I hinted in an answer to a comment on here yesterday that I am thinking of working on a new book explaining how government funding really works. This will be the foundation of the work I plan with Colin Hines on funding the Green New Deal, but very obviously has broader application.
The reaction of my sons to this news was amusing. They groaned, noting that in their opinion I hate every aspect of writing a book excepting thinking about it and saying ‘I wrote that' when it's done. There is some truth in this, but I have to admit this one has been developing in my mind for a while.
The aim will be to explain everything from what money is, to how it is created, to what it's relationship with tax is, before then going on to the much harder stuff. That will look at debt, deficits and, of course, quantitative easing. Inflation then comes into the mix, but before that the true nature of government accounting - both the income account and balance sheet - will need to be addressed. The latter is particularly important and may be a focus of this work.
The relationship between the government and the rest of the economy will also need consideration, of course. That will then bring in a discussion of fiscal and monetary policy, with multipliers and interest rate issues in that mix.
Description will not be enough though. This work will be quite explicit about the fact that there is never anything neutral about the economics of government funding. Always, and without exception, government funding decisions have a policy objective. What those objectives might be will clearly need to be discussed, but this book would have the aim of explaining how to fund the economic transition we face. The aim is to in that case explain how finance can be aligned to policy, rather than policy to finance.
I do not suggest this is anything more than an outLine at present.
There is also no publisher in mind. Maybe it will just be an ebook to make it as readily accessible as possible. It could be a printed work. In either case partnerships with others with concern on this issue might be welcome.
But right now I am interested in reactions, and requests for what needs to be included, explained or otherwise addressed.
Suggested titles might also be interesting.
Comments please!
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Banks, both Central & private needs to covered I think.
Also, I assume the book will be focussed on fiat currencies, but some discussion in other types of currency (euro & tied) would be useful
Thx
“Welcome to the Magic Money Tree”
how about ” Money Matters —Fact, Fiction & Belief ”
do you have to provide evidence for facts or do facts stand out by themselves ?
one further thought— how to distinguish your proposal from Keltons book re myths
excellent concept Richard —stop your sons allowances if they give you more grief ( or charge them rent when they come home )
This will be very different from but also complimentary to The Deficit Myth
Importantly, it will not be US focussed
It will be written with translation in mind….
This is something desperately needed, Richard. A UK-focussed book, different but complimentary to the magnificent, massively influential, ‘The Deficit Myth’. Put me down for a copy.
If it is being written with translation in mind, then perhaps covering the hybrid Euro system would be good.
That has to be an option – but maybe in an edition for translation
Everything you always wanted to know about money but were afraid to ask.
🙂
What happens to money after it is spent?
This seems to me the bit that is missing in rational or irrational discussion of money. I think far more has disappeared than anyone allows for. The big questions are where has it gone and how did it go there?
Anyway, good luck. Considering the amount of useful stuff you write every day, 100,000 more words is neither here nor there.
Debt only disappears when debts go bad
I’m not sure what you are getting at here. Physical cash does get lost, of course, and bank notes get destroyed in house fires but you seem to be suggesting something more mysterious is happening.
There is nothing more mysterious happening
The confusion is in thinking money is tangible
It isn’t
Not now, anyway
I would like to see a historical perspective on money going as far back as possible but certainly at least the Greeks/Romans in Europe and how it existed on other continents and cultures. How it developed as Money and the concept of National Debt which required Nation States to be created to exploit these artificial constructs citizens real wealth creation to allow Money to capture it.
The concept and actual various ancient banks and bankers and where they are now across the planet and what they are planning.
The boom/bust which always benefits the same winners , which explains the Bubbles and the clear mechanics of it from the Scots to the Dutch Tulips to Dot.com to what is the latest very clear bubble ensnaring people across the planet especially the poorest in many nations who have been given access to ‘leverage’ through smart phones to ‘invest’ in the many hundreds of varieties of digital currency!
There is only one way this will end and likely very soon. If the barometer is that many people in pubs are talking about any number of obscure and new such currencies and ‘trading’ daily by the minutes and seconds with talk of stop losses – language and concepts they knew nothing of last week about but as everyone is ‘getting into it ‘ they are all suddenly experts! The ponzi is massive and as usual doomed. I also think it is a manufactured black swan.
It is going to be ugly and as bad as the negative equity disaster of the 90’s.
I think we need to urgently understand these issues and very much look forward to the book. Ideally a hard copy.
Hope that makes sense.
I admit this is definitely from 1971 onwards….
Read David Graeber, ‘Debt: the first 5,000 years’ (2011). Felix Martin is interesting on ancient China and the development of money during the Warring States/Qin Period; which is remarkably modern and radical in conception (Martin, ‘Money: the Unauthorised Biography’, 2013; Ch.4, pp.75-80)
One day a son will give my copy back….
But I am not sure
The other book perhaps worth reading is Michael Hudson’s ‘… and Forgive them their Debts’, which goes into how the Babylonians did it – also perhaps some of his other work.
@ DunGroanin
I’m not sure of Richard’s views on the American Monetary Institute, and its late founder/Director, Stephen Zarlenga, but his large book “The Lost Science of Money” would meet your need for a historical overview from ancient Greece onwards.
