Monday, November 8, 2010 88 Comments

UR: the heard-it-here-first files

Every asshole these days has a blog. Every asshole with a blog wants to "change the world." But the great thing about being right is that, when the world catches on, you really can't tell whether or not they heard it from you. The truth, being true, belongs to all. If I started lying and my lies started showing up in the Financial Times, that would really be time to worry.

That said, despite my great modesty a bit of trumpeting is essential on occasion. If not needed to reassure me that writing UR is worth my time, it may reassure you that reading it is worth yours.

Maturity transformation considered harmful:
Or, in an idea that would mean the radical reshaping of the banking system, banks could be forced to match each investment made with funding over an equivalent time period, Mr King said.
That's Mervyn King of the Bank of England, in the Financial Times. See also Mr King's speech - in which he unfortunately repeats the canard that MT is socially productive. But hey, it's a start. (King appears to have borrowed his clue from Laurence Kotlikoff.)

Remonetization of gold:
The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.
That's Robert Zoellick of the World Bank, also in the Financial Times. Don't pull on that, Mr Zoellick - you never know what it might be connected to. See also this mysterious post at Zero Hedge, by the mysterious FOFOA, quoting the even more mysterious "John Law." I can tell you that in 2006, remonetization of gold did not feel like an especially sane idea.

Yesterday morning, conservative writer Michael Brendan Dougherty drew my attention to this 1942 Time article...
That's Will Wilkinson in the Economist (who goes on to completely misinterpret the material, but hey, that's cool). Okay, the Time archives are part of the truth, too - but a fairly obscure one. I'll have you know I mined this link myself, deep in the bowels of the John Birch Society. Not all that does not glitter is not gold.

And finally, the UR reader will share a private snicker at Professor Kloppenberg in the NYT:
And [Barack Obama's] opposition to inequality stems from Puritan preachers and the social gospel rather than socialism.

(Actually, if you read Staughton Lynd's Radicalism of the American Revolution, you'll find that almost every word is true, even though Professor Lynd is a close personal friend of Howard Zinn. In general, when trying to piece together the last three centuries, a pretty decent start can be obtained by getting your 20th century from the JBS and your 18th from the CPUSA. The 17th is remarkably in focus on all sides. The 19th? It's difficult - very difficult.)


Anonymous josh said...

I read that Will Wilkinson post earlier as I'm sure many others did. Quite amusing in a head-slapping kind of a way.

November 8, 2010 at 11:16 AM  
Anonymous Anonymous said...

For years now, Jim Rogers and others have advocated eliminating the capital gains tax on hard assets, which would allow commodoties to be freely converted to and from fiat money, as being a relatively painless way to get most of the benefits of a hard currency, but nobody ever seems to seriously discuss the pros and cons of that approach. Instead we get waffle about the gold standard.

November 8, 2010 at 11:22 AM  
Anonymous Stirner said...

Yeah, but when you get ripped off as much as Steve Sailer, then you will know you have arrived!

November 8, 2010 at 11:26 AM  
Anonymous tenkev said...

Three posts within 1 week!

November 8, 2010 at 12:01 PM  
Anonymous Anonymous said...

> The 17th is remarkably in focus on all sides.

Muahahah. That's when the Calvinists and other assorted Protestant scum "focused" the evils of the Spanish Inquisition and other popish plots, right ?

November 8, 2010 at 12:13 PM  
Blogger Michael Brendan Dougherty said...

I got the editorial here, Mencius. Tried to find a way to send you smoke signals - ran out of wood - and couldn't find an e-mail address for you either.

November 8, 2010 at 12:33 PM  
Anonymous Anonymous said...

The book The Modern Tower of Babel, written in the 1940s, was a warning that Communism/leftism/One-Worldism was infiltrating mainline Protestantism, which of course was the least orthodox and most humanistic branch. The ideas that are being alluded to here came in from the secular world, not vice-versa.

I could quote many, many secular ''thinkers'' from much earlier who were proposing the same things as the Protestants are accused of promoting. The Protestant left-wing was influenced by humanists; the influence was flowing the other way.

As for Anglo-Saxon universalism, the old complaint was that Anglo-Saxons were too ethnocentric and xenophobic. Universalism caught on first not with religious people but with atheists, believers in 'New Thought'-type religions, not with Protestants.

The radical ideas pushed in 1942 (in response to American entry into the war), had been in circulation for some time previous, and were adopted for various reasons but did not originate with the mainline Protestant leaders posturing at that time.

November 8, 2010 at 12:34 PM  
Anonymous Anonymous said...

There is a cartoon in the beginning of one of Tom Wolfe's late 60's or early 70's books, "The Man Who Was Always Too Soon" or something like that.

November 8, 2010 at 1:07 PM  
Anonymous Leonard said...

Dougherty: I don't think MM reads his comments. And he responds to email only intermittently, but you can find his address in many items at this blog: moldbug at gmail dot com.

November 8, 2010 at 1:16 PM  
Blogger AMcGuinn said...

I wouldn't say Wilkinson's conclusions are wrong - they're just not the ones we focus on.

The 1942ers did lose control of most of the churches, quite possibly by the mechanism he describes. That may be less important than the fact they retain control of the universities and the media, but it's still true.

November 8, 2010 at 1:58 PM  
Anonymous The Undiscovered Jew said...

And [Barack Obama's] opposition to inequality stems from Puritan preachers and the social gospel rather than socialism.



Didn't Moldbug previously argue in entry after entry that socialism was a direct outgrowth of Anglo-Protestantism, which, as I pointed out before, is incorrect because socialism and the social gospel evolved independently of eachother?

Is MM modifying some of his political history of Anglo-Protestantism?

November 8, 2010 at 3:57 PM  
Blogger Alrenous said...

"The system should also consider employing gold"

If investors had found this credible, would it not have ironically lead to a worldwide economic crash?

November 8, 2010 at 3:58 PM  
Blogger James A. Donald said...

"The 19th? It's difficult - very difficult"

Politically correct falsification of history sets in 1830, though the pc of that time is very different from the PC of our own. Modern political correctness sets in 1890.

