The Bernanke Bust

[Pointedstick]

I'm not advocating full anarchism so much as pointing out that it's the logical conclusion of all the moral bickerings of libertarianism that try to completely ignore observations on macroeconomics and the government ever being able to accomplish anything productive or good in any way, shape or form.  Of course, the ultra-libertarians don't like that, because they all like their country estate, and most of them even like freeways pretty well, even if they think the private sector could somehow organize the whole system better.

I think a lot of libertarians acknowledge this. I certainly do. I walk or drive to work on a public sidewalk or road every day, but that doesn't mean I don't think that these goods couldn't be more efficiently provided by the private sector. And I don't see what's so terrifying about the concept of "full anarchy". We already act under conditions of anarchy whenever we deal with a foreigner, that is to say, no common set of rules bind our interactions and each of our actions is judged under the institutions of a different entity . But we don't suddenly become deranged killers or manipulative wastrels, do we? (at least, no more than normal )

[moda0306]

Pointed,

I guess I'm not so horribly afraid of anarchy so much as I want to point out that strong-libertarianism may SEEM close to anarchy but it simply keeps the parts of government that libertarians value...

I think private property, as it exists today, and private property in a fully natural government-free, sovereign-individual world, are VERY different animals.  And this isn't just because bonds are guaranteed or government puts roads up to a restaurant I may own... it goes to the very core of property ownership itself.  The establishment, dispersal, recording, defending, negotiating, etc of deeded real property is a HUGE benefit to those that have it... and they want to keep this part, but consider any kind of welfare/social benefit (often including education, basic healthcare, and other necessities for minors) confiscation and ban it.

So we're not just a bunch of nebulous entities floating through space, creating products & services by our own time, creativity, and hard work, trading them with other entities as we bump into them... we live on an Earth with resources that allow us to do MUCH more than we could on our own, and seek to create an organized system of how to use those resources to the full benefit of ourselves, with as few negative side effects as possible.  Acting as individuals in this arena creates a Tragedy of Commons, which is one of the founding reasons for private property and deeding land... but from what I can tell, this is a social tool, not an inherant part of us as sovereign individuals simply being recognized by government.  Other social tools would be a social safety net, public infrastructure, millitary, etc... they each deserve to be analyzed on many levels, but we shouldn't fool ourselves into thinking that they're fundamentally different in nature as potential tools of government to organize a more peaceful, stable, prosperous society... if that's even a worthwhile or legitimate goal.

[hoost]

What I'm saying is that government spending has created $15 trillion of real savings for the private sector (not talking about private credit that must be repaid). But, those savings represent real goods and services that people created with their own blood, sweat and tears.

What are real savings?  Savings certainly represent goods and services in that savings can usually be exchanged money which can be exchanged for goods and services.  Increasing the number of savings doesn't necessarily increase the number of goods and services.

[Gumby]

What I'm saying is that government spending has created $15 trillion of real savings for the private sector (not talking about private credit that must be repaid). But, those savings represent real goods and services that people created with their own blood, sweat and tears.

What are real savings?  Savings certainly represent goods and services in that savings can usually be exchanged money which can be exchanged for goods and services.  Increasing the number of savings doesn't necessarily increase the number of goods and services.

By "real" savings, I mean risk-free savings that can't evaporate during a credit crunch (i.e. Treasuries). Typically you have to offer people a quality form of savings if you want them to provide goods and services. If the government were to stop spending, then new savings are only being created through investment, by ramping up private credit — which is highly unstable and tends to crash when it's ramped up too high.

I walk or drive to work on a public sidewalk or road every day, but that doesn't mean I don't think that these goods couldn't be more efficiently provided by the private sector.

Sure, but I wonder what good would that do us in terms of growing our economy. If the private sector were responsible for paying for its own interstate highway system and every sidewalk in America — and the government didn't contribute anything to it — it would likely be paid for with enormous amounts of private credit, so that employees were paid on time and goods were delivered on time. So, then the private sector would be responsible for paying the principal and interest on that private credit to itself. And without fresh government deficit-spending entering the private sector, the private sector would almost certainly have to go deeper into debt to itself just to pay the interest on its own private credit.

When the government deficit-spends, it reduces the private sector's need for relying on increasingly risky private credit. This is why deficit-spending is useful during an economic downturn — when private credit slows to a standstill. This is not to say that private credit is bad. It's just looking at the reality that you can't just have a monetary system that relies only on private credit without lots of risk and instability.

Thought exercise: Could one, using MMR, come to the conclusion that savings could in theory be facilitated by the government ceasing the whole bond-issuing charade and creating a new type of U.S. savings account that was backed by "the full faith and credit of the United States", gave a high rate of interest, returned all the deposited money back to the citizens in the form of quarterly or yearly checks (like what Alaska does with oil profits), and paid any withdrawals back using newly-printed money? I.E. could safe national savings be accomplished without the need for the government to spend?

