Alan Peyton posted a comment on this blog yesterday noting a letter that he has sent to HM Treasury, among others, on the subject of government money creation.
In the concluding comment of that letter, to which he provided a Google Docs link, he noted a letter sent which it is claimed was sent to The Times in 1865, referring to the US federal government creating greenbacks to fund its war activity. That letter is reported to have said:
“If that mischievous financial policy which had its origin in the North American Republic should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe!”
The author of that missive, now long gone, disclosed his fear, which permeated everything he said. That fear was threefold.
Firstly, it was of representative government itself.
Second, it was of what representative government might do for people.
Thirdly, it was of what representative government free from the control of financial markets might achieve.
Has anything very much changed since 1865? It would still seem that every single commentator on MMT wishes to belittle and undermine the obvious truth that any government possessed of its own central bank and currency that is acceptable for both domestic and international trade and that is backed up by a sound taxation system is capable of funding anything that the people of its jurisdiction are capable of doing.
What the author of this letter makes very clear is that it is the the owners of debt, and those others who would wish to shackle the power of democratic government to deliver well-being for a population, are the greatest constraint on the creation of the public good which government created money represents. Without a doubt they are the greatest challenge that we face if we are to enjoy the future that we both want and need.
This is a lesson from history that we need to remember every day.
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You have a typo.
What the author of this letter makes very clear is that it is (the) the owners of debt.
Keep up the good work.
I disagree
That was an editorial choice
Which leaves the open question: what is the rationale that people use to “belittle and undermine” MMT? So that they can remain rich/well off & others remain poor? Or perhaps they are too stupid to understand? I’d hazard a guess that the man that wrote the letter went to church on Sunday (well it was 1865) – which makes him a hypocrite as well.
The preservation of their own wealth, I think
Hi, I appreciate the post and its reference to representative government, which is something I care about a lot. I’m critical of MMT, but people take that criticism in bad faith or other wise just don’t want to engage. One of my biggest criticisms of the sort (from what I can gather, at least) of MMT program I typically see people advocating for is the fact that it would produce, in my view, a very un-representative government because it would effectively install a hyper centralized technocratic structure that extended throughout all the land, population, economy and society and this structure and all its sub branches and nodes would wield the mightiest power (and by far the most corrupting of powers) of them all: the total power over money.
I hope you have a great end of the week!
—Mike
How the heck do you come to absolutely any of those claims? None of them relate to a single idea I can link to MMT.
“Rationale” is probably the wrong word. Psychopaths pursuing extravagant wealth & power, and their agents, will say whatever is convenient and hope we can’t figure out the deception. They don’t need to win the battle of ideas: they only need to win the battle for political momentum.
It clearly is stark raving bonkers for the nation to be in the grip of a perceptual illness that can be called econophobia which widely manifests itself as a belief the country’s government is operating with a “maxed out” credit card. It’s a perceptual illness because every time you look at a bank note it tells you that as a piece of money it’s actually a “promise” (I promise to pay the bearer on demand the sum of ‘x’ pounds). This ought to induce some thinking about how a “money promise” is enforced. Logically this can only mean court reinforcement of a private sector bank loan but how do you extend this enforcement universally across the nation without extensive court involvement and the obvious answer is to have you return the “promise” to the government on a regular basis through taxation. This then allows both the government and private sector to seek their spending objectives by issuing their own “promises” with the former acting as the overall regulator to ensure both agencies don’t issue too many or too few “promises” relative to real resources.
Agreed
Indeed, has anything changed.
In 1885 Guy de Maupassant wrote Bel Ami, a novel that charts the rise of an unscrupulous young man as a means of satirising the corrupt relationship between Newspaper owners, politicians and the rich who tell lies and fabricate conflicts for their personal gain.
I have long thought that the true slogan of the far-right conservatives that have been making the political weather in the West for the last forty years should be, Back to the Future.
As Alan Peyton has spotted Western Conservativism is now somewhere back in the 19th Century.
I have just seen Trevor Phillips say politicians need to be ‘honest’ with people and address the issue raised by the IFS. He said ‘there is no money left’. I wonder if Phillips has ever read what the British govt did in 1914 to fund the war.
Depressing, isn’t it?
Trevor Phillips needs to be asked why is the word “promise” used on bank notes. If he says only gold or silver is money then he needs to be asked how come we are using bank notes as representations of money, and now largely dispensing with even bank notes and coins to use money digitally. He needs to be asked what he thinks is going on!
Para 7, “…. possessed of….”? Typo I think.
Indeed
Corrected
Politically it’s easy to say “we don’t have the fiscal capacity to double the % of GDP spent on hospital buildings, nurses and administrators by government”
It’s rather harder to say “we could do that, but it would come at a cost, and might not deliver the improved outcomes you think” because that would lead to a long debate about making tough choices and what’s the best health system to have, the one of a normal advanced economy, or this one we’ve currently got. You’d be taking on a lot of people with religious fervour if you said the second.
Welcome to the world of political economy.
So much easier to say things like the budget is tight, we’d like to see some higher productivity.
Missing from this is the economic multiplier which in the case of health is somewhere between 2.5 and 6 i.e £1 sepnt on health leads to £2.5 of more economic activity and – possibly more taxes coming back than was spent.
But this is never ever discussed neither was it mentioned in your post. Missed opportunity? There we go – I’ve helped!!
I read a very informative book years ago, written sometime in the 1920’s I think, about the Greenback era. It also published a long historic record of prices for basic goods across all US Union states at the time , taken from contemporary records kept.
The Greenback was a highly divisive topic at the time under Lincoln’s Administration. The opposing argument to its use boiled down to the fact that it was somehow “immoral”!!!! That it somehow went against the prevailing way of things…..almost as if it was a force of nature itself. Which I find quite astounding and very relevant to the situation MMT faces today.
Other gems in the book was a transcription of the meeting between the state Governors and the head of the Comptroller of the Currency . The latter seemingly speaking a different but veiled language, one can fully recognise as the current debate between the orthodoxy of “sound money” and the MMT brigade.
It was however, patently obvious (then as now) that the politicians had not the faintest idea how all this worked, even when it was explained to them (on record) that it indeed possible to fund government without the state having to borrow from the banks(at very high interest rates) or raise taxes to the point of totally killing the economy.
The palpable disbelief of the US political establishment was most revealing, as it still is. It was regarded at the time as a very last resort and promises were always extracted when Greenback issuance was voted on in the House. It was only passed to be a very temporary measure to fund the war, and that it must be a measure that would be reversed as soon as it was possible. Which is indeed what happened immediately on cessation of the American Civil War.
This of course was also strongly opposed (at the time) by the outraged private banking sector who warned that this was tantamount to a pathway to hell.
All in all a fascinating read of the use of the Greenback , one which I may add had the disapproval of its use from the author of the book himself. Who specifically blamed the inflationary price rises at the time on the issuance of the Greenbacks. This despite their being obvious shortages of basic commodities and labour, due to the miliary call ups, which strangely did not seem to register any sort of acknowledgement in the book. As well as a widespread shortage of money itself. The government initially having to resort to the use of emergency issuance of small denominated copper coinage and even stamps before they realised this need a serious solution(i.e the use of the official Greenback dollar bill)….issued by nothing other than the power and promise of the US(Unionist) Government.
I suppose some things will never change.
The problem is I think that people think money is something real and find it hard to accept it is just a promise to pay, credit, trust. I spoke at my local Green Party meeting recently and mentioned the importance of understanding money creation and that government spends then taxes. Someone asked about Venezuela, of course, and another described money creation as a fraud – he understands the idea but is disturbed by it, just as you describe Vince. We are dumbfounded by the simplicity of money creation and bamboozled by the complexity woven around it.
It is staggering, isn’t it
The offocial Green Party line is still that money must be made ‘real’ and only be created by the Bank of England, which remains slightly worrying
Pauline
Regarding Venezuela, the issuance of money can be done badly as well. The Union states just about got it right and in my opinion it greatly helped their war effort. The Confederate states by the same token, also used this power via their very own Greyback dollar. They however printed too much of it and it’s value fell dramatically and prices in the South were far higher than in the North. Eventually the Greyback failed as a currency. Obviously the South was losing the war towards the end and failed states usually end up with failed money.
The book also said that Lincoln himself was against the use of the Greenback, I have no idea is that is entirely true (I think this book had an angle to push on this), added to the fact there must have been majority support for it to be sanctioned by the government. His Treasury secretary Salmon P Chase, who was the chief advocate of the use of the Greenback, was also said to have wished after the war, that the Greenback has not been used, but it may have been that he just regretted having to to take such drastic measures rather than regretted its actual use, I don’t know for sure. Fact is they did use it and it worked and it helped them win the war, its would seem a tad churlish to the criticise it after the event.
This is a tool all governments have , I would add that its not necessary just for wars either.
The grey back failed not by printing too much but because the government issuing it failed and could not therefore give it value through taxation.
Ordering is important.
Richard,
Yes I would agree with that. The value of the two dollars went up and down against gold based on how well the battles were going. Any major victory would very much dictate which way the currency went. Bit of a gamble either way I’d say , but one that had to be made or all would have been lost.
There was of course the added issue that gold was traditionally used as an alternative to coin and notes, though they did eventually stop gold being exchanged at banks at that time too.It is something we don’t need to worry about now.
https://en.wikipedia.org/wiki/Greenback_(1860s_money)
[…] A lesson from history Funding the Future […]
My understanding about the article concerning the Greenback Dollar (the “mischievious” policy) was that it was an editorial comment, not a letter to the editor. I will endeavour to check it out.
Thanks
I tried to find an original but only found varying copies, even citing differing years.
Using Google Ngram Viewer, the earliest appearance of the paragraph I found was in an American book of 1898, which indeed says it is from the Times in 1865. It also appears in the US Congressional Record for July 1939 as a quote from an interview with “Lord Goschen, eminent English monetary authority and director of the Bank of England”, attributed, again, to the “London Times, 1865”. However, I’ve searched the Times Archive for various phrases from the paragraph between 1860 and 1869, and can’t find it. Over the whole decade, the words “indurated” and “fixture” occur on the same page only once, and even then they are a couple of columns apart. Sooo… either the archive is missing the crucial edition, or the interview appeared in another newspaper, or – it’s a fake.