I’ve read it twice, despite its being 685 pages long. Two salient observations from Stephen Zarlenga
1. “Over time, whoever controls the money system, controls the nation.”
– Stephen Zarlenga (1941 – 2017)
2. He therefore believed that the old description of a tripartite constitution, made up of the Executive, Legislative and Judicial arms needed to be seen as quadripartite, with the 4th arm being the financial, in which he was/is surely correct.
See https://www.monetary.org/ for the American Monetary Institute
I have not read that
But I will look at the web site
Thank you all for informative replies and links. It all helps. Though 600 pages will take me through to spring if I had nothing else to do
Here is what I am currently looking at which if you don’t already know about, explains the State bank of North Dakota and its now anachronistic non-commercial-profit model, completely at odds with the rest of the Fed banks proven lots more successful.
I’ll quote extensively from it because it speaks very clearly to our current condition as much as this blog does.
‘The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.
https://scheerpost.com/2021/12/22/ellen-brown-the-real-antidote-to-inflation/
‘Small banks lend to small companies, while large banks lend to large companies – and to large-scale financial speculators. German community banks were not affected by the 2008 crisis, says Werner, so they were able to increase SME lending after 2008; and as a result, there was no German recession and no increase in unemployment.
China’s success, too, Werner attributes to its large network of community banks.
reform the money system by: banning bank credit for transactions that don’t contribute to GDP; creating a network of many small community banks lending for productive purposes, returning all gains to the community; and making bank behavior transparent, accountable and sustainable.
Public Banking in the United States: North Dakota’s Success
That model – cut out the middlemen and operationalize community banks to create credit for local production – also underlies the success of the century-old Bank of North Dakota (BND), the only state-owned U.S. bank in existence. North Dakota is also the only state to have escaped the 2008-09 recession, having a state budget that never dropped into the red. The state has nearly six times as many local banks per capita as the country overall. The BND does not compete with these community banks but partners with them, a very productive arrangement for all parties. ‘
I think for a title you could do a lot worse than use the blog title ‘Money, and Everything Else’, which seems to sum it up.
Perhaps with a sub-title drawn from ‘How the Government/state (really) works (or doesn’t)’.
But good luck with it – I look forward to being able to read it.
“How to pay for it – myths and reality about finance and government policy”.
I like How to pay for it
Every time an arrogant media interviewer asks “how are you going to pay for it”, thinking they are so smart and can catch you out, you can just give them the book and allow them a month or so to study it and then get back to them and find out whether they now understand government finance and can then say which financial option would be most appropriate to finance the particular measure under discussion.
“how to pay for it” I like that too
Go for it I say.
It is sorely needed.
‘Money – A Citizen’s Guide to How it is Created: The Myths, Lies, Politics and the Truth’.
Sounds good Richard.
Look forward to reading it.
Will you be including the fundamental role that energy plays in the economy?
That the economy is an energy system rather than a financial one.
Without cheap, abundant energy, everything else in the economy ceases to “function”.
Only peripherally…..
Whatever form your book takes, don’t forget this invaluable resource:
https://www.patreon.com/posts/money-matters-44838523
Steve Keen eloquently breaks down the myth of a government being ‘forced’ to borrow. He shows that bond auctions amount to little more than window dressing to make it seem as though the Treasury cannot fall into negative equity. Arbitrary rules are in place which facilitate corporate welfare and, through QE, have led to asset and stock prices growing untethered to reality or the real economy.
There is another way.
Once you understand that we need the Treasury to be the one institution to go frequently, if not permanently, into negative equity, as provision for a private sector surplus, it changes one’s thinking on political economy absolutely.
The project is vital. The fact that trawling this website can give me all the explanation I need is no substitute. For example, your recommendation of Stephanie Kelton’s The Deficit Myth was a quantum leap for me, a left leaning former lawyer with only ‘informed layperson’ economic comprehension. That meant, of course, understanding that current economic narratives were entirely politically motivated against the role of the state and in favour of austerity, but with close to zero ability to explain that to non believers. I think my type is close to your benchmark audience and I still think you underestimate how difficult for such a person some of this is. To discover at my stage of life that an entire encyclopaedia of ‘facts’ about our economic system are simply a very well organised pack of lies and distortions is a huge shock. In the case of the sector that I belong to, this is made more poignant because we have long understood the nature of the state and its apparatus (better than you, Richard, I venture to conclude), but that we knew absolutely nothing about precisely how it actually manages the economy and manipulates wealth for the benefit of the elite. Of course, we knew it happened, but that’s not enough and that ignorance is part of the reason why the left gets lost in sloganising. Your project is a pivotal part of dealing with this problem. I applaud it unreservedly.
Wait and see before getting too excited!
Everything You NEED To Know About Money But ‘They’ Absolutely Do Not Want You To Know
With A Sub-Title of ‘How Govts. Actually Fund Their Spending’
Craig
P.S. Good luck with this
🙂
Hi Richard
Surely you need to work in a reference to the Mile End Road into the title??
A section perhaps on why it is important to understand this in the context of climate change and biodiversity loss – until we understand how money truly works then we won’t be able to solve these crises – not suggesting you provide solutions (notwithstanding your GND work) it’s more about providing the framework and understanding about how we might mobilise resources to address the environment. On reflection perhaps this is more something for a preface – adding to the urgency of understanding this stuff for policy development etc.