Sure. You can use MMR to come to that conclusion. You're talking about a government CD or a citizens dividend. One of the founders of MMR (Carlos Mucha) has often suggested a citizens dividend in casual conversations (not as a part of MMR). Warren Mosler (of MMT) has also talked about retiring the debt — by simply stop issuing long-term debt and dropping the short term rates on Treasuries to zero — and offering government CDs to reduce the confusion that the debt tends to cause. Again, MMR doesn't make any specific recommendations like that. But, you can use MMR to analyze situations where those kinds of conclusions might make sense.


Think of MMR as a pair of 3D glasses in a 3D movie theater. It allows you to see the interaction of the public, private and foreign sectors more clearly. What you choose to do with that information is entirely up to you.

To say MMR is politically neutral is false.  MMR is implicitly statist.

So the issue with MMR is it exposes the machinations of political money for all the do-gooders to exploit.

MMR isn't statist. It's called "Modern Monetary Realism" because it exposes the truth behind how fiat money works. That's all there is to it. If fiat money did not exist, then there would be no need for MMR. But, don't tell me that it's not politically neutral. Where is the agenda in MMR? There is none. You can use MMR to analyze how a wide spectrum of political issues will affect the private and foreign sectors. You can use MMR to determine how a Eurozone nation will react to various levels of fiscal union. You can use MMR to model economic forecasts. You can use MMR to analyze just about any aspect of the fiat monetary system. You can even use MMR to prove that fiat money is dangerous and leads to greater instability over time.

But, yes, MMR turns people off who want to live in a fantasy world where the government, foreign and private sectors can all have a surplus at the same time while existing in a debt-based fiat monetary system.

[MachineGhost]

s as sovereign individuals simply being recognized by government.  Other social tools would be a social safety net, public infrastructure, millitary, etc... they each deserve to be analyzed on many levels, but we shouldn't fool ourselves into thinking that they're fundamentally different in nature as potential tools of government to organize a more peaceful, stable, prosperous society... if that's even a worthwhile or legitimate goal.

I note you consistently seem to conflate society with government when it comes to collective organization.  If you would perceive "government" as the ruling elite parasites and their ilk, perhaps you wouldn't automatically assume that ideal is good for society.

So I guess the practical issue comes down to whether these "social tools" are based on morality (justice) as opposed to utilitarianism.  As I'm sure you've noticed, anti-government philosophers will decry "social tools" as ineffective on utilitarianism grounds, but decry the whole institution of statism itself on morality grounds.  Two wrongs can't make a right and "government" is exactly that seductive metaphysical concept that shouts out from the rooftops that it is indeed possible (middlemanned by the ruling elites, of course).  So is the verdict in?

One thing I value more than ideaology is not being a hypocrite.  That, I can't say, appeals to the vast majority of political ideaologues.  So to paraphrase Keynes, I change when the facts change.  MMR is a fact, but so is statism.  Does that mean we're supposed to acquisience and cease fighting the immoral basis of statism?  The tenuous power of "government" always depends on the tacit approval of the victims (if this was not best horribly illustrated by the Jews during WWII, what else is?).  I merely ask: is that approval transparent and voluntary between free minds in free markets?

Anyway, here's a positive view on the role of "government" as it pertains to Africa:

He is certainly right that people often overlook this progress and instead believe that global misery is intractable. “The strongest argument against a moral imperative to act,”? as Mr. Kenny says, “is that we are powerless to make things better.”? Clearly, we aren’t powerless. The real question is not whether foreign aid and local government programs can work — it’s which programs work and which do not.

The most hopeful part of Mr. Kenny’s hopeful message is that progress in health, education and human rights may ultimately bring economic progress as well. He is cautious on this point, noting that economists have failed time and time again to come up with consistent explanations for economic growth.

But African growth has accelerated over the last decade, and the acceleration followed improvements in education and other basics. It’s true that Africa’s growth is unimpressive compared with the Asian miracle, but the growth is still the most rapid in Africa’s recorded history. Perhaps those investments in Africa’s people needed time to produce returns.

http://www.nytimes.com/2011/03/23/busin ... hardt.html

[moda0306]

MG,

Your "justice" may not be the same as somebody else's... it's better to acknowledge that and debate from there than refer to your beliefs as "justice" and everyone else's as coercion.

"Society" is a nebulous term that really serves to confuse more than help if we're going to drill down to whether something is a result of pure free interaction vs government dictation.  I can't imagine that you deem something to be moral based on simple popular vote, so we must dispense with using the popularity of deeding land as a social tool to indicate its fairness.  Property ownership as we know it simply could not exist without government... much less traded in such an efficient manner.  You can call it "justice" to be able to plant a flag in the ground, call it your own, and have the government record, transfer and defend that property for you at your request, but to someone with a different view of "justice," that's just as much coercion as the FICA taken out of your paycheck.