For example, in 1890, we see the first version of "ebonics": the doctrine is pronounced that creole is not mangled and corruptly spoken version of the slave owners' language, but a perfectly legitimate language of it own. Like global warming, this idea might be true, but regardless of truth or falsity is pronounced and enforced from on high, without any concern for whether it is true or not.

Affirmative action is relatively inconspicuous until 1910, when Marie Curie gets two noble prizes for work that no one would remember if a man did it.

From 1890, political correctness has not changed much, from 1910, no significant change other than to be enforced with increasing vigor and force.

For example, it is a simple fact of history that the most technologically and culturally advanced tribes in what is now Rhodesia claimed descent from the ancient Hebrews, and their appearance showed that they had significant white or whitish blood, compared to their neighbors. These tribes claimed to have built the great Zimbabwe, and their capabilities were consistent with the most recent (and thus most degenerate) parts of the great Zimbabwe. The most ancient ruins of the great Zimbabwe were most advanced, indicating that the builders had been degenerating with the passage of time, though still much superior to other black people.

The history of the great Zimbabwe started being corrected in 1905. Gene tests have recently confirmed what eyesight revealed - the tribes that built the great Zimbabwe are today half Hebrew, half bantu, and so were presumably more Hebrew back when it was built. Shortly after the gene test came out, carbon dates of the Great Zimbabwe were immediately adjusted to make all its structures more recent - and thus more black and less Hebrew.

November 8, 2010 at 5:28 PM  
Blogger James A. Donald said...

"As for Anglo-Saxon universalism, the old complaint was that Anglo-Saxons were too ethnocentric and xenophobic. Universalism caught on first not with religious people but with atheists, believers in 'New Thought'-type religions, not with Protestants."

This is a simple falsification of history. Universalism was a Christian protestant doctrine. Protestants wanted to use government schools teach their doctrine to Catholics and Jews. In the ensuing struggle, the overtly religious elements were played down for first amendment reasons.

Non theistic universalism has the same origins as supposedly non theistic intelligent design - an end run around the first amendment.

November 8, 2010 at 5:32 PM  
Blogger James A. Donald said...

The Undiscovered Jew said...

"Didn't Moldbug previously argue in entry after entry that socialism was a direct outgrowth of Anglo-Protestantism, which, as I pointed out before, is incorrect because socialism and the social gospel evolved independently of each other?"

Who came first? The Mayflower pilgrims or Karl Marx?

Marxism is supposedly "scientific socialism", because it supposedly ditches the religiosity of his predecessors.

November 8, 2010 at 5:37 PM  
Anonymous Anonymous said...

James Donald,

You're just repeating Moldbug's falsification of history.

November 8, 2010 at 6:06 PM  
Blogger TGGP said...

Eugene Genovese, who was much more of an orthodox Marxist than Lynd at the time, trashed his books on the American revolution in the NYRB.

James A. Donald, do you think English is a corrupted & mangled amalgamation of Anglo-Saxon & Norman dialects, with a smattering of others? Linguists are overwhelmingly descriptivist, and their concern is with language as it is used rather than diagnoses of corruption. They use "creole" as a generic term for a language formed to communicate between different groups. "Ebonics" or whatever one wants to call it is a dialect of American english spoken by some inner-city blacks. And I hope you would agree that we are more politically correct now and worried about women in STEM, yet the Curie family has beat the pants off modern women on that front. And yes I think we would remember who coined the term "radioactivity" if it hadn't been the Curies. I think we should just acknowledge that she was atypically talented, since the scientific community did not display much evidence of feminism for decades to come.

Many Protestants did indeed want universal public schooling to Americanize immigrants. Among the staunchest supporters of this effort were the Ku Klux Klan. If we stretch our language we might lump with the Progressives of that era. But Universalists? I don't think they would usually fit under Mencius' rubric.

"Marxism is supposedly "scientific socialism", because it supposedly ditches the religiosity of his predecessors."
No, the "utopian socialsits" Marx derided were atheistic. Marx attacked their optimism in thinking that people could simply be persuaded that socialism was better than capitalism and adopt it (which in hindsight we might say was somewhat realistic) or like the Blanquists & anarchists believing that we could all just fight The Man in the streets right now to bring about socialism. Marx argued that history follows a dialectical process driven by a material substructure, and the the inevitable culmination is increasing crises of capitalism accompanied by immiseration of the proletariat, who will gain class consciousness on the factory floor and seize the means of production.

November 8, 2010 at 9:47 PM  
Anonymous Anonymous said...

You are frustrating close to making a living off of UR. I think the Romer kerfuffle shows you need a bit more diplomacy, if you can let that bit go I do think you can carve quite a profitable niche for yourself without compromising your beliefs. Reason, PJTV, Cato - I can't see anybody there that can hold a candle to you, if you'd a) edit and b) lay off the ad homs.

November 9, 2010 at 12:51 AM  
Anonymous Anonymous said...

To the idiot anon above yabbering about 'Modern Tower of Babel' and commie takeover of Protestant sects.

You are an idiot. Mencius is right.

In fact, as Mencius has stated, the best history is from the communists themselves. Go read "The Many-Headed Hydra" by the Marxist historians Peter Linebaugh and Marcus Rediker. The entire book is basically a hagiography of the English dissenter sects involvement against the Atlantic slave trade (and how they joined up with pirates, murderers, and various other paramilitary gangs to stop the trade. How times change eh?).

November 9, 2010 at 1:15 AM  
Anonymous Anonymous said...

Also, I love this quote from the comments of the Economist article: "Let's face it: Christianity is socialist. Only through the inconsistent application of its basic tenets can it pass for pro free-market."

This is where I'd disagree with Mencius over what is wrong with the US right wing. It isn't democracy that is the problem, it's a slavish devotion to a religion that is fundamentally left wing.

November 9, 2010 at 1:27 AM  
Anonymous Anonymous said...

November 9, 2010 at 1:37 AM  
Anonymous Oceansoflemonade said...

I got the opposite impression concerning utopian socialists; I think Robert Owen was an exception and that the majority were overtly religious.

Don't believe me? Look up the Onieda Community and Charles Fourier. Edward Bellamy is an interesting case; he casually mentions that religious types see the new society of the year 2000 in millennial terms, but does not seek to justify the society along those lines.

Even Cabet and Owen had the sort of vague "spiritual" outlook that MM would identify as Enlightenment Protestantism, just with the medieval theological surface proteins replaced with something new.

November 9, 2010 at 4:03 AM  
Anonymous Maki said...

Thank you. You have done a Good job.

November 9, 2010 at 7:36 AM  
Anonymous av said...

Anonymous care to defend the assertion that Christianity is inherently socialist/left wing?

Moving from ecclesiastical non-coercion to civil non-coercion is a non sequitor as is moving from personal generosity as a virtue to material leveling by the government.

The Scriptures don't give any commands that support your assertion either. Jesus says in the gospels that we will always have the poor, which directly contradicts the dogmas of leftist utopians who declare we can abolish poverty. St Paul wrote that God has given the government the sword to use as a terror against the lawless. This too is not very leftist.

Going back to the Old Testament, God tells judges to be impartial and not to show preference to the poor.

I suppose the most leftist thing would be the command "Thou shalt not steal" which is applied both to rulers and subjects, although the right of kings to raise taxes is never questioned.

Just because many Christians have embraced aspects of socialism doesn't make Christianity inherently socialistic any more than the fact that many Westerners have done the same make Western Civilization inherently socialistic either.

November 9, 2010 at 11:29 AM  
Anonymous Anonymous said...

"Democracy is always and above all nothing but the veil of the Jewish Dictatorship."

- Céline

November 9, 2010 at 11:52 AM  
Anonymous Dude Man said...

av: The difference between modern socialists and the New Testament is the socialists believe they can institute the kingdom of heaven on earth, where the meek inherit the earth and we are all children of the same god, and charity is dispensed not by the understanding of a personal God, but by bureaucratic machinery in a soulless world.

...Except the Christians establish divine states and give charity on Earth, and Marx said Communism was a natural evolution of human matter...

November 9, 2010 at 12:35 PM  
Anonymous Anonymous said...

Communism was started by a Welshman named Owen. No one objects to communism as conceptualized by Owen (class cooperation). It's Marxism/Trotskyism (class conflict) that is destructive and Jewish to the core.

November 9, 2010 at 1:03 PM  
Anonymous Anonymous said...

This is a simple falsification of history. Universalism was a Christian protestant doctrine. Protestants wanted to use government schools teach their doctrine to Catholics and Jews.

So was the 20s Klan (entirely white Protestant and dedicated to outlawing parochial schools) a universalist org?

November 9, 2010 at 5:53 PM  
Anonymous Anonymous said...

av, all your examples are non-sociological examples. They are examples of what you think Christianity should be, rather than what it actually is.

I point you to towards three books that argue against such a view, with actual fieldwork and data:

(1) The Breaking of the Image:
A Sociology of Christian Theory and Practice

(2) Beyond Idols: The Shape of a Secular Society by Richard Fenn.

(3) The Sources of Social Power (volume 1) by Michael Mann

All books come to a similar conclusion: that Christianity is a radical religion based on a 'brotherhood of man' that consistently tries to undermine authority (whether it by sacred or profane).

November 9, 2010 at 9:15 PM  
Anonymous josh said...

Was the Church left wing in the middle ages? What about the eastern church? I'm not even sure what it would mean to answer these questions in the affirmative.

November 10, 2010 at 4:58 AM  
Anonymous Anonymous said...

All books come to a similar conclusion: that Christianity is a radical religion based on a 'brotherhood of man' that consistently tries to undermine authority (whether it by sacred or profane).

I know very little about religion, but if the above is true, I wonder where the phrase "throne and altar" ever came from.

November 10, 2010 at 7:21 AM  
Anonymous Rollory said...

This post is too short. Who are you and what have you done with the Moldbug?

November 10, 2010 at 8:26 AM  
Anonymous zanon said...

the only thing you learn from the speeches is that Zoellick and King has no idea how monetary system actually work.

Banks do not "maturity transform". In particular, they do not borrow short term deposit, and then turn around and make long term loan. THat is simple not the nature of their alchemy.

this come up again and again on this site, but austrian, academic macroeconomists, and now it seems zoellick and king simply do not care that what they are saying is not the reality.

A bank with zero deposit can make loan as easily as bank with $1B in deposit, provided both have sufficient capitalization and cost of capital.

UR claims to be talking truth -- let us see how it deals with this actual true reality

November 10, 2010 at 6:22 PM  
Anonymous Anonymous said...


you're a dumb faggot who has no idea what you're talking about. modern monetary theory is bullshit. read the old UR posts on economics and monetary issues. moldbug explains it all loud and clear, dipshit. get the fuck out of here you little bitch.

November 10, 2010 at 8:46 PM  
Anonymous Anonymous said...

I luvs me some ghetto econ trash talk.

Let's take our shirts off and play math bowl for permanent rights to the whiteboard!

November 10, 2010 at 11:27 PM  
Blogger James A. Donald said...

"And yes I think we would remember who coined the term "radioactivity" if it hadn't been the Curies."

Obviously you do not remember who coined the word - for it was coined by Pierre Curie, not "Marie and Pierre Curie"

And can you name the males who discovered the other 98 elements without looking them up?

November 11, 2010 at 4:02 AM  
Blogger James A. Donald said...

"No, the 'utopian socialist' Marx derided were atheistic. "

Edward Bellamy illustrates that socialism is a branch of protestantism.

November 11, 2010 at 4:09 AM  
Anonymous zanon said...

Anonymous: Sorry I caught you at your time of month. Don't worry -- it will get better.

Nevertheless, it remains true that banks do not maturity mismatch -- they do not take short term deposit and use those to make long term loan.

maybe others can deal with this better than you

November 11, 2010 at 10:44 AM  
Anonymous josh said...


MM believes that what modern banks do is equivalent of the government printing money and loaning it out. He does not think that banks loan out deposits. He uses maturity transformation as the basis for his analysis, but recognizes that FDIC etc. fundamentally severs any link between the supply and demand for loans. The point is to chow that modern banking is not a free market activity and would simply not be stable in a free market. He does say that FDIC etc. can add stability, but at the cost of monetary dilution, bureaucratic oversight of the distribution of capitol, and moral hazard. You guys still disagree, but I don't think you disagree on what you think you disagree about.

One question for MMT that I don't understand. What constitutes a profitable investment? In a world where there is a fixed supply of money, one evaluates the opportunity cost of not having the money you are lending out, creating a natural yield curve. If a bank loan creates a deposit, what are the opportunity costs? What is the appropriate discount rate for future money? And isn't the cost of the loan largely born by others in the form of monetary dilution?

November 11, 2010 at 12:31 PM  
Anonymous Anonymous said...

feels good, doesn't it?

November 11, 2010 at 5:26 PM  
Anonymous jkr said...

lol joseph dantes.

November 11, 2010 at 5:34 PM  
Blogger Zimri said...

Yes, the mediaeval Church was left-wing; by comparison with the devotees of divine-right monarchy at the time.

The Church, you see, supported the Guelph factions in the feudal states of the day; where the heriditary aristocracies supported the Guibellines. It was for similar reasons: rulership is to be vetted by a priestly class, and not held as a sovereign right by the stakeholders.

The best pro-Ghibelline argument was made by Dante (yes, that Dante) in De Republica, and he would know because he started out as a Guelph but was exiled for not being Guelph enough.

November 11, 2010 at 7:05 PM  
Anonymous zanon said...

Josh: if the term "maturity transformation" does not refer to banks taking on deposits of short term maturity and transforming them into loans of long term maturity, then pray, what tell does it means? Exactly what maturity is being taken to begin, and exactly what maturity is it being transformed into?

Whether FDIC exist or not, bank operation do not maturity transform in that they never take liability of one maturity and transform it into another maturity. FDIC does introduce different element into play, but whether those element are good or bad depend on your view of what the banking sector is suppose to do. And if you are fundamentally unclear on what it actually does, and how it does it, then how will you be able to speak knowledgeably about what it should do? YOu will end ups talking drivel like central bankers and academic macroeconomists.

FDIC has some problem, but "monetary dilution, bureaucratic oversight of the distribution of capitol, and moral hazard" is not it.

In MMT, a profitable investment is any investment that gets paid back exceeding risk adjusted marginal cost of capital of investment. This is not MMT definition btw., this is normal every day definition. Bank are capital constrained, and cost of marginal loan is marginal cost of capitals.

You must rid yourself of notion "fixed supply of money" because it mean you cannot differentiate between financial asset and real asset. Do you know loan, when paid back to bank, destroy money? Do you know paying tax destroy money? What does "fixed supply of money" mean when paying down your mortgage is destroy financial asset?

November 11, 2010 at 8:36 PM  
Blogger Zimri said...

Come to think of it, Dante's book would have been De Monarchia. Sorry about the error

November 11, 2010 at 8:53 PM  
Anonymous josh said...


I had always figured the church was right and the holy roman empire was left. I think I saw the Ghibellines as trying to gain power through destroying the established heirarchy. It could certainly be the other way around. I'm very limited in my knowledge of the time period. I once spent most of a workday reading related wikipedia articles.


You are right that I don't know my ass from my elbow with this new fangled MMT. I have a degree in old fashioned econ, but that is of pretty limited value. Nevertheless, I think we are talking past each other a bit.

" if the term "maturity transformation" does not refer to banks taking on deposits of short term maturity and transforming them into loans of long term maturity, then pray, what tell does it means? "

No that's precisely what it means. MM has written that he blames the current financial crisis on SHADOW banking, non-banks practicing what he calls "unprotected" maturity transformation. The collapse of this led to the decline of the value of promises of future payments which effected the balance sheets of real banks. You may not buy that story, but he is fundamentally talking about non-banks practicing MT with only vague promises of protection such as the Greenspan put.

Banks on the other hand practice "protected" MT, which is in reality not MT at all but rather is the equivalent of two separate transactions. 1) Depositors put their money in a vault. 2) Banks, as unofficial government agencies are allowed to print money and loan it out. Again, these are not my ideas. I'm not going to dig around for footnotes, but I promise you this is what Mencius says.

"monetary dilution, bureaucratic oversight of the distribution of capitol, and moral hazard" refers to the problems resulting from the severing of the relationship between supply of loans and the demand of loans, which is a consequence of FDIC and other aspects of modern finance, not the problem of FDIC per se.

"Do you know loan, when paid back to bank, destroy money? Do you know paying tax destroy money?"

I have read it, and I think I buy it for the current state of affairs.

"What does "fixed supply of money" mean when paying down your mortgage is destroy financial asset?"

I am comparing two separate worlds. One in which their is a commodity standard and maturity matched lending and one where banks can create money buy creating loans. In the former, banks, if we can even call them that as they would differ so much from the current construction, simply match lenders and borrowers or perhaps pools of lenders and borrowers of loans of some duration. No new money is created.

Your definition of a profitable investment is true in both cases. However, 1)I am wondering what is the marginal cost of capital in a world where capital is not naturally constrained (I may be misunderstanding what you mean by capital) 2) When you say "exceeding risk adjusted marginal cost of capital of investment" are you implying any kind of discount rate or do you think that is irrelevant?

The big difference to me is that in fiat world, MC of C is not determined by any market process but in some respect by fiat. This makes the opportunity cost to the lender of making a loan seem quite low, compared to the opportunity cost of a person or institution that must actually loan out its own money. One thing from my econ. training that I do still trust is TNSTAAFL. The supply of loanable funds may not be fixed in the short term, but real factors of production are. Hence, this artificially low cost of a loan means passing on cost to people who are neither the lender nor the borrower.

November 12, 2010 at 5:53 AM  
Anonymous josh said...


I had always figured the church was right and the holy roman empire was left. I think I saw the Ghibellines as trying to gain power through destroying the established heirarchy. It could certainly be the other way around. I'm very limited in my knowledge of the time period. I once spent most of a workday reading related wikipedia articles.

November 12, 2010 at 5:54 AM  
Anonymous josh said...


I had always figured the church was right and the holy roman empire was left. I think I saw the Ghibellines as trying to gain power through destroying the established heirarchy. It could certainly be the other way around. I'm very limited in my knowledge of the time period. I once spent most of a workday reading related wikipedia articles.

November 12, 2010 at 5:54 AM  
Anonymous zanon said...

Josh: Neither banks nor shadow banks maturity transform. Neither entity takes deposits of short term maturity and lends them out at longer maturity. A shadow bank with zero commercial paper deposit can make loan just as easy as a bank with zero retail deposit.

What MM, and fellow goldbugs want, is fundamentally a world without credit. Namely, gross financial assets stay the same. You are correct that such an institution may not even be called bank, and what they do is not really creating loan.

The crazy beleif is that somehow this will eliminate inflation. It will not, as money supply is only one variable, and it increase can even cause deflation! So we do not solve inflation problem.

Second, such a system need not create prudent investing, and there is no reason well designed (shadow) banking system cannot make better investment decision. If you understand how bank works it is simple to consider such thing. So we do not solve prudent investing problem.

Lastly, we now have no mechanism to handle AD shock, so we rob ourselves of real output. We have created a new, insoluble problem.

So: current system not understood, no problems with current system solved, a new and much worse problem introduced. It is honestly something out of left wing think tank!

Marginal cost of capital is very simply cost of what it takes to get capital that is better than alternative uses (opportunity cost). This again is true no matter what system you use. There are both fiat and non-fiat currency regime in world today, and both have marginal CoC. Bank capital is what is set aside in case loans go bad -- so riskier loan, the more capital you needs. Loan risk is factored in via expected discount future cash flow. Nothing is changed here.

Your understanding of MC of C is incorrect because you beleive that, if FFR is 0, somehow banks can borrow at 0 and make loan at high amounts. What I am saying is that FFR is not what it cost bank to make loan because bank (or shadow bank) do not need reserve to make loan. They need capital, so marginal cost is MCoC, not FFR. There IS no loanable fund market.

November 12, 2010 at 8:37 AM  
Anonymous B said...

Two questions.

1. What would the tripwire indicators for the remonetization of gold be? I.e., what signs would we expect to see immediately prior?

2. What would the fate of silver be in such a scenario? Would it, too, remonetize at its historic 15-1 ratio? Would it still be high compared to national currencies but low compared to remonetized gold?I

November 12, 2010 at 12:23 PM  
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Blogger Studd Beefpile said...

Would anyone else like to see MM to a full length post on how he defines left vs. right? I think MM is right that there is something fundamental about this division. It's not just that we use some 200 year old description of french revolutionary politics, but the division seems to pop up whereever there are politics. Ask anyone today who was left and who was right, Optimates or Populares in 80BC, Protestants or Catholics in 1618, or Stalinists or Trotskyites in 1938, and you'll get an almost complete agreement regardless of the politics of the person you ask.

MM's put it tritely a few places that left is chaos and right is order. This is close I think, but not quite right. Of course, the left loves to talk about tearing down the established order and the right about upholding it, but this dichotomy leaves us with no understanding of reactionaries, i.e. those who want to tear down their world and rebuild it farther to the right. What are we to make of the non-Burkean right, the monarchists(not restorationists), Fordists, Fascists, and even MM himself? These movements are clearly revolutionary, yet also clearly right wing. And what are we to make of the modern world, where the established order is clearly of the left?

Also, where does capitalism fit into the mix? Are capitalists right wing or left? Clearly, capitalism is no friend to established orders, ''creative destruction” is one of the most apt platitudes in history, but builds new ones just as quickly. Other than evolution (which it may be a subset of) it seems to be the only force in the universe that is positively anti-entropic. The left right divide has nothing to do with policy of course, but socialism seems far more at home on the left that capitalism does on the right. Of course, I have my own thoughts on these matters, but I'd be curious to hear what MM's commentariat thinks first.

November 13, 2010 at 1:46 PM  
Anonymous jkr said...

The problem with Zanon's posts (and I agree with 99% of it) is that he writes as though in the year 1971, the High Economic Council of the Modern World, convened and decided to scrap every institutional structure and practice that had existed up to that point, and replace it with institutions and practices suited to Chartalism or MMT; that there was actually some conscious and pre-thought out decision (by wise technocrats presumably) to replace the existing economic reality and system with a new one built on the theoretical principles of a pure fiat or MMT economy.

This never happened.

Zanon probably understands this, but his comments come across as if he thinks some such decision to switch was made.

No such decision was made.

The legal, institutional, theoretical set up and structure is still largely pre-1971, as is the understanding of most system participants.

1971 was a mistake.

It was a political maneuver.

It was not expected to last.

People today talk about gold as if EVERYONE KNOWS its just some barbarous relic, and we all, in our modern wisdom, chose to abandon it and replace it with a progressive fiat system.

No such thing ever happened. Nobody decided to go over to an MMT system of pure fiat, and most participants continue to behave as if we were on some type of gold standard system.

In fact from 1971 onward, most were looking for a way back onto gold, and many thought Greenspan was tacitly targeting the gold price, pegging the dollar to gold, since its value was for a long time stable within a range.

Just because we find ourselves in a pure fiat economy by mistake, doesn't mean we SHOULD embrace it and redesign our entire institutional, legal and political structures to suit it. Many of us want to get rid of it. We don't like the government, we don't like the system, we don't like democratic scum and don't want them to have any more power to harm civilization.

We believe money is a social trust and contract like private property that cannot be breached without serious consequences. There is more to economics and social science than MMT, and there is more important things than economics.

This is why so many of the MMT crowd are politically ridiculous and actually just assume that everyone is on board with their contention that the state SHOULD be unconstrained (by institutional holdovers and remnant practices from when the dollar was linked to gold).

If everyone only KNEW what they know, what government COULD do if it eliminated all self-imposed institutional barriers and misunderstanding, re-made everything else around the mistake of 1971 (not my judgment, just a fact; 1971 was a politically convenient maneuver which was not generally expected to be a permanent break from gold), that everything would be fine.

The truth is, if everyone in 1971 (or perhaps even today) UNDERSTOOD truly the latent powers that were unleashed, i.e., an unrestrained MONETARY totalitarianism which could marshal resources and private property without recourse to taxation, borrowing, or any other restraint, the result would have simply have been the reversal of the mistake of 1971, not the full embrace of monetary totalitarianism.

November 13, 2010 at 11:27 PM  
Anonymous jkr said...

(continued) It's not as simple as some PK and MMT people, as expert as they are, think. Like everyone else they over inflate the importance and weight of their own area of expertise and intense study, and can't see passed their own noses.

Zanon probably isn't really fully in that camp, since he reads and posts here, but he comes off that way sometimes.

I think its fair to say that UR'ers as a whole believe first and foremost in PROPERTY and LAW.

LAW in old sense, not bureaucratic regulatory legalize. Promises made, promises kept, on pain of death. Not from the state, but because that is the backbone of civilization, that is how order emerges from anarchy, and the modern state is just a parasite on that already long built structure. It is in fact tearing it down piece by piece.

For this reason they believe commercial activity in general, money especially, as the basis of every transaction, every economic contract and PROMISE, to be outside the purview of the state. They prefer the Austrian interpretation of money and its role and nature. They reject the idea of money as a public utility or something provided by the state.

MMT, while true in its descriptive role, I think, will remain of interest mostly to state-enamored and left leaning academic wonks, who want to empower the state. It will remain suspicious and distasteful to anyone with sane political views toward the dangerous monster which is the American democratic state.

November 13, 2010 at 11:35 PM  
Anonymous jkr said...

Studd Beefpile,

for answers to those questions you might have to read some Nietzsche, perhaps "What is Noble" from Beyond Good and Evil. Maybe some Evola.

I think left vs. right might mean aristocratic vs democratic, with deeper currents underlying.

Question: should the state serve the people, or the people serve the rulers of the state, who's purpose is of a higher order?

That's the difference to me.

To a degree even MM succumbs to this notion when he justifies monarchy or single-person authority on the basis of its utility to everyone, to good governance as the end sought.

The English seem to have spearheaded the drive toward the utilitarian ideal of "the greatest material happiness for the greatest number" as the only valid conception of political value.

H L Mencken is another you might read to get a grasp on this deeper left/right distinction.

Neitzsche says in BG&E, ch. 9, WHAT IS NOBLE?

"When, for instance, an aristocracy like that of France at the beginning of the Revolution, flung away its privileges with sublime disgust and sacrificed itself to an excess of its moral sentiments, it was corruption:--it was really only the closing act of the corruption which had existed for centuries, by virtue of which that aristocracy had abdicated step by step its lordly prerogatives and lowered itself to a FUNCTION of royalty (in the end even to its decoration and parade-dress). The essential thing, however, in a good and healthy aristocracy is that it should not regard itself as a function either of the kingship or the commonwealth, but as the SIGNIFICANCE and highest justification thereof--that it should therefore accept with a good conscience the sacrifice of a legion of individuals, who, FOR ITS SAKE, must be suppressed and reduced to imperfect men, to slaves and instruments. Its fundamental belief must be precisely that society is NOT allowed to exist for its own sake, but only as a foundation and scaffolding, by means of which a select class of beings may be able to elevate themselves to their higher duties, and in general to a higher EXISTENCE: like those sun- seeking climbing plants in Java--they are called Sipo Matador,-- which encircle an oak so long and so often with their arms, until at last, high above it, but supported by it, they can unfold their tops in the open light, and exhibit their happiness."

November 14, 2010 at 12:21 AM  
Anonymous jkr said...

josh and zanon,

banks have always been able to create credit money. what they're essentially doing is stamping their name one someone else's promises to make said promise circulate. i could write ious up and pass them out, they would be money-good if my promise (my credit) was accepted. banks, being in the business of evaluating creditworthiness, stamp your promise with their insignia, and make your iou current, money-good. in the past they would issue bank notes, and today they issue electronic balances and checking money, credit money.

as long as they are capital-solvent, they can remain in business. it is up to you and me if you want to accept their stamp, just as it is up to you if you want to accept my ious.

this is not theft, it is not inflation, it is not fraud, it is not a ponzi scheme, it is not unsustainable, and it requires no cartel, no lender of last resort, no 100% reserves, regardless of whether gold is the main money or fiat currency is the main money.

credit money has always existed and always will. it has a long history.

the monetary base has never carried the main load of transacting trade in modern economies.

there is always vastly more iou's in circulation than dollar bills. no one has a "right" to demand dollars he loaned to a company (bank). there are far, far more deposited dollars than actual physical dollars.

if you want dollars, hold onto them.

if you don't want to accept iou's, don't accept bank credit as payment.

again, i can issue ious right this minute, and be my own bank. they wouldn't circulate, of course.

i could also set myself up as a credit-worthiness stamper, stamping your iou with my guarantee (loaning you money), by issuing bank credit.

if the market trusts my ability to evaluate credit and believes my ious to be good, they will circulate.

my price is that you pay me the value, plus the interest rate, of the amount of credit money i issued on your behalf, and pledge security for the principle. you're paying me to make your promise circulate.

there's no reason to confuse credit money with FRN's jus because our hybrid banking cartel/treasury system gives it this appearence.

there's no reason bank notes shouldn't freely circulate in this manner, notes which are clearly IOU's and not dollars.

banks have always created credit money, and have always been able to do so as long as they remain solvent. the amount of money-proper they hold is a function of clearing and payments etc. a solvent, capitalized bank which lends against security and evaluates creditworthiness prudently will be able to circulate its own notes freely as money-good.

no scam, no fraud, no coercion.

i'm also not clear how maturity plays any role in this.

November 14, 2010 at 12:46 AM  
Anonymous josh said...


The best post on L-R was I believe part of the open letter series. Nomianism vs. anti-nomianism. Nomos is not the established order, but the natural order. This is why moldbug is so fond of classical international law, because it is a branch of natural law that tried to "discover" the laws of nations rather than create them.

His extreme example of the nomos is that children are the property of their parents. Basically leftism is antinomianism. Nobod is antinomian on everything, nobody today supports the nomos on everything. The trend of the past 300 years has been anti-nomian, trying to recreate the world in defiance of nature. This is also why MM loves Carlyle. They are basically saying the same thing.

Of course, a contradictory definition has been offered that the "left" is a social network extending back hundreds of years and the rigth is everything that is not part of that network.

November 14, 2010 at 4:23 AM  
Anonymous zanon said...

jkr: I have no idea why you, or anyone else, would beleive I think our current state of affairs was in any way planned.

Hell, it is barely understood.

Nevertheless, it is what it is, and the entire notion that banks "maturity mismatch" is garbage. Since banks do not maturity mismatch, and our banking system is terrible, trying to fix our banking system by outlawing maturity mismatch is like treating a patient based on humors. Or building internal combustion engine on theory of plogiston.

Just as I have no idea why MMT attracts so many MORONs of the left, I also have no idea why it is anaethema to the right. It is just accounting.

I laugh at your comment: "MMT, while true in its descriptive role, I think, will remain of interest mostly to state-enamored and left leaning academic wonks, who want to empower the state. It will remain suspicious and distasteful to anyone with sane political views toward the dangerous monster which is the American democratic state." MM does not want to disempower state. It is the opposite.

The question you, and other austrian/libertarian should ask themselves is: is it proper role of state to be monopoly supplier of currency? Certainly if I ran a state I would want to run currency -- it gives me much better tools to govern than if I used some external currency and left my monetary policy to the whims of some foreign idiot.

In todays world there are plenty of States who run fiat regimes and there are plenty of States who run, essentially, gold standard regime. Responsible governance of currency is not step on road to serfdom. Infact, it is best tool available to muzzle predatory financial system

November 14, 2010 at 10:09 PM  
Blogger Studd Beefpile said...

Oh, I know what MM has written before. While I'd like some expansion, I'm pretty sure I know what he thinks. What I'm more interested in is what the rest of you think.

November 14, 2010 at 10:20 PM  
Anonymous josh said...

I think leftism is a movement/social network/conspiracy. I don't see why we would expect the word "left" to align with any other word in the English language.

The philosophy evolves the way philosophies do, it retains some of its past elements, its past enemies, its phobias, but it constantly changes. At any given time if you are part of this network or allied with this network against a common enemy, you are left. If not, you are right.

November 15, 2010 at 5:00 AM  
Anonymous Anonymous said...

In case anyone stopped reading, is still updating.

November 15, 2010 at 5:30 AM  
Anonymous jkr said...


"MM does not want to disempower state. It is the opposite."

It's a bit more nuanced than that. MM wants to concentrate state power into the hands of a single individual or small group, and align the interests of this individual or group with the citizens. He wants to eliminate the incentives for looting the capital and citizens of the nation and for creating Managed Chaos to grow the state bureaucracy apparatus.

"is it proper role of state to be monopoly supplier of currency?"

i don't believe it is. civilization did quite nicely before the modern state. the question of fiat money or market money has huge implications for the size and scope of the state and the security of property. the state can destroy the social fabric and genuine law by which people live in a society. in the absence of government fiat and legal tender law, money will exist. what's wrong with that? no one wants to use fiat bus tokens if given the choice.

i don't believe in a democratic state. our state doesn't have the credibility to claim monetary sovereignty. private banking interests created the fed, and private interests dominate washington. no one in washington is going to take power away from the private interests that rule it. democratic government is a joke.

its possible to have a good state, but we don't. and it doesn't look like we're going to in the foreseeable future.

November 15, 2010 at 3:03 PM  
Anonymous jkr said...

one of the reasons everyone behaves as if there was some necessary monetary restraint is because no one, besides socialists and would-be central planners, wants to live under monetary totalitarianism (monetary sovereignty).

again, no one made a choice to do this. 1971 was an accident, and has been a disaster since. no one wants washington to be able to commandeer whatever resources it wants to with a mouseclick, with no external retraint.

even with the artificial restraints, the feds monetary policy has been able to lower the cost of capital for 30 years, to the point that the economy is utterly saturated with debt and every possible profitable investment has been exhausted by pulling demand forward and distorting market incentives. removing market constraints from money and banking is not a recipe for a sound economy.

November 15, 2010 at 3:11 PM  
Blogger TGGP said...

The NYT printed an op-ed supporting the gold standard.

November 15, 2010 at 9:23 PM  
Anonymous zanon said...

jkr: You make the same error as pro-democracy progressives. World did well in the past despite gold standard, not because of it.

And you are incorrect in claiming that fiat or non-fiat regime has any bearing on size and scope of state, and security of property. The USA today is fiat, but runs as if it is gold standard. It is, in fact, 5% gold standard still in actuality, and runs as if 100% on gold standard. If this de jure gold standard operation has imposed any limit on size or scope of state, I have not noticed.

Monetary sovereignity is conserve, just like soveriegnity. your only choice is whether you will be a sovereign yourself, or outsource the duty to a foreign central bank, or a lump of rock. It is unclear which of two options has higher IQ.

Like all gold bugs you confuse net financial asset with gross financial asset, and you confuse real with nominal. The Fed has moved no demand forward because it is virtually impossible to move demand forward. The Fed has done nothing, except regulate the banks poorly. It has regulated the banks poorly because it thinks it has no choice. It thinks it has no choice because it thinks it is operating on gold standard.

And this is your "solution".

I have not seen such ignorance tied with such certainty outside of a civil rights demonstration.

Any King who knows what he is doing will demand monetary sovereignity. Taxing in another man's currency is like being cuckolded.

TGGP: Thank you -- I cannot imagine a better endorsement for embracing fiat than a NYTimes editorial suggesting the gold standard.

November 15, 2010 at 9:39 PM  
Anonymous Anonymous said...

MM should just turn off the comments to his posts. He doesn't participate, and the quality of those who do is increasingly abysmal. 65 comments and not a single one worth reading, congratulations retards!

November 16, 2010 at 10:13 AM  
Anonymous jkr said...

"World did well in the past despite gold standard, not because of it."

according to you. which government do you suppose could have established legal tender laws and fiat currency and been successful, before the unipolar world power balance following ww2?

"The USA today is fiat, but runs as if it is gold standard."

Is that why gold is nearly 50 times its 1971 price?

"Monetary sovereignity is conserve, just like soveriegnity."

not to be a dick, but why can't you spell sovereignty? being able to spell is an indication of the scope of one's reading. it's not a typo, you consistently misspell sovereignty.

"your only choice is whether you will be a sovereign yourself, or outsource the duty to a foreign central bank, or a lump of rock. It is unclear which of two options has higher IQ."

so 1971-2010 is progress, 5000 B.C. - 1971 was backward and lacked truly sovereign governments. economic progress would have been much greater if every tribal chieftain, feudal lord and tin pot dictator had monetary sovereignty. cool theory. i bet that would've worked out good.

read some real economics outside of the manginas at newdeal 2.0.

November 16, 2010 at 2:12 PM  
Anonymous Anonymous said...

zanon does have a point.

Money is a fungible good that can command resources and people. That is it can have and compel authority.

If you want to concentrate as much power, authority, and sovereignty as possible, you have to consider monetary sovereignty as well. Money can be a source of authority that competes with and or undermines the authority of the sovereign.

Those European national governments such as Greece obviously have less authority and sovereignty as a result of being users of the Euro, a currency controlled by another entity.

Similarly, under a gold standard other entities, whether they are other nations, corporations, individuals, groups, etc., can come to control (whether absolutely or on a relative basis) the currency you use and thus become competing authorities that undermine, usurp, diminish, etc. your own authority.

November 16, 2010 at 3:01 PM  
Anonymous josh said...


I think it is obvious that English is not Zanon's first language. Adding an ity to sovereign seems like a reasonable mistake.

November 16, 2010 at 4:21 PM  
Anonymous jkr said...

for more on MMT/chartalism from a GOLD vs. PAPER perspective, read the following paper, with sections 4.5 and 4.6 covering MMT.

provides some interesting and concrete criticisms of MMT, while acknowledging the reality of its basic accounting premise.

check it out zanon, better than us going back and forth and calling names.

November 16, 2010 at 4:30 PM  
Anonymous Anonymous said...

Yeah, MM used to praise the quality of his commenters, he doesn't do that anymore.

He does participate in comment threads. But not on his own blog. Over at CNAS. And those threads are an open sewer.

That he participates there none the less and not here is telling.

November 16, 2010 at 8:07 PM  
Anonymous zanon said...

jkr: pair paper is fair attempt by MORON gold bug to understand MMT. He gets critical factors wrong, of course, but is serious attempt I respect. If you cannot work with t-tables, you cannot understand finance, and austrians and academic macroeconomists are together in same boat here.

the idea that government issue debt "temporarily reduce aggregate demand to help control inflation" make me laughs. Government issue debt for very different reason, such a different reason that it should not even be call debt.

Anyway, points is this: if you want to be called Sovereign, then you need to be able to tax. If you cannot tax, then you are not sovereign, you are pussy. It is taxation that creates final demand for currency, so either you be man and tax in your own currency, or you allow yourself to be cuckolded and tax in another man currency and reduce your sovereignity. There are no other options.

Old British empire understood this. First thing they did in new colony was establish hut tax, payable in pounds sterlings. Guess what was sole source of pounds sterlings? Guess what made this credible threat?

At any rate, pair article is too dismissive of changes in V. Do not confuse stock flow. Deficit is flow. Debt is stock. Deficit is small compare to debt. Therefore, even big change in deficit may be small impact in money supply (stock) and change in V can be quite dramatic too. This is serious issue, and place where gold bug make himself castrated. Responsible sovereign can always act as if he is on gold standard, but reserves option to stop deflation/inflation if it threaten employment and production of real goods in soceity.

And to what ends? It is not solution to inflation, as you can have M be constant, or falling, with high V driving up CPI.

My original point was that since banks do not maturity mismatch (which they do not), disallowing maturity mismatch clearly cannot be solution to ills of financial system since you are disallowing something that does not happens. Either you are about reality, or you do nots.

November 16, 2010 at 10:17 PM  
Anonymous jkr said...

zanon, I like your reply.

I would submit the following.

Until we have a "responsible Sovereign" and a system which consistently produces "responsible Sovereigns," monetary sovereignty (the ability to spend, redistribute, direct resources, etc., without any constraint of taxing, borrowing, or a commodity standard) is a negative, not a positive. Any restraint, even if that restraint is only a general ignorance of MMT, is better than no restraint on US gov, as it is presently constituted. Imagine USA in 30 years, given demographic and political trends, with a regime unconstrained in its ability to tax and command the resources and property of the private sector! Would make the Soviet Union look desirable, I imagine. This is why political knowledge, broadly defined, is more important than economics, let alone narrow technical things like MMT. The accounting facts of MMT (its descriptive aspects) are not an END, they're a potential means. They don't tell us anything about what we SHOULD do.

In other news, for those interested, a new paper by Selgin, White and Lastrapes "Has the Fed Been a Failure?" here:

It's currently making its way around the econoblogosphere.
Selgin and White are the kind of heterodox economists either unknown to or ignored by those who would like to portray "Austrians" as all 100% reserve Rothbardians and gold bugs.

Such is not the case, anymore than all PKs are marxists.

There is lots of valuable economics outside of the mere description of how a poure fiat monetary system could be worked by a benevolent soveriegn without a knowledge problem (in Hayek's sense.)

Most good Austrian economics was written before 1971, so can't be accused of ignorance of the mechanics of a regime that didn't even theoretically exist yet.

And there's plenty of economics which applies to the REAL economy, and is applicable under any monetary regime. Much of which is far more important than the narrow areas covered by MMT, which deal mostly with nominal questions. For instance Hayek's work on capital theory, coordination, relative prices, