialism, 1972

There were some people who knew the score, Michael Hudson foremost among them. He published his book Super Imperialism in 1972, and in it he explained how the US had re-engineered the global financial system to replace the gold standard with the dollar standard. What’s funny is it probably came about by happenstance, perhaps even by an act of treason gone awry [...] Michael Hudson saw through to the heart of the matter and described how, by the early 1970s, the US ruled the financial world. Yet even then, its doubtful Wall Street and (especially) Washington was aware of the extent of American economic power until a remarkably helpful book was published by one Michael Hudson:
“The book sold especially well in Washington. I was told that U.S. agencies were the main customers, using it in effect as a training manual on how to turn the payments deficit into an economically aggressive lever to exploit other countries via their central banks.”

 

http://www.scribd.com/doc/20889998/hudson-Super-Imperialism-The-Economic-Strategy-of-American-Empire

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PAUL KRUGMAN - Coalmines and Aliens

By the way, nobody seems to have noticed that my suggestion that a fake alien threat would end the slump was nothing more than an updated version of Keynes’s “coalmine” thought experiment:

 

"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."

 

Keynes then goes on to explain that the actual business of gold mining — in which basically useless ore is mined and refined at great cost, then sent to sit idle in the basements of central banks — is for all practical purposes identical to his coalmine idea.

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Monetary Sovereignty: The key to understanding economics

Monetary Sovereignty: The key to understanding economics | Modern money | Scoop.it

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics. [...]

 

Politicians and the press do not yet seem to understand Monetary Sovereignty. However, no one intelligently can discuss national deficits and debt without understanding the implications of Monetarily Sovereignty. The concept is the basis for all modern economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.

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Paul Amery - The ETF Loophole (Almost) Everyone Missed

Paul Amery - The ETF Loophole (Almost) Everyone Missed | Modern money | Scoop.it

“When I found out banks were not confirming forward ETF [trades] until settlement date, I was pretty surprised,” Conrad Voldstad, chief executive of ISDA, the trade association for the world's over-the-counter (“OTC”) derivatives market, said yesterday, according to Reuters. [...]

 

When I wrote about the issue of settlement “fails” in ETFs over two months ago, I was prompted to do so after hearing a passing comment from a trader to the effect that timely settlement of exchange-traded fund trades in the UK market was the exception, rather than the norm. [...]

 

The subject of ETF settlements in Europe proved remarkably difficult to investigate. Traders were—with a couple of exceptions—unwilling even to discuss the subject. One leading ETF issuer told me it didn’t monitor secondary market settlement efficiency in its ETFs, only whether primary market trades settled on time. My enquiries to the three largest European stock exchanges, to regulators (BIS, the FSA, the Bank of England) and to clearing systems (EMCH, LCH.Clearnet), all met with similar responses: we don’t have any data on ETF settlement efficiency; or we have, but it’s confidential.

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Modern Money Mechanics :: MMT simplified

This is a blog that will explain how the modern monetary “fiat” system works. We will endeavour to explain the mechanics of modern money. This will not be based on theory but fact [...]

 

This school of thought is known by many names, Modern Monetary Theory (MMT), Chartalism/Neochartalism, Modern Monetary Dynamics or as we have called it Modern Money Mechanics. These are all essentially the same thing. It is considered a post-Keynesian school of thought [...]

 

As noted in the About link, it is mostly a deconstruction of Bill Mitchell’s work into what I believe to be more manageable pieces.

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WARREN MOSLER » Proposals for the Banking System, Treasury, Fed, and FDIC

The hard lesson of banking history is that the liability side of banking is not the place for market discipline. Therefore, with banks funded without limit by government insured deposits and loans from the central bank, discipline is entirely on the asset side. This includes being limited to assets deemed ‘legal’ by the regulators and minimum capital requirements also set by the regulators.

 

Given that the public purpose of banking is to provide for a payments system and to fund loans based on credit analysis, additional proposals and restrictions are in order:

 

1. Banks should only be allowed to lend directly to borrowers and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to government regarding the regulation and supervision of those activities.

 

2. US banks should not be allowed to contract in LIBOR.

3. Banks should not be allowed to have subsidiaries of any kind.

4. Banks should not be allowed to accept financial assets as collateral for loans.

5. US Banks should not be allowed to lend off shore.

6. Banks should not be allowed to buy (or sell) credit default insurance.

7. Banks should not be allowed to engage in proprietary trading or any profit making ventures beyond basic lending.

 

8. [...] last proposal for the banks in this draft is to utilize FDIC approved credit models for evaluation of bank assets. I would not allow mark to market of bank assets. In fact, if there is a valid argument to marking a particular bank asset to market prices, that likely means that asset should not be a permissible bank asset in the first place. The public purpose of banking is to facilitate loans based on credit analysis rather, than market valuation. And the accompanying provision of government insured funding allows those loans to be held to maturity without liquidity issues, in support of that same public purpose. Therefore, marking to market rather than evaluation by credit analysis both serves no further public purpose and subverts the existing public purpose of providing a stable platform for lending.

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