Why not set up a crowd funder? e.g get a copy for yourself and one for school/university libraries, or for higher amounts, more copies for those libraries. Could be done for both print and ebook? Whichever way you do it I will be buying a copy.
Let’s see…
But one publisher is showing interest, which is pretty good news
Provocative titles are fine. Hopefully your son will not call this one “a smutty title”, like he did the Joy of Tax.
What the government doesn’t tell you about money
Or what they don’t want you to know about money, to play with Craig’s suggestion.
Money and government : the true. (or full) story…. Is my suggestion. But it could improved
I think he was rather hoping for another smutty title
I had an idea to do a book on government spending back in 2016 when the whole There’s No Magic Money Tree trope was being bruited. It was going to be called, unsurprisingly, The Magic Money Tree (sub: How Government Finances Really Work).
Of course, since my own economic literacy extended to a C grade in GCSE Economics a quarter of a century earlier, study was required. Suffice it to say that the study is ongoing.
Having started with Smith & Keynes, opposed with Mises, Hayek & Friedman, dipping into Marx, and ranging (now) from ancient philosophy through behavioural psychology to complex systems (with this blog being a non-trivial part of the last 2 years), I can confidently say that I *might* be able to put something coherent together, but probably shouldn’t. 🙂
🙂
“Zen and the Art of Magic Money Tree Maintenance”
It really must debunk “taxpayers money” and “how to pay for it”
Thanks for all your good work and for educating me.
Best wishes to you and yours for Christmas and the New Year.
🙂
Slightly tongue in cheek: “How to Make Money (and spend it wisely)”
Its implicit in the outline, but pointing out when politicians are ignorant or lying could perhaps make an introductory panel to each chapter.
I wish you every success with this project, Richard. This is something which is desperately needed. I seriously considered send a copy of Kenton’s “The Deficit Myth” to some of my friends for Christmas but held off because I thought some of the US references might confuse them. Your outline seems more comprehensive. Hope you go ahead.
I hope so too
Totally fabulous Richard, really looking forwards to reading it, go for it!
*Kelton.
Amusingly, I have already been approached by a major publisher….
Watch this space
I look forward to it and learning a little more about how money really works, how about
Money for nothing and you’re debts for free? better ask Mark Knopfler first though!
John
My suggestion:
Find a good *primary* school teacher. Pick their brains about introducing new topics to young children – finding a baseline, finding out what is partially and incorrectly known, lesson planning in small steps, checking progress (without testing).
There is so much written critiquing MMT and the modern economy by authors who never mention the part that belies their criticism, that a comprehensive UK-based tome sounds wonderful. (In small, quotable chunks would be helpful!)
I wish you God speed in your endeavour, and a safe and peaceful family Christmas.
Thank you
It is widely reported hospitalisation through omicron is likely to be 70% less than delta.. why are you not reporting this good news???.. after all you have been commenting on Covid everyday when there was bad news around.. it would seem you thrive on bad news and good news less so???
Because if you look at the maths on the rate of transmission that will still massively overwhelm the NHS
An idiot with a statistic is always a dangerous thing
Well, if you want something provocative how about “The Ladybird book of Government Accounting”? Or “Haynes Manual for Chancellors of the Exchequer”?
More prosaic, but descriptive, would be to base it on a suggestion above. “How to Pay for it: a Guide for Governments and Citizens”.
(To be honest, substituting “Taxpayers” for “Citizens” might attract readers better, but might slightly confuse your agenda).
That is one of the problems
Bairns buying sweeties are “taxpayers”; they pay VAT.
You’d have to live in isolation to avoid all taxes, it’s a much abused term.
My cousin is an author and illustrator of children’s books and about 10 years ago (shortly after the financial crash) we decided to write a kids book about money (except, of course, the real intention was for a wider audience). Life intervened and it never got anywhere other than a couple of lunches, some very simple sketches and text.
All I remember was how incredibly hard it is to be clear and concise on the key issues……
Good luck.
That will be the problem
I’d quite like to see a section on what those that disagree with the approaches discussed here have to gain following their own ideas. Why are so many keen on austerity, why are so many keen on throttling the supply of money from government. I get it in the obvious wider terms, that, for instance the very wealthy did very well under austerity but a closer look would be good.
I’d call the book ‘Pulp, factions’.
Very droll
But the suggestion for content is good
Great idea Richard and good news to hear just before Christmas.
Something along the lines of ‘how to pay for what we need’ perhaps? A reminder that we face multiple big challenges – reflecting Keynes observations about how to pay for the war. Everything needed to tackle climate change, rebuilding public services, and investing in the industries and jobs we need, for starters.
Then identifying all of the tools that the government has at its disposal as its not just about MMT. Borrowing, bonds, money creation, pension funds et al along with a reframed role for tax.
What might that alternative budget look like? No-one has yet really summarised all the costs of a Green New Deal along with a properly thought through set of options for funding it
Aiming at the widest possible audience. Kate Raworth’s Doughnut Economy is a brilliant example of taking a complex topic, making it understandable and summarising it in a graphic that is easily understandable and sticks in peoples mind. A very rare skill amongst economists.
This will be about much more than MMT….
Since humans started making things they have been trading the things. Sometimes this would be inconvenient because if you wanted to swap something of fairly high value for something else of high, but not the same, value then someone would get a raw deal. You could maybe chuck in a sheep or something to make up the difference but actually I have enough sheep for the amount of grass I’ve got so no thanks. Currency made in standardised units solved such difficulties and when it all boils down to it that’s all that money is.
In a field dominated by Australians and Americans it will be great to see you out there batting for Britain , Richard. There is def. a gap in the market for an MMT primer written from a UK point of view which pulls together the best of Mosler, Kelton, Wray and Mitchell in language we Brits can understand.
Suggested titles – ( drawing on previous suggestions) ” Fiat Money – A Users Guide (to making it and spending it) “. “Fiat Money – Truth, Lies and Politics”. “How To Make Money – a Users Guide to Fiat Monetary Systems”.
Fiat never gets buying cars, I am afraid
How about – The Money Go -Round.
Please do this. I can think of several people I can give it to as a gift.
As for titles:
– World Finance for Dummies
– The Great Escape: Financing the Future
– Solid as a Rock: How Government Finance Does [and Doesn’t] Work
– Modern Mythology: Banks, Governments, and Taxes
– A Bridge Too Far: Modern Financial Failings and How to Fix Them.
Into the melting pot they go….
Cant really say much useful Richard – but the Accounts/ Political Economy combination seems to be your unique perspectve and advantage – USP?.
At a quick glance the Steve Keen little4-sector ‘Input-Output’ tables seem to show the basics pretty clearly, and also illustrate and compare neoclassical and MMT-type models.
A pity the nineteenth century publishing syndrome isnt feasible? Serial chapters every so often – which could hit the headlines – and get people gagging for the next instalment as debate raged.
The scope is so vast – not an easy project. To have a major impact – the headline message has to be ‘simple’, even if the ramifications are very detailed and complicated.
The ‘simple’ headline will be around ‘what is money’, ‘ where does it come from’ etc . The fact that there is no such thing as taxpayers money just doesnt seem to chime easily with how people see ‘their’ money. If that perspective can be cracked it will be a revolution.
I rather hope draft chapters may be possible…..
Let’s see
Possible title – or subtitle
There are just three reasons for electing a government:
Defence, Justice and Money Creation
Why is the last one never mentioned?
My suggestion: “Money is the Root of All”, showing that money affects, in some way, pretty well all aspects of life for everyone.
Another commenter suggested a reference to Mile End Road, but the difficulty with that is that it’s a very London-centric reference which becomes less and less understood and therefore less relevant the further you go from London. Whatever the book is eventually called, I wish you every success with it; it should occupy all your spare time between, blogging, tweeting, writing academic papers, teaching, bird-watching etc.
Enjoy your Christmas and Ne’erday.
I have a feeling my 2022 is going to be busy
Have a Good Christmas Ken
I was a bit hasty in signing off my recent post: I had meant to say that I hope the book will demonstrate and debunk the obfuscation surrounding so many of the activities of the BoE, Treasury, Government and media reports, like the concealed real ownership of the BoE, the use of the term “borrowing” when state money is created, how the bond markets function, and how the state’s bookkeeping is structured.
Surprisingly and completely out of season, this last point has surfaced in The Herald’s letters to the Editor in relation to GERS in the last couple of days, with the question being asked by one correspondent “why, if Scotland, Wales & N Ireland produce annual statements of government spending, are there no comparable figures produced for England?” As an accountant I’m embarrassed by how little I know of UK State bookkeeping, although it’s fair to say that it was never part of my student syllabus and, with the passing of time, I suspect that its omission was intentional.
I agree with all your last para….
I am also curious as to who you think owns the BoE? It is, beyond any doubt, the government. It was nationalised in 1946.
Re your question to me at 08:45 today (“I am also curious as to who you think owns the BoE?”), when Gordon Brown, then Labour’s Chancellor of the Exchequer, announced to many fanfares in the media that he was “making the BoE independent of Government”, I missed the point that this “independence” was restricted to interest rate setting and like many across the UK I took it at face value that he meant actual independence, not “pretend independence”. Thanks to your frequent writings on the matter, I get it that the BoE is, and always has been, wholly-owned by the UK Gov since 1946. My point is that your intended book is an ideal forum for debunking the many myths relating to money and the economy which are constantly recycled to a gullible public.
I gifted copies of “The Deficit Myth” to my children so that they can understand when politicians and the media are spouting economic nonsense and encouraged them to get their children to read it when they are old enough to vote. When your book comes out I’ll gift copies to them so that they and my grandchildren can be better educated than I was. Debunking the widely-held myths in layman’s terminology and with clarity is central to improving the public’s understanding.
Now I get it!!!
Go well…
It seems to me that you cant just cover the Government side of money you also need to look at what happens in the private sector as well, you cant understand one without the other
Of course….
Would “fiscal responsibility” be a possible title? It is normally used to justify austerity but fiscal responsibility could be ‘reclaimed’ and turned against those who misuse it. True fiscal responsibility puts interests of people and the environment first.