If land-deeding is just the will of "society," then what about universal healthcare, modest military, infrastructure, industry regulation, environmental laws, and social safety nets?  How do we really separate them?  You're not answering the question of what gives government the authority to deed land and defend it from others?  How much in natural resources can someone legitimately claim as their own simply by laying their eyes upon it?  Is this freedom & liberty, or just another form of social engineering by society & government to fix (mostly) the Tragedy of Commons?  As much as it might FEEL like "liberty" to the biggest beneficiaries of such arrangements, it feels a lot more like coercion to others with not a thing to there name, being asked by libertarians to give up every last social safety net they have, and trade their services for the resources that others "own."

[MachineGhost]

Your "justice" may not be the same as somebody else's... it's better to acknowledge that and debate from there than refer to your beliefs as "justice" and everyone else's as coercion.

That's a very valid observation.  We all have to live peacefully in the real world where we may not agree with each other's beliefs.  But, compared to say, religion, where we have separation between the state and religion, we don't have that when it comes to the state and economy.  Why should the physicalities of my existence continue to be subjected to the fucking whims of others whereas the spiritual contents of my brain are not, most especially as I am not harming anyone else?  Am I not the one being harmed first by being subjected to those whims of others that will have to be coercively enforced because I will naturally resist?  So, it seems to me that this line of reasoning is the highest moral ground anyone can take if there is to be an ultimate arbitrator for justice in society.  How can you convince me that any lesser foundation of "fairness" or "justice" is equally as valid without resorting to facile utilitarian arguments?

"Society" is a nebulous term that really serves to confuse more than help if we're going to drill down to whether something is a result of pure free interaction vs government dictation.  I can't imagine that you deem something to be moral based on simple popular vote, so we must dispense with using the popularity of deeding land as a social tool to indicate its fairness.  Property ownership as we know it simply could not exist without government... much less traded in such an efficient manner.  You can call it "justice" to be able to plant a flag in the ground, call it your own, and have the government record, transfer and defend that property for you at your request, but to someone with a different view of "justice," that's just as much coercion as the FICA taken out of your paycheck.

No arguments here.  Inititatory coercion is coercion, no matter the degree.  The thing is though, it seems to me like you've been building a case that "private property" is only possible by land deeds which can only be enforced by dumbwitted rascals calling themselves "government".  That's a conflation of morality and utilitarianism.  It is utilitarian because land deeds are the way such evolved over time to what we have now and keeps violent Type A elements of society with jobs, but immoral because the whole concept is enforced by a illegitimate government monopoly where no one has any free choice in the matter.  If you look at the animal kingdom, they have the same concept of private property and spontaneous co-operation, but with no land deeds and it works with nary an afterthought.  What makes humans the exception that we need a interfering third-party to validate what is already innately understood?

If land-deeding is just the will of "society," then what about universal healthcare, modest military, infrastructure, industry regulation, environmental laws, and social safety nets?  How do we really separate them?  You're not answering the question of what gives government the authority to deed land and defend it from others?

I would say "government" has no legitimate authority to do so, otherwise it wouldn't be a "government" in the first place, but a voluntary free association that has to perpetually and peacefully earn its right to a continual existence.  That those calling themselves "government" co-opt the concept of land deeds only gives their inherent illegitimacy the color of law.  Dress a pig all you want, but it is still a pig.

How much in natural resources can someone legitimately claim as their own simply by laying their eyes upon it?  Is this freedom & liberty, or just another form of social engineering by society & government to fix (mostly) the Tragedy of Commons?  As much as it might FEEL like "liberty" to the biggest beneficiaries of such arrangements, it feels a lot more like coercion to others with not a thing to there name, being asked by libertarians to give up every last social safety net they have, and trade their services for the resources that others "own."

*shrug*  Many historical do-gooders have adopted "politics of convenience" that have very little to do with promoting "justice" or "fairness" in society to others.  It doesn't matter what they say or profess to believe, only the end result of their actions.  And that is how many "social tools" of what we now believe as valid based on utilitarian reasons first came about immorally.  The problem is, people like "Progressives" do not see the distinction between the injustice of initiatory coercion and the oxymoron of using such to attempt to make society more "fair" and "just".

Let me put it this way....  if you give your tacit approval to engage in initiatory coercion against non-violent humans for whatever reason X, does that make it just and moral?  If it does not, what are the unintended consequences to society over time?

[hoost]

MMR isn't statist. It's called "Modern Monetary Realism" because it exposes the truth behind how fiat money works. That's all there is to it. If fiat money did not exist, then there would be no need for MMR. But, don't tell me that it's not politically neutral. Where is the agenda in MMR? There is none. You can use MMR to analyze how a wide spectrum of political issues will affect the private and foreign sectors. You can use MMR to determine how a Eurozone nation will react to various levels of fiscal union. You can use MMR to model economic forecasts. You can use MMR to analyze just about any aspect of the fiat monetary system. You can even use MMR to prove that fiat money is dangerous and leads to greater instability over time.

But, yes, MMR turns people off who want to live in a fantasy world where the government, foreign and private sectors can all have a surplus at the same time while existing in a debt-based fiat monetary system.

It seems to me that MMR does get somewhat political in its use of the "Functional Finance" on page 3.  It discusses what government should and shouldn't be doing, which is political, even if it doesn't support one party or the other.

[Gumby]

It seems to me that MMR does get somewhat political in its use of the "Functional Finance" on page 3.  It discusses what government should and shouldn't be doing, which is political, even if it doesn't support one party or the other.

Functional Finance is not MMR. If you read that section again, you'll see that he explains the basic principles of MMR and then separately explains the basic principles of Functional Finance. They are two different things. Functional Finance is the cornerstone of MMT. MMR is the descriptive/operational side of MMT. So, Functional Finance relates to MMR, but one does not need to follow or believe in Functional Finance in order to understand MMR.

You can read more about Functional Finance here:

http://en.wikipedia.org/wiki/Functional_finance

Cullen explains Functional Finance to put MMR into context — since MMR was derived from MMT and Abba Lerner's work. However, just below that section, Cullen explains:

One important element of Modern Monetary Realism is its political agnosticism. MMR is a blend of many different economic schools and takes this broad understanding to offer an explanation of how the economic system—the machine—works within the existing set of institutional practices. The purpose of MMR is not to offer a political or policy bias, but rather to describe the operational realities of a fiat monetary system in an attempt to better educate the reader and provide them with the understanding to make their own informed decisions as to how this system might be changed for the better.

Functional Finance helps explain how the fiat economic system works efficiently. It's not a stretch to suggest that fiat governments are responsible for providing basic services and regulations for the private sector. You can certainly disagree with Functional Finance — but you'll probably end up wrecking the economy if you have a fiat government that doesn't provide any basic infrastructure.

[hoost]

It seems to me that MMR does get somewhat political in its use of the "Functional Finance" on page 3.  It discusses what government should and shouldn't be doing, which is political, even if it doesn't support one party or the other.

Functional Finance is not MMR. If you read that section again, you'll see that he explains the basic principles of MMR and then separately explains the basic principles of Functional Finance. They are two different things. Functional Finance is the cornerstone of MMT. MMR is the descriptive/operational side of MMT. So, Functional Finance relates to MMR, but one does not need to follow or believe in Functional Finance in order to understand MMR.

You can read more about Functional Finance here:

http://en.wikipedia.org/wiki/Functional_finance

Cullen explains Functional Finance to put MMR into context — since MMR was derived from MMT and Abba Lerner's work. However, just below that section, Cullen explains:

One important element of Modern Monetary Realism is its political agnosticism. MMR is a blend of many different economic schools and takes this broad understanding to offer an explanation of how the economic system—the machine—works within the existing set of institutional practices. The purpose of MMR is not to offer a political or policy bias, but rather to describe the operational realities of a fiat monetary system in an attempt to better educate the reader and provide them with the understanding to make their own informed decisions as to how this system might be changed for the better.

Functional Finance helps explain how the fiat economic system works efficiently. It's not a stretch to suggest that fiat governments are responsible for providing basic services and regulations for the private sector. You can certainly disagree with Functional Finance — but you'll probably end up wrecking the economy if you have a fiat government that doesn't provide any basic infrastructure.

Okay, I reread that part again (for about the 6th time) and I can see what you're saying.  It would be helpful if he stated that he was writing that section to provide a contrast with MMT.  However, why would he include all of this political logic in his example of the island people on pages 9 and 10 if it isn't part of the system?

It seems like a core assumption of MMR is that you have a government and it provides "services", although this assumption is never explicitly stated.  My thought is that this is true; if you didn't have a government providing "services" there would be no need for that government to issue bonds that are later turned into money.  The more money you want to create, the more "services" the government needs to provide.

My problem is that the paper seems to suggest that these government services are a good thing and that we are all happy with said services.  I think it would be more effective, especially at capturing an audience containing myself and many others who are less fond of government, if the paper actually was politically agnostic and simply described the system without making judgments as to whether or not it's good.

Also I must say that this paper is extremely frustrating to read (as evidenced by the large number of questions and clarifications I've requested).  I wish it were written better; I think he has some good insights into the system, but the arguments aren't fully developed and are poorly structured.  The paper seems to bounce around a lot and isn't really tied together very well, so I've had trouble following a lot of the concepts that are introduced.

[Gumby]

Also I must say that this paper is extremely frustrating to read (as evidenced by the large number of questions and clarifications I've requested).  I wish it were written better; I think he has some good insights into the system, but the arguments aren't fully developed and are poorly structured.  The paper seems to bounce around a lot and isn't really tied together very well, so I've had trouble following a lot of the concepts that are introduced.

You raise a good point. The MMR paper is a work in progress. (As a blogger, his posts are fairly well written and pretty easy to understand).