Thank you
I was not as diligent
But even if it is nit from 1865, the sentiment is real and someone did write it
“How We ‘Promised’ Ourselves Money But Got Austerity”
Self-explanatory copy e-mail to Times Newspapers:
I wonder if you can help. In discussion about Abraham Lincoln’s “GreenBack Dollars”, currency issued by the US Government directly, i.e. NOT borrowed at interest from private banks, it is often & repeatedly stated that an editorial (detail below highlighted in blue/yellow) appeared in the “London Times” in response to Lincoln’s actions.
“….If that mischievous financial policy which had its origin in the North American Republic should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe!…”
I was led to believe from 3 or 4 sources that it appeared in July 1862. Others however claim sometime in 1865 for its publication. Are you able to clarify this matter? I would be most grateful if you could, if it is at all possible.
Regards Alan Peyton + contact data
I also did a search, general page here…. https://www.ecosia.org/search?q=if%20this%20mischievous%20policy%20is%20indurated%20down%20to%20a%20fixture which contains much quoting of the above, but no attribution re its source other than “London Times” & of course with varying dates. My sources were as follows: Bill Still’s 1996 “Money Masters” a grainy video (now on U-Tube) which I will watch again to see if I can pick up the ref; The White House Historical Association – I am no longer a member & it’s very expensive to be one; some general writing by Beschloss & Sidley which I lost about 2 computers ago! This duo also wrote a biography re Lincoln – I have not read it. In the last 15 years or so, I have seen this “editorial” quoted numerous times, so never questioned its provenance! It seems to me however (& it’s just my opinion) that it is far too specific & detailed to besome kind of prank or fake.
If I get a reply from the Times, I will of course publish it.
Thanks, Alan
To my amazement, I have received a reply from the TImes on Saturday night! Clearly they have been asked the question before. I have replied effusively thanking them for such a prompt reply.
Dear Alan
I have tried searching for several phrases from that passage but got no hits between 1860 and 1869 in the Gale archive. I have always found the archive reliable, so I fear it is possible the text is not authentic.
Best wishes
Rob Nash
Feedback
The Times
thetimes.co.uk
Now it gets interesting. 1860’s skulldugerry & disinformation. More work to do?
Fascinating…
So, who did write it?
Alan:
“I have tried searching for several phrases from that passage but got no hits between 1860 and 1869 in the Gale archive.”
Exactly what I did (see my comment yesterday). And I reached the same conclusion.
This evening I tried looking into Lord Goschen (who the quote is attributed to), but still got nowhere. I hope you have better luck!
Weird…..
Today I had a closer look at the Times Archive for 1865 and I discovered that two issues are missing – April 1st (masquerading as 1/4/1874) and July 3rd (completely missing). It’s possible that one of these contains the passage in question, if indeed it really did appear in the Times in this year.
I’ve emailed Gale customer support and will update if I get a response.
I’m really spending way too much time on this…
🙂
It’s pure specualtion but having read & studied the Rothschild family & in particular Nathan Rothschild (1777-1836), the “editorial” plausibly could be attributed to one of the members of that family, typically “broadcasted” by “agency” or other person(s). Obviously, by the 1860s Nathan was very definitely pushing up daisies but he had “educated” his siblings well. Bear in mind that Nathan makes Machiavelli seem as controversial as a Sunday School teacher. He effectively got control of BoE in 1815 by engineering possibly the worst ever London Stock Market crash via distorting the truth about the progress of the Battle of Waterloo. I have chapter & verse on this should anyone want to read it.
Prior to that (late 18th century) he had also initiated the concept of Government Debt Instruments called “Consols”, the precusors of the current bonds/gilts etc….
Given my purely speculative guess on the possible origin of the now disputed “editorial” provenance, I am going to write to Prof Niall Ferguson at Harvard (I had communicated with him some years ago) who gained unprecedented access to the Rothschild family archives to compile his biography of that family. They were of course far too fly to give him anything that might impugn their reputation; the work itself (I haven’t read all of it) is bit like reading a family tree (births, deaths, marriages etc), but he just might be able to throw some light on matters. We will see.
I am going to leave the disputed editorial in my script, but point out the lack of provenance to date.
My reasons: (1) I believe that the views expressed in it are entirely consistent with the banking reaction to Lincoln’s Greenbacks (2) that reaction led directly to the American act that ceded the currency issuing power back to the banks (3) Britain’s Audit & Exchequer Department Act 1866 is just about a carbon copy of America’s or vice versa given the overweaning power & influence of BoE at that time.
All of this is of course very diverting, but frankly I am more concerned about urging everyone (yes I am banging that drum again) to start writing to media various, BoE, Gov departments, politicians etc….RM has done plenty – give him a hand! And talking of hands, my Kitchener-finger is still pointing at you all….YOUR COUNTRY NEEDS YOU!
Thanks
I am pleased I included an element of doubt in my original post highlighting this now