The term ‘magic money tree’ is derogatory and any connotation with the word ‘magic’ needs to be avoided.
You may need to mention Ms Kelton (because you don’t want to be seen as ‘out there’) but perhaps explain U.S central banking versus UK the version
I think we know what the facts are – the 1866 Act must be included – how else can you support your assertion that MMT deals with the facts of money creation (which I think has been proven TBH?).
But also, the book needs to assert in my view a key issue: that money IS a major creation and concern of sovereign Government, and perhaps the most powerful manifestation of Government. Particularly in the UK who did not join the Euro. And with that link, there is a role (or roles) for money in democracy. What is the best role – the one with the greatest amount of social utility for the greatest amount of people would be my view.
This might open up the view with the reader as to why Governments behave as they do – through political decisions, behaviours and ideologies. And that leads to making choices about who you vote for.
This is because my main concern is that after well over 10 years of austerity, public expectations of Government are low and depressed, and as long as that remains the case, then it will retard progressive ambitions and a better world. A better world comes from expecting better – without that spark – then what?
Since you are getting loads of advice about this work, I will finish on another note: have a break yourself and get some rest. Whilst I’d never underestimate your capacity and drive for hard work (and the fun you derive from it) I thought it just worth saying.
Merry Christmas all.
That was worth saying
I had the same negative feelings as PSR re the use of ther term ‘magic money tree’.
Beyond that, good to see lots of useful suggestions. For my part, while I appreciate that this book would be UK-oriented, it would be good if you could include something about the difference between the UK pound (as a sovereign currency) and the euro and the practical effects of the shared currency in the EU. As someone living in France, I have long felt conflicted about the euro – on the one hand I fully understand the rational reasons why George Brown refused to join the euro (though at the time I didn’t), but the common currency across Europe has emotional appeal. But I guess there’s no way to square that circle (short of a fully federal Europe).
I would write this with the intention of a euro edition in mind….but let’s see
* Gordon (not George) Brown – obviously! Sorry Gordon!
“But also, the book needs to assert in my view a key issue: that money IS a major creation and concern of sovereign Government, and perhaps the most powerful manifestation of Government”.
Money is different. It isn’t a product, and it isn’t a commodity. When you try to observe it directly it seems to disappear altgoether (hence the problem neoliberals have such difficulty – their economics has never adequately explained it). I believe Perry Mehrling provides critical insights in “The Inherent Hierarchy of Money”. With regard to the quotation from PSR’s comment above, Mehriling reminds us: “I have used the word ‘inherent’ in my title, and now I want to explain why. I use it to emphasize that the hierarchical character of the system, and its dynamic character over time, are both deep features of the system that emerge organically from the logic of its normal functioning. That is to say, the hierarchy is not something simply imposed from the outside, e.g. by the power of government, or the force of law. Rather, monetary systems are inevitably hierarchical, from the inside, by the logic of their internal operations.”
Ther is a dynamic ongoing tension between Scarcity (the Currency Principle), and Elasticity (the Banking Principle). I cannot do justice to Mehrling here, but will close with this statement from his paper:
“Returning to our simple hierarchy of money, the point is that there is a simple hierarchy of market makers to go along with the hierarchy of instruments. And for each market maker, there is an associated price of money. The prices in the simple hierarchy are three: the exchange rate (the price of currency in terms of gold), par (the price of deposits in terms of currency), and the rate of interest (the price of securities in terms of deposits or currency, assuming par). These prices are the quantitative link between layers of qualitatively differentiated assets. The market markets who quote these prices in effect straddle the layers of the hierarchy, using their own balance sheets to knit those differentiated layers into a coherent whole.
If the market makers do their job well, we will observe continuous markets at the various prices of money. In other words, the qualitatively differentiated hierarchy will appear as merely a quantitative differentiation between the prices of various financial assets. It is this transformation from quality to quantity that makes it possible to construct theories of economics and finance that abstract from the hierarchical character of the system (as most do). But the hierarchical character remains, and shows itself from time to time, especially when the market makers are not doing their job well, or when they are overwhelmed by the task at hand, such as under the extreme stress of war finance or during periods of financial crisis.
Even in less extreme times, the normal fluctuation of the hierarchy regularly puts strain on market making institutions. In expansion mode, it is an easy business. But a contraction of credit, or steepening of the hierarchy, means an increased qualitative differentiation between credit and money, which is to say between the instruments the market maker holds as assets and the instruments it holds as liabilities. In the course of that differentiation there is bound to be pressure on the price of credit in terms of money, which pressure shows up as a solvency challenge. But there is also pressure to make good on the promised monetary qualities of the liabilities, which pressure shows up as a liquidity challenge.
The point to emphasize here is the inherent limit of price adjustment for addressing such challenges. Interest rates can and do move to reflect system stresses, but such moves are not necessarily equilibrating, and might just make the strain worse. Further, the whole point of deposit par is that it is a price that does not change, and under a fixed exchange rate system the same is true internationally. The banking system thus is especially vulnerable whenever the hierarchy steepens because it is bound to defend a fixed price between layers of an increasingly differentiated hierarchy. Reserves of money are the first line of defense but are soon exhausted in any significant contraction.
In liquidity crises, everyone wants money and no one wants credit. Fortunately, what counts as money at one level in the system is merely credit for the level above. This means that higher levels of the system can generally solve the crisis of levels below them. Small crises can be solved by monetary expansion at the immediately higher level; large crises however may require involvement of the very highest levels. Just so, in the recent 2007-9 U.S. debt crisis, the banking system initially tried to absorb the brunt of the crisis, but when the crisis proved too big the central banking system had to get involved (Mehrling 2011)”.
Thanks
I think claiming the magic money tree term would be a great way to proceed. It will certainly make people look up and give a direct reference to people that use it. Imagine “pfft! MMT – magic money tree” says person one. “Indeed, go and read the book about how it works” comes the reply.
Some thoughts
I read a bunch of books that say private banks create money. From an accounting perspective, I can’t get my head around that. A clear explanation of why they do, or don’t, would be very helpful.
Rightly or wrongly, most everyone of my generation has learned that printing money is a very very vnad idea, as illustrated by hyperinflation in Germany, with links made to cause of Second World War.
Not sure what current state of play is, but why shouldn’t ‘whole of government’ accounts be presented with a consolidated Bank of England. Cross debt/borrowing with HMG are eliminated to show the true external debt position.
Perhaps also consideration of ‘healthy’ money, which circulates/recirculates in economy /taxation, vs unhealthy money – locked up in real estate or offshored.
All noted
And I hope this helps…
https://www.taxresearch.org.uk/Blog/2021/05/11/how-banks-create-money/
Lots of detailed suggestions – its been worth a careful read.
Id pose a different point – who is your target audience and what are you trying to convince them of? Is it policy makers, academics and a more specialist group? Or a wider group in the public and voters?
In your summary Richard, you mentioned how do we pay for the Green New Deal and perhaps all that goes with it. When many/most of the public cling to tax and spend, household budget arguments. That suggests a less technical approach, or at least keeping the technical sections separate from the bigger pucture.
Robin
As I warned the publisher who approached me yesterday I am going for a less technical, referenced but not academically referenced, book
The aim is to explain that we can have what we can do
As Keynes said in 1942:
Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income … Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theatre, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford. … We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life? …
Yet these must be only the trimmings on the more solid, urgent and necessary outgoings on housing the people, on reconstructing industry and transport and on replanning the environment of our daily life. Not only shall we come to possess these excellent things. With a big programme carried out at a regulated pace we can hope to keep employment good for many years to come. We shall, in fact, have built our New Jerusalem out of the labour which in our former vain folly we were keeping unused and unhappy in enforced idleness.
(Collected Works XXVII)
My emphasis
The need is to explain how
And how this requires that we reconcile monetary, fiscal and MMT thinking
Keynes said that on the BBC. That is the audience
Richard
Thanks Richard
Might be slightly off track but I like the argument that we should be measuring the country’s balance sheet with all its different assets, and not just the ‘P&L’.
‘Selling the family silver’ is a narrative that has resonated in the past.
“You’re writing for everyone” said Stephanie Kelton’s editor to her (p265, acknowledgements, The Deficit Myth). I suggest that is her book’s great achievement. So I’m pleased you are taking a similar approach. I don’t have any clever suggestions, sorry, but I hope the title gets the interest and attention of the wider and mainstream media, so the book gets the attention and reach it will deserve. Apologies for making two comments here, but such a book could have a big impact. How you will find the time I don’t know, but you are astonishingly prolific. If no-one better volunteers, I would proof-read if it helps.
That offer is noted
Thank you
And I do have funding to work on this at least two days a week
But it is going to be hard work….
Thanks for that Richard. “We can afford to do anything we want to do” is the understanding that needs to occupy our minds so we can get rid of the perception of shortage or lack when it comes to money. Bonne chance with the book and kudos for doing it.
It’s not done yet
Contemplating it is one of the fun bits
Doing it takes hard work
Hmmmm……………….look, I’m not saying that money is a commodity OK? That was not my point. My point was more philosophical, more about ethics if anything else. The thinking before the thinking if you will.
It’s not ‘the money itself’ – it’s what it does, or rather, what it does not do if it is not there, or if there is more of it in one part of society than the other. Having created it as a concept or whatever one wishes to call it, Government has a role. This role is negated by Neo-liberals, libertarians and others who recognise its power and want it to themselves. That is the issue that needs to be countered, whilst recognising that markets have their own role in that allocation of money.
What is an important part of the money fact and myth is that it’s history lies with sovereign Governments and in my view – perhaps many others – this fact is deliberately overlooked or downplayed to the detriment of society. This really has to stop. Because it’s literally killing us.
So to me the debate is also – who owns money? Who has the right to it? Is it an instrument of the commons? (I think belongs to all of us myself – money should be democratic in its effects).
Whatever money is, even if we cannot agree on the answer to that question, we cannot argue with its outcomes if it is abundant or lacking. For something so lacking in form (a promise to pay) , it is undoubtedly powerful. Should we not all benefit from it?
When we get into discussions like this about money, it reminds about discussions about gravity.
We can’t see or touch gravity but we know gravity is here – we see and fell its effects. Gravity is certainly a commodity either. Gravity can be sensed in the universe but I believe we are still searching for where it comes from and what binds it together over long distances when there are no planets are suns nearby (which can all create there own gravitational effects).
Money is rather the same. It exists but yet, it does not or maybe it does but in a way that is hard to explain. Maybe a sleight of hand is at work here? Why is it as a concept so hard to pin down, so elusive? And who is saying so? And why?
What I do know though from personal experience and being in the public sector is what happens when you don’t have enough money; when it is misallocated; when you worry about it; when it is used for malign reasons; when you pretend that it is in short supply for no good reason.
We are encouraged to get bogged down in process of money maybe, rather than outcomes perhaps?
It’s not just about the physical nature of money; it’s about how it’s used – what is the intent of creating money?
And how beneficial is that intent to society? And if the market wants to spend more money instead on erectile dysfunction products or website algorithms to make profits, then it falls to Government to do the other essential stuff. And so, why hobble Government with lies like taxation and debt to big to pay back?
And as someone who wants a courageous state for Christmas, that was the basis of my original post in support of our nascent author.
I am going to need to read that again but your discussion of the amorphous, metaphysical nature of money is an issue I was playing with earlier this week – because the BoE description is so absurdly literal
I think a chapter on the metaphysics of money would be really interesting, but challenging for readers who are struggling to understand how the money system actually works, especially when they’ve been fed misleading explanations all their lives. Better to put the metaphysics chapter at the end, perhaps as a postscript, where the reader has read and digested the chapters on the mechanics of money and can then better understand a philosophical debate about its meanings.
I’m reading ‘Making Money’ by Desan. I mean…….wow! We agreed that it was a major text in some of her writings.
But all I would say is that something must be REAL (it exists) if we feel its effects, where there are demonstrable phenomena that suggest it is there.
I was also actually inspired by John S Warren’s quoting of Mehrling (which I’m still getting my head around) – this layering effect of money in different forms in the system – money is both ephemeral and physical – it is at once nothing but everything:
– as a record of something, as credit, as debit, as a promise
– as a store of value, an indicator of one’s worth or worth of something
– as actual cash (notes and coinage)
– as transactions (electronic)
– as intent (maybe the same as ‘a promise’) – policy promises
– a signifier of trust or faith in our dealings with each other (currency values etc).
– Power – and this attribute is KEY ladies and gentlemen.
All I’m saying is that we must confront these uses because we must also accept that mankind has created money – not God or nature. It was not on the planet before we came along.
Money is a human solution to a problem that has created its own problems. It’s an immensely powerful concept. And unfortunately humans are going to fight over it; some humans are going to want more of it than others. Because its powerful. Who should yield such power and why? For whom? This battle between the originator of money and its more affluent users has raged I think since money was created.
That’s why I ask questions like ‘Who owns money?’ This utility that was created for society. Yet why is it so unevenly distributed? It all goes back to Stephanie Kelton telling us about the sovereign nature of money creation and the key role of the State. She was right. All I see is private concerns wanting to dominate this social utility (and I can emphasise the term ‘social utility’ enough).
Because ultimately, it then it brings us back to democracy. The way things are going, money is being used VERY undemocratically at the moment. It’s bad news. All that tax left un collected, all that wealth is leaking into and poisoning the very system that created it.
Anyhow – sorry – and Merry Christmas.
Thanks PSR
Philosophical issues regarding the naure of money were more intensively examined a century or more ago than now: George Simmel, ‘The Philosophy of Money’ captured the conceptual complexity. When you write “Government has a role”, Georg Friedrich Knapp, ‘The State Theory of Money’ took that argument to its logical conclusion.
The problem is not just money’s elusiveness, but its capacity for continual dynamic change. Technology and fiat money has transformed its Protean nature. It evolves. I believe Mehrling is important because his framing of the issues brings out its distinctive dynamic quality: my point was at the same time, not about the ‘commodity’ issue itself, but the fact that money is unique, distinct; a fact that mainstream economics, including neoliberal economics has – it seems to me – never adequately understood. Hayek wrote glibly about a “free trade in money” and a “free trade in banking”, while insisting he could have both, yet somehow he couldimpose a discipline among the agencies ensuring that there would always be a “reliable”, “honest money”. That hasn’t worked well under neoliberalism, which is never far from a crisis, never sees it coming, and fails to learn the lessons. How could it learn, for it is part of the problem?
Having said all that, philosophical debates about money are barren if there is no application in the real world. That is why I think Mehrling is so illuminating and refreshing; he throws light on the fundamentals and makes us think about the philosopical problems, by observing closely the real world. He is more interested in describing how money actually works, in rigorous detail how it functions in the modern digital world (where each simple, single digital transaction; buying lunch with a credit card, spins out a myriad of interrelated financial transactions in financial and non-financial institutions – critically over time; multiply that up to a whole economy, with the money flows and time differences involved), a process far more complex and far-reaching, over time than a cash/coin transation, though of the same apparent value; and the fact that the whole system is based always on double-entry (debit and credit). Behind this however, there is a hierarchy of debits and credits; depending on relative perspective, something may be considered money at one level, credit at another: this doesn’t matter, typically until there is a money crisis, when the ‘inherent hierarchy of money’ asserts itself. In adversity, credit disappears and money alone is king: at the last resort, who holds, and who provides the (real) “money”?
Its late, its almost Christmas, and I no longer know if I am making sense. Happy Christmas all!
Much appreciated
And actually, much I agree with
I increasingly think debits and credits are key to this…..
Sense or not – it’s all good, it’s all good. We’re doing what the politicians are failing to do – think it through to a win/win.
We are in the midst of sense making . We are always in the midst of many of things – as is money itself.
Well, I hope we are. I hope the sense making is not over. Because THAT would be the end of history would it not?
At a risk of repeating myself, the worse case is for people seeing wealth (which is based on money and ‘money power’) as something that is exclusive to a certain section of society. And accept that.
I’m damn sure that money was not created as a utility for individuals; it was created as a utility for societies and nations.
That is what the intent of money is in my view at least.
Let’s make it so and argue that in the book – just a suggestion. Forgive my temerity or for getting carried way.
Money is quite literally a public good
Can I add my voice to those saying that this sounds like a great idea.
I’d like to ask for a reworking of your standard explanation of what money is. I’ve always thought of money as a means of exchange but you normally describe it as a promise to pay. I think this is really self evident to you, to such an extent that it doesn’t warrant further explanation. I remember in one of your early videos you pull a £5 note out of your pocket and say something like “see, it’s just a promise to pay”, this confused me then and I have thought lots about it since and it still confuses me now.
It’s a promise to pay what to whom?
Is the government promising to pay me something, or since the government created the money am I promising to pay it back? If the £5 is a loan from my local Lloyds Bank does it represent my promise to pay that money back to them?
The thing that I like least about the promise to pay explanation is that it feeds into the false narrative that the government underwrites our currency with a big pile of something valuable and that they promise to pay you £5 worth of that specie if you turn up with the £5 note. We know that is false, but if the £5 note is a promise to pay then surely it makes sense for a it to promise to pay something other than £5 otherwise it seems like a null transaction.
As you can see I’ve got this properly muddled in my head and I would welcome a clarification.
Also I think the focus on actual notes is red herring – they really aren’t what money is about anymore and so I don’t think any basic explanation should concentrate on that aspect.
This will be a very early issue I will address
I have already been working on it
But not on Christmas Eve….sorry
Could we title the book simply ‘How government creates money as it spends’ ?
After all, the Conservatives – who allegedly know how the economy works, spent supposedly £37 billion on test and trace – without any taxes whatsoever being raised…
Making money?
A book on this would be great how about “There is No Magic Money Tree: and other lies about money.”
I’m faily terrified to enter into this debate, but here are my suggestions/comments:
1. I strongly support Pilgim Slight Return’s comment ‘that money IS a major creation and concern of sovereign Government, and perhaps the most powerful manifestation of Government. Particularly in the UK who did not join the Euro. And with that link, there is a role (or roles) for money in democracy. What is the best role – the one with the greatest amount of social utility for the greatest amount of people would be my view.
This might open up the view with the reader as to why Governments behave as they do – through political decisions, behaviours and ideologies. And that leads to making choices about who you vote for.’ As he says, we need to understand why govts behave as they do.
2. Publish chapters serially, initially, as suggested. It’s a brilliant way to draw people in, create an appetite for the argument, and allow readers to absorb it step by step.
3. Perhaps a non technical summary to start each chapter so one could read those bits before tackling the detailed arguments.
4. Title ‘How to grow a money tree’. Please not ‘magic’, and please, please not ‘a bridge too far’ (my father died at Arnhem).
All excellent suggestions
I like the idea of publishing in stages
My instinct is that this will considerably help the work, and a publisher will need to work around it – which they will if it is good
So, thank you
As you say above, writing a book will be hard work, even about something you have spent years blogging about.
Unless a publisher offers it, it is worth looking at getting others (who you trust to be constructive) to critique it. The secret of good writing is excellent revision.
I agree
And given the ambition of this it will certainly need it
Forex and imports/exports are missing from much of the popular discussion on MMT. Neil Wilson has done much to clear this up for a lay audience, but it would be nice to have this in a book (though perhaps it’s targeted for his).
Your reference to Keynes sent me back to Beveridge’s report of 1944, `Full employment in a free society’, especially the sections on `State responsibility’ and `A new type of budget’. I expect you know this better than I do; I’m thinking particularly of the paragraph ($180) pointing out that only the state has can `make finance its servant rather than its master’, and ($182) calling for a budget `made with reference to available man-power, not to money; … in Mr. Bevin’s phrase, a “human budget.” ‘
`A human budget’ would be a possible title, but perhaps sounds stodgy. How about
`Making money work for people’
Happy Christmas to all!
Those ideas hang together so well
Thank you
Maybe a short section on, or outline of, what aspects/key elements of this should be taught to all students at secondary school? I feel that at least an outline of how money works would be greatly beneficial to them and hasn’t been given any prominence in schools.
The book idea has developed out of the idea for a short work…
Sounds like a massive topic and more like a one year subject for those doing a degree in Economics. I read Money for Nothing and Your Tweets for free and i am hungry for more.
I would hope it could be used by undergrads…