Cullen started MMR only a few months ago. Cullen was originally an MMTer — or at least he thought he was. He originally learned MMT from Warren Mosler. At the time Cullen was under the impression that you could believe in the descriptive parts of MMT without believing in the theoretical prescriptions of MMT (i.e. the Job Guarantee). Mosler had given the impression to Cullen that MMT was open and inviting to those who only believed in the descriptive/operational aspects of MMT (the parts that are considered politically agnostic). Well, some other MMTers were unhappy about that and, a few months ago, an online fight/debate erupted in the MMT world as Cullen tried to suggest that one could be a politically agnostic MMTer if you only believed in the descriptive aspects of MMT and ignored the theoretical Job Guarantee. Some hardcore liberal MMTers were very upset that he was trying to separate MMT from the Job Guarantee and after the debate got pretty intense. So, Cullen got tired of the infighting in MMT, the lack of direction, and the alienation it was causing to those who only wanted to learn about the operational realities of fiat money. So, he started MMR and re-edited his paper, which was written originally about the fundamentals of MMT.

He reedited the paper all within a matter of days, so I think it's possible that he could have done a better job in that paper. But, it's a very complex subject and even he admits that it's not 100% perfect. Cullen, Carlos Mucha (who is a tremendous resource) and a few other dedicated fiat dorks have moved the conversation over to monetaryrealism.com where they are trying to hone the message of MMR. But, again, it's still a work in progress.

[hoost]

That's refreshing to hear.  (sorry, didn't quote your above comments for reference)  It almost motivates me to contact Mr. Roche and suggest some improvements.  I assume from your previous post that there is some sort of forum where he is active; could I contact him with suggestions there? 

Like I said, I think he has some valuable insights into the monetary system, I just find certain areas lacking and almost contradictory to his stated aims (political agnosticism, etc).  Please let me know if I might be able to help (although my impression is that we may butt heads, I think this may be a good thing).  I think that developing his paper (which is really the bread and butter of the whole hypothesis) to be more logical, structured, and politically agnostic would serve to educate more people on the realities of the system without flagging each person's inherent political biases and therefore causing them to reject the entire work without considering it on the merits of the arguments.

Again, I just want to reiterate, I'm thoroughly enjoying our discussions.  I feel like I'm developing a better understanding of the MMR crowd, even if I don't necessarily agree with all of the assertions that I perceive are being made.  A lot of that is probably fueled by misperceptions, which is why I'm interested in helping to eliminate some of those misperceptions.

[MachineGhost]

It seems like a core assumption of MMR is that you have a government and it provides "services", although this assumption is never explicitly stated.  My thought is that this is true; if you didn't have a government providing "services" there would be no need for that government to issue bonds that are later turned into money.  The more money you want to create, the more "services" the government needs to provide.

My problem is that the paper seems to suggest that these government services are a good thing and that we are all happy with said services.  I think it would be more effective, especially at capturing an audience containing myself and many others who are less fond of government, if the paper actually was politically agnostic and simply described the system without making judgments as to whether or not it's good.

The above illustrates what I really meant by sayng MMR is implicitly statist, but technically I am really referring to political money that MMR pulls the covers off of if MMR is truly non-politicalized (I remain doubtful).

Here's a good question for everyone: Is fiat money inherently inititatory coercive, whether or not a private issuer or government provides it?

[MachineGhost]

(Hey moda, this is for you...)

The Problem with the State

Of course, while I suspect that many of you are sympathetic to that sentiment, you also think the concept is too far out, and that I'm guilty of wishful thinking. People believe the state is necessary and - generally - good. They never even question whether the institution is permanent.

My view is that the institution of the state itself is a bad thing. It's not a question of getting the right people into the government; the institution itself is hopelessly flawed and necessarily corrupts the people that compose it, as well as the people it rules. This statement invariably shocks people, who believe that government is both a necessary and permanent part of the cosmic firmament.

The problem is that government is based on coercion, and it is, at a minimum, suboptimal to base a social structure on institutionalized coercion. I'm not going to go into the details here; I've covered this ground from a number of directions in previous editions of this letter, as well as in Crisis Investing (Chap.16), Strategic Investing (Chap. 32), and, most particularly Crisis Investing for the Rest of the '90s (Chap. 34). Again, let me urge you to read the Tannehills' superb The Market for Liberty, which is available for download free here.

Doug Casey, End of the Nation-State, May 2009 edition of The Casey Report

[moda0306]

i have trouble seeing how a fiat (MMR) monetary system can ever be reconciled with the principals of limited government. i am trying to imagine in my head how it could possibly work.
assuming for a moment that we actually have a representative government that we can change, and not a crony capitalist oligarchy or worse, the first thing both limited government and probably MMR would say we can do away with is corruption and unnecessary government boondoggles, so lets say we do so and save a few trillion dollars, MMR says the government has to still spend that money into the economy, so lets say we all decide that infrastructure is a reasonable and legitimate thing for government to spend money on, and we use that money to fix and repair every road, ditch and bridge in the country... once they are fixed in an efficient, cost effective and corruption free manner (assuming such a thing is even possible) the government cant just keep budgeting the same or an ever increasing amount (like they do now) on infrastructure without becoming big and corrupt again, the cost of maintaining infrastructure in an efficient, boondoggle and corruption free government will be far less than the trillions spent to fix it, and far less than we spend on infrastructure now..
having new and well maintained infrastructure would be a boon to the economy, but with each unnecessary and intrusive bit of government and government corruption you remove, with every move to limit and make the government more efficient, the less things government will have to spend (waste) money on and the harder it will be to spend money into existence...

what am i missing??
how can MMR be politically agnostic when it seems to demand a large and possibly ever increasing amount of government spending?
how can limited government and MMR coexist without eventually resorting to a helicopter drop system of government spending?

