EDITORIAL NOTE: Following comments posted and discussions I have had it is clear that a quote included in this post as I originally published it may be false and that the attribution of it to the Rothschilds may well be anti-semitic. For that reason I have removed it and kept intact the part of the article which was the substance I wished, in any event to refer to, which did not require that quote to retain its relevance. I apologise for any offence caused. I posted the article in good faith.
I thought that this post by Malcolm Reavell on the facebook page of Modern Money Scotland (which I support) was well worth sharing. This story is straightforward, and apposite:
An excellent story that explains a real example of state money creation and the banking world's reaction to it.
In the US Civil War Abraham Lincoln was running out of money to pay the troops. He supposedly went to bankers to seek funding. But Abe was smart and issued the Greenback instead, a dollar created by the government for the interest free use of the population.
In his own words: "The government should create issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.” (Senate document 23, Page 91. 1865)
So there we have it. MMT is the democratic solution to funding our civilisation, but it is hated by all those who want to use debt as a tool to maintain their dominance at your expense.
MMT is far from being a theory, it is a battle tested (literally) alternative to debt and austerity based economies.
Courtesy of: https://twitter.com/picss3o/status/1383387933764308999?s=21
Source: https://www.ukcolumn.org/article/case-greenback-pound
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This should logically work whether government is a few % of the economy or the majority of the economy as now (after housing costs which most people don’t seem to have much choice over).
There’s a nice paper in 2014 from Deek, Harris and Neipolt which shows what non neo-classicals are up against
Austerity is defined as the shortfall of consumption from the level desired by a country and supported by its repayment capacity. We find that austerity serves as a tool for securing a more favorable loan package; that it is associated with over-investment even when investment does not create collateral; and that low risk borrowers may favor more to less severe austerity. These findings imply that the amount of fresh funds obtained by a sovereign is not a reliable measure of austerity suffered; and that austerity may actually be associated with higher growth . Our analysis accommodates costly signalling for gaining credibility and also assigns a novel role to spending multipliers in the determination of optimal austerity.
There are too many people favouring evidence over ideas still dominating civil discourse.
http://theamericanchronicle.blogspot.com/2012/09/did-london-banksters-really-threaten.html
Easy to check. The actual quote, it seems, is from 1898.
Why then?
Unless you can make that make sense I don’t accept that
“Why then?
Unless you can make that make sense I don’t accept that”
It makes sense when you realise there was no such editorial and it was ‘fake news’. It was written to whip up emotion in the gullible. Did it work?
How do you know that?
The American Chronicle link leads to https://en.wikiquote.org/wiki/Talk:Money#Attributed_1865_Quote_from_the_bank_of_England – which in discussing says that, although much quoted, it could not be found in the (London) Times of the 1860s; and indicating that it was a ‘fake editorial’ produced as a ‘dirty trick’ part of the American political arguments of the the 1890s over the ‘Free Silver’/bimetallism issue. Which I understand was the major issue of the decade (it supposedly is at least part of the background behind the original Wizard of Oz book).
Whether or not it reflects the bankers’ attitudes of either decade is another matter…
OK
I copied in good faith
Lesson learned
But for that reason I am not taking it down
It’s in the Congressional records https://books.google.co.uk/books?id=xv5RAQAAMAAJ&pg=PA69&lpg=PA69&dq=If+that+mischievous+financial+policy,+which+had+its+origin+in+the+North+American+Republic,&source=bl&ots=_eTgJ8VKAc&sig=ACfU3U1ZnQbopDbgs7DvA7msH5PaJlNSog&hl=en&sa=X&ved=2ahUKEwi4zqy9pojwAhWKYsAKHdWtCeMQ6AEwB3oECAcQAw#v=onepage&q=If%20that%20mischievous%20financial%20policy%2C%20which%20had%20its%20origin%20in%20the%20North%20American%20Republic%2C&f=false
It is very difficult to use historic quotes and many turn out to be false which then makes the case look black and white. In this case however there are shades of grey. I have not seen that Times quote before but on first reading it it did seem rather too self incriminating to me. That any bank, in any era, would admit such stuff seemed rather doubtful on first reading. Banks have actually kept this open secret about their money creation powers for centuries. Even till today most people do not realise banks create most of our money(around 97% up till 2020) And that govts by and large are not net creators of money because they have a rather stupid obsession with balancing taxes raised with their own spending. The banks would rather we don’t know this. In fact most people who work in banks don’t even know this….my wife, a senior banker, included. Only a very few senior bankers actually understand that and even then they fiercely defend the idea that this is indeed the best and most prudent option.
I do always use the Lincoln administration as an actual example of MMT in practice. However as to Lincoln, he was in fact very divided about the issue of Treasury issued bills, as was his Sect of the Treasury(Salmon P Chase) who despite being the architect of the state issued Greenback dollar also later said he regretted having done had to implement it. Many leading politicians also of the day disliked the Greenback. The odd thing is that despite its unpopularity amongst law makers, no one could give a better alternative to the financial problem of how to pay for a war without crippling the economy(having to raise taxes or borrowing from the banks). So necessity being the mother of all invention, they swallowed their doubts and passed the legislation to allow the Greenback to circulate. The Greenback did struggle at first and was exchanged at a discount to the bank issued dollars, but it worked. This improved as the war continued until it was almost par by the end of the Civil War. The Confederacy indecently did the exact same thing and printed a Greyback dollar.
The Greenback dollar however was without doubt a huge success. But with the end of the War the need was deemed to be over and the banks had their wishes granted when the Greenback was gradually withdrawn and the banks could go back to business as usual, charging interest for their own “out of thin air” created dollars.
So the essence of that Times quote is very correct ,because the banks furiously opposed the use of the Greenback from its inception and were delighted when Lincoln’s successor relented and stopped the issue of the Greenbacks .The USA missed an historic opportunity at that point in time and the world effectively fell back to sleep regarding banks very lucrative powers to create our money, one which the state mistakenly allows because of the ridiculous and very misleading myth that banks are the only ones who should create our money. But the banks certainly do not brag about that, and nor would they have done in 1865.
As I understand it the quote comes from something called the ‘Hazzard Circular’ which seems to have been some sort of banking pressure group led by one Charles Hazzard. It was quoted in the Times and, I think, elsewhere too but was not part of an editorial or Times view of the actual situation…
“Mr. Hazzard, it is said, was an agent of the capital and banking interests in London. The circular letters, with which he was charged with distributing, were to be given to the capitalists and bankers in New York and New England.”
http://republicbroadcasting.org/news/the-history-of-the-hazard-circular/
” Money will cease to be the master & become the servant of humanity ”
So Mr. Cameron was simply applying early MMT principles on behalf of his employer
MMT is only a “democratic solution” if it is implemented by a democratic government within the framework of a democratic constitution. Money is inescapably political and can be created at will, in accordance with the descriptions provided by MMT, by an authoritarian government. We are witnessing this in the UK right now.
“MMT is far from being a theory, it is a battle tested”
Several US states refused to accept the ‘so called’ Greenback Dollar. So did many businesses. At one point one ‘gold-backed’ dollar was worth three ‘greenback’ dollars.
The Confederates also printed their own money. During the Civil War, Inflation in the Confederate states peaked at 9,000%. In the North a mere 80%. Was that bit mentioned in the post you read?
You want to base modern day economics on a desperate 150 year old move during the American Civil War? Supported by a letter published at the time in a newspaper?
If you’re right, where are the successful examples of a country following this path? If it’s so easy and so sure of success, why hasn’t anyone tried it?
We follow its path
Right now
And have done since 1971, at least
As has every major developed economy with variations in the them e.g, the euro
Catch up please…..
Mr Keeks,
A Civil War will tend to distort any economy. In the case of the Confederacy, the US Navy operated a very effective blockade against the international trade in cotton and tobacco on which the thirteen Confederate States relied. The Southern States possessed relatively little industry, not much of the major banking infrastructure (nor even a Central Bank), which were established in the North, all of which further distorted both its lop-sided economy and its war effort. It relied heavily on Memminger and the Confederate Treaury, which itself was pressured by states-rights politics and of slave-assets (see Rose Razaghian, ‘The Condereacy’s Financial Policies, 1861-1864’; Yale University, Yale ICF Working Paper No. 04-45). At the same time, and unlike the North, the Southern economy could not produce sufficient war-time goods. Resort to the printing press led to inflation, which rose as the realisation dawned that defeat against a superior economic/population force in the US was likely (See Eugene M. Lerner. “The Monetary and Fiscal Programs of the Confederate Government, 1861-65.” Journal of Political Economy, December 1954, vol. 62, no. 6, pp. 506-522.). See also, Eric Neilson, ‘Monetary Policy in the Confederacy’, Economic History, Fall, 205, pp.40-43.
Your comparison of inflation rates merely demonstrates the stark difference between North and South in terms of real resources, monetary infrastructure, and policy. The US Congress passed the 1862 Legal Tender Act when introducing Greenbacks, which required both people and institutions to accept Greenbacks as legal tender for public and private debts, except for interest on federal bonds and customs duties (an innovation); both sides blocked reliance on both specie and gold; but the US 1862 Act provisions on exclusivity were not followed by the Confederacy.
What you attempt to picture as a problem, was a success. Introduced as a crisis, war-funding, short-term project, greenbacks transformed both monetary policy and economic potential. As Adam Smith realised long ago advances of great magnitude in economics are rarely the product of human design. Indeed the monetary picture of the ante-bellum US, gold and specie oriented system was both chaotic and unsatisfactory. The circulation of counterfeit currency had been high, and taxation negligible. In retrospect the US policy with regard to ‘Greenbacks’ has proved a stunning triumph of long-term policy. This was confirmed very soon after the Civil War – there was even a Greenback political movement in the 1870s to ensure the greenbacks were not only retained, but their circulation increased. Today, It is indeed the ‘almighty dollar’, and its origins an iconic part of the American story.
@Harry Keeks
The Greenback was indeed discounted against the banks issued dollars. However this fails to understand that the banks so called gold backed dollars were not 100 % backed by gold themselves. Had all holders of those dollars actually turned up at the bank of issue to demand their gold, I can guarantee that you would not have received gold in full. Fractional reserve banking means that notes are issued in excess of reserves…as is still the case today even though we no longer use gold.
I mention the Confederate “Greyback” dollar in another post on here. The reason that failed was not because the money was wrong ,it was because the Confederacy was slowly losing the war. The economy was badly effected and loss of battles reduced the general confidence in the state, that was reflected in the loss of confidence of its money. So you have the conflation incorrect. Any money is only as good as the issuer, the money itself is not the issue it is the sustainability of the issuer….that is a key point regarding any money. The Greenback was almost at par by the end of the Civil War because there was a general belief amongst the users of the currency that the future of the Union was safe.
It’s all a promise to pay
And the Confederacy had a bad promise
That’s it
It’s also of interest, as I seem to recall, that John F Kennedy was toying with the idea of introducing ‘Treasury’ money in the USA back in the early 1960s. He and Lincoln were, of course, murdered.
I think that those who believe that the only utility of money these days is to earn the (powerful) issuer a rent are pathetically deluded.
Great post.
Richard, this is an antisemitic Rothschild conspiracy theory based on an obviously fraudulent quote. Given how many people are likely to read your post, could you please delete it?
The post was offered in good faith
I certainly did not read it for what you suggest it to be
It has created useful discussion and I accept yours is a possible interpretation
As I have already said, I note that this requires more care on my part in that case, but I offered it in good faith and now offer your due warning in the same good faith
But deleting it would mean that due warning was not then shared. That seems inappropriate and so I publish your concern, note it and pass it on instead
It’s a fraudulent quote, Richard – and fraudulent Rothschild quotes and conspiracy theories exist for one reason only. There is no “useful discussion” to be had. If you want to warn people, then warn people in the post – not 20 comments down.
I have changed this post
But I refused to take it down
Mr Richardson,
“I do always use the Lincoln administration as an actual example of MMT in practice. However as to Lincoln, he was in fact very divided about the issue of Treasury issued bills, as was his Sect of the Treasury(Salmon P Chase) who despite being the architect of the state issued Greenback dollar also later said he regretted having done had to implement it. Many leading politicians also of the day disliked the Greenback. The odd thing is that despite its unpopularity amongst law makers, no one could give a better alternative to the financial problem of how to pay for a war without crippling the economy(having to raise taxes or borrowing from the banks).”
There is an important point here. The US policy maker, I propose; ante-bellum assumed the critical importance of commodity money (gold or silver backed), because that was conventional wisdom, and they assumed it was the commodity that ensured the ‘trust’ of the community depended on the commodity. It must also be remembered that in the US ante-bellum, federal taxation was not well developed, or not applied. Lincoln seems to have stumbled on the Greenbacks as a crisis-only solution to a desperate existential emergency for the Republic by the Civil War.
Post-bellum there was, however a realisation out there in the expanding Republic , especially among farmers, that the Greenback itself (proved by the Civil War, and victory) could provide a critical source of trust, and oil the wheels of the economic growth; a burgeoning belief that even led to the formation of a Greenback political party in the 1870s, to defend its use, and expansion of its circulation.
As I wrote in another comment, Adam Smith realised long ago that advances of great magnitude in economics are rarely the product of human design. The critical factors in the success of the Greenback took some time to coalesce in the minds of policy makers: the complete Trust of currency users in the currency itself, alone as the ‘promise to pay’; this trust symbiotically tied to the currency by the sovereign’s exclusive power to issue the currency, combined with the authority to command its use, specifically by users paying taxes that are, in turn effectively applied universally in the community, and also by offering privileges for using it; for example in savings through ‘safe assets’, or as providing the sovereign lender of last resort to the polity.