Simon
I think it comes down to the idea that we're handing over HUGE power to the government by making them a currency issuer.  I don't think the idea of a bunch of unelected bankers at the fed having independent control of the money supply (the austrian claim, if I'm not mistaken) is any better than it doing it in tandem with the treasury, in essence.  In fact, that seems considerably worse to me.

i would agree it doesn't matter who holds the strings if the monetary system is inherently rigged to lead to government expansion, corruption, the loss of freedom, and the consolidation of wealth in the hands of those with ability to influence it.. i am not convinced it would be worse to simplify the system, make it's operation more visible/transparent and put in the hands of people we elect VS what we have now... but neither seems to get us out of the trap of fiat/reserve dollars = more government, more waste

[Gumby]

I assume from your previous post that there is some sort of forum where he is active; could I contact him with suggestions there?

Yep. He hangs out here: http://monetaryrealism.com/discussion-forum/

You can also add a comment to the end of any recent article he writes. He is pretty good at responding. He also holds Q&A posts every week or so on pragcap. Many of the people on pragcap and monetaryrealism have far more expertise than I do.

Like I said, I think he has some valuable insights into the monetary system, I just find certain areas lacking and almost contradictory to his stated aims (political agnosticism, etc).  Please let me know if I might be able to help (although my impression is that we may butt heads, I think this may be a good thing).  I think that developing his paper (which is really the bread and butter of the whole hypothesis) to be more logical, structured, and politically agnostic would serve to educate more people on the realities of the system without flagging each person's inherent political biases and therefore causing them to reject the entire work without considering it on the merits of the arguments.

Well, that's his intention. He wants it to be open to everyone. So, I think he'd probably appreciate your comments.

Again, I just want to reiterate, I'm thoroughly enjoying our discussions.  I feel like I'm developing a better understanding of the MMR crowd, even if I don't necessarily agree with all of the assertions that I perceive are being made.  A lot of that is probably fueled by misperceptions, which is why I'm interested in helping to eliminate some of those misperceptions.

Me too. But, I also have a hard time understanding how one would expect the private sector to thrive — on its own — when a currency issuer doesn't constantly spend enough currency into existence. I'm not saying it can't be done, but my sense is that it would require either ending or limiting interest payments on private credit (which tends to require a growing money supply to pay the interest payments)... or issuing a citizens dividend so that individuals could spend money on whatever they see fit. Otherwise the private sector would typically need to rely on private credit to expand, and that would become unstable and there wouldn't be enough money to pay off the interest on private credit.

[Xan]

how can MMR be politically agnostic when it seems to demand a large and possibly ever increasing amount of government spending?

I may be misunderstanding things, but I believe that MMR is simply a description of what is, not what ought to be.  MMR describes the current system.  I don't think MMR says that the current system is best way to arrange anything.  Moda, is this right?

[hoost]

how can MMR be politically agnostic when it seems to demand a large and possibly ever increasing amount of government spending?

I may be misunderstanding things, but I believe that MMR is simply a description of what is, not what ought to be. MMR describes the current system. I don't think MMR says that the current system is best way to arrange anything. Moda, is this right?

i believe you are right, it is supposed to be a description of "what is".
how can it be "agnostic" when it describes a system that needs large government spending?? perhaps MMR can be agnostic if it represents its self strictly as a description of how what we have works, and not an endorsement... but that seems to be a tough tight rope to walk, arguing "government spending" as a description of the system "as it is" without it becoming an "endorsement or defense" of government spending is not easy... it seems to be a theme in all MMR discussions libertarians argue "limited government", MMR argues gov spending is necessary and the line between descriptive and endorsement gets crossed..

Simon,

I think it comes down to the idea that we're handing over HUGE power to the government by making them a currency issuer.  I don't think the idea of a bunch of unelected bankers at the fed having independent control of the money supply (the austrian claim, if I'm not mistaken) is any better than it doing it in tandem with the treasury, in essence.  In fact, that seems considerably worse to me.

The Austrian claim, as I understand it, is not necessarily that bankers have independent control of the money supply.  This Michael Pollaro (same guy who wrote the article in the OP) seems to have done a pretty good job summarizing the Austrian view of money and the money supply here.  Obviously there is lots of Austrian bias...but I think it's a pretty well-written article that communicates the ideas.  He doesn't really get into where the money comes from in the article, but I think that knowing what they're looking at and how they're defining terms helps to give a better frame of reference when considering their claims.  Also, not all Austrians are in agreement on all aspects of anything, as you would expect.  I'll try to briefly summarize the article below.

They define money as follows:

…money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods and services on the market.

They view the money supply as made up of standard money, which is dollar bills and coins, and money substitutes.  Money substitutes includes things like checking account deposits.  The rationale and arguments for what they use and don't use is in the article...I won't even try to explain it here, because I don't think I could do the ideas justice.

They do not rely on M1, M2, or M3 as a measurement of the money supply, as not all of the items reported in those values fit the above definition of money; they piece together an "Austrian Money Supply" using some components of those, as well as some of the memorandum items that are not counted in the "M's" but that still fit their definition of money.

Most of the Austrians I have heard/read seem to agree/understand the mechanics of the system from what I can tell; they just don't like it and you can tell the extreme bias against the fed/fiat currency is there.  If I come across a good example of an Austrian discussion the mechanics of the system, I'll post it here.  I haven't found a good one dealing only with that topic yet.  I think I know of a person who may have some good lectures on the topic.

[hoost]

how can MMR be politically agnostic when it seems to demand a large and possibly ever increasing amount of government spending?

I may be misunderstanding things, but I believe that MMR is simply a description of what is, not what ought to be.  MMR describes the current system.  I don't think MMR says that the current system is best way to arrange anything.  Moda, is this right?

i believe you are right, it is supposed to be a description of "what is".
  how can it be "agnostic" when it describes a system that needs large government spending??  perhaps MMR can be agnostic if it represents its self strictly as a description of how what we have works, and not an endorsement... but that seems to be a tough tight rope to walk,  arguing "government spending" as a description of the system "as it is" without it becoming an "endorsement or defense" of government spending is not easy...  it seems to be a theme in all MMR discussions libertarians argue "limited government", MMR argues gov spending is necessary and the line between descriptive and endorsement gets crossed..  

i hope some of the MMR fans can answer my question about how a limited government and the system we have as described by MMR can coexist, as i have said i have trouble picturing it myself.

Yes, these are some of the points/concerns that I have as well.  I'm not sure if you've read the MMR paper or not, but I think it could be revised and written better to be more objective.  I still think the final conclusion is that government spending is required, but it could be stated more objectively and not necessarily argue that the system is good or bad.  I think that would clarify things a lot and lead to a much healthier discussion.  I may try to get in contact with Mr. Roche at some point and offer some thoughts. 

[Gumby]

I still think the final conclusion is that government spending is required, but it could be stated more objectively and not necessarily argue that the system is good or bad.

Hoost, I asked you in my previous comment...

how would you expect the private sector to thrive — on its own — when a currency issuer doesn't constantly spend enough currency into existence. I'm not saying it can't be done, but my sense is that it would require either ending or limiting interest payments on private credit (which tends to require a growing money supply to pay the interest payments)... or issuing a citizens dividend so that individuals could spend money on whatever they see fit. Otherwise the private sector would typically need to rely on private credit to expand, and that would become unstable and there wouldn't be enough money to pay off the interest on private credit

Can you try to answer this? I think MMR comes to the conclusion that government spending is necessary, in our debt-based monetary system, because how else does the government's currency enter the private sector in a growing economy? How else does the private sector grow its savings (which ideally represent a growing pool of goods and services)? How else does the private sector pay down private credit/interest?

Now, perhaps the answer to these questions is that you would just prefer we didn't have a debt-based fiat monetary system that was combined with a fractional-reserve credit-based monetary system. But, if that's you're answer then you need to realize that MMR is not cheering our debt-based fiat monetary system — it's just explaining how it works.

I happen to think that a debt-based fiat monetary system combined with a fractional-reserve credit-based monetary system leads to all sorts of problems and inequalities. I don't like it. But, that's the system we have.

[Pointedstick]

I still think the final conclusion is that government spending is required, but it could be stated more objectively and not necessarily argue that the system is good or bad.

Hoost, as I asked you in my previous comment...

how would you expect the private sector to thrive — on its own — when a currency issuer doesn't constantly spend enough currency into existence. I'm not saying it can't be done, but my sense is that it would require either ending or limiting interest payments on private credit (which tends to require a growing money supply to pay the interest payments)... or issuing a citizens dividend so that individuals could spend money on whatever they see fit. Otherwise the private sector would typically need to rely on private credit to expand, and that would become unstable and there wouldn't be enough money to pay off the interest on private credit

Can you answer this? I think MMR comes to the conclusion that government spending is necessary because how else does the government's currency enter the private sector in a growing economy? How else does the private sector grow its savings (which ideally represent a growing pool of goods and services)? How else does the private sector pay down private credit/interest?

Let me see if I can take a crack at it. I think it's evident that in an economy with private credit and interest, a growing (or at least easily growable) money supply is desirable to prevent or dampen the necessity of interest being paid off with new credit, which destabilizes the system and can devastate it in a tight-money credit crunch.  But what if rather than one government that issued a government fiat currency that we all just had to live with, we had several private money issuers that each issued their own fiat currencies that competed against one another to be the most stable? These agencies could spend the new money into existence, they could do virtual helicopter drops, or they could have a "customer's dividend" and deposit new money straight into peoples' electronic accounts. These companies would have a strong incentive to be good stewards of the currency since people could always move their money to a different issuer. But in the event that the issuers were reckless, presumably private money insurance agencies would arise to insure against the risk of a money issuer going bankrupt, or their money inflating too much, or a large number of merchants declining to accept it.

It would seem to me that we're actually pretty close to this system. Visa and Mastercard have already created a virtual electronic currency that is only denominated in dollars for convenience. They could easily make a new currency and require that those who accept credit and debit accept the new currency. If this happened, I would be using it for 99% of my transactions from tomorrow onward. And when I accumulate a PayPal balance, I am, for all intents and purposes, in possession of a private fiat currency. Same with iTunes credit, Amazon credit, tickets at amusement parks, etc.

I think one of the big reasons private companies--especially the credit card processors--don't create a new private currency is because the US Dollar is, despite its flaws, still  too good to make it worth it. Occasionally I wonder if something like that wouldn't happen if there was, for whatever reason, some kind of massive monetary disaster, especially the kind that resulted in people making fewer credit and debit transactions.

[Gumby]

Let me see if I can take a crack at it. I think it's evident that in an economy with private credit and interest, a growing (or at least easily growable) money supply is desirable to prevent or dampen the necessity of interest being paid off with new credit, which destabilizes the system and can devastate it in a tight-money credit crunch.  But what if rather than one government that issued a government fiat currency that we all just had to live with, we had several private money issuers that each issued their own fiat currencies that competed against one another to be the most stable?

Pointedstick, that's a fascinating idea — though it would probably be illegal. Even Bitcoin's legality is being challenged. And truthfully, it would be highly unstable since corporations do not last forever. Napster credits practically evaporated overnight. People would much rather put their hard-earned savings into risk-free assets.

In any case, you didn't really answer the question. What you did was create an alternate reality — one that we currently do not live in. Can you answer the question I proposed given the system that we currently live in?

I don't believe there is a way for our current debt-based/credit-based monetary system to remain stable without new money constantly being pumped into the private sector. I'm not in any way suggesting that this is a good thing. I'm just saying that this is the way it was designed to work. MMR allowed me to see this more clearly.

If you guys would rather promote an entirely different monetary system, I totally understand that. But, we also have to consider the reality of the system we currently have.

The flaws of our current monetary system are not MMR's fault. MMR does not promote our currency madness. It just describes it more accurately than anything else I've come across.

[Pointedstick]

Let me see if I can take a crack at it. I think it's evident that in an economy with private credit and interest, a growing (or at least easily growable) money supply is desirable to prevent or dampen the necessity of interest being paid off with new credit, which destabilizes the system and can devastate it in a tight-money credit crunch.  But what if rather than one government that issued a government fiat currency that we all just had to live with, we had several private money issuers that each issued their own fiat currencies that competed against one another to be the most stable?

Pointedstick, that's a fascinating idea — though it would probably be illegal. Even Bitcoin's legality is being challenged.

In any case, you didn't really answer the question. What you did was create an alternate reality — one that we currently do not live in. Can you answer the question I proposed given the system that we currently live in?

I think I interpreted the question ("how would you expect the private sector to thrive — on its own — when a currency issuer doesn't constantly spend enough currency into existence?") as more of a question about any theoretical society, not specifically our own. Obviously (now at least; it sure wasn't obvious to me before) in the system we currently live in, the whole thing was set up by the government to give itself a huge mandatory role to play in expanding the money supply roughly in tune with the demand for money, especially as a counterbalance to private credit. If you neuter the government's ability to create money, then you're essentially forcing the supply of money to be unresponsive to demand for money, which will lead to all kinds of unhappy economic conditions that libertarians such as myself live in constant, quaking fear of.

I want the government out of my life, but not to the point that I'm willing to destroy the society it's infected. I like to think of it this way: Imagine that the government is the Borg, and they've infected your body with nanoprobes and mechanical implants that give you special powers but also make you totally dependent on them and allow them to control you at will. Ripping the implants out in an impulsive rage would probably kill you; to safely become de-Borg'ed, you need to carefully remove them one by one and give your body time to heal and replace the mechanically-provided functions with its own natural biological ones.

This metaphor kind of got away from me, but I think the point is that the Borg are scary. Oh yes, and that you need to reduce the government gradually, not by first pulling the plug on the machine that controls the monetary foundation of the economy.

[Gumby]

Good, good. We are making progress. I think we agree that in a debt-based/credit-based monetary system, the money supply must constantly increase to keep things stable and growing. I don't happen to like it any more than you do.

I don't see MMR as promoting government or promoting the madness of our currency. I see MMR as just describing how it works — flaws and all. As if to say...if you want to grow/slow the economy, given the system we have, here is how it is done (via government spending/taxation/private credit environments). Some people use MMR to promote their own ideas. Others just use it to analyze the economy.

[Gumby]

...But, personally, I don't see private money creation as the answer. I'd much rather have ultra-safe Treasuries than Starbucks points for my life's savings. You can't safely grow an economy with Starbucks points — it would implode during a credit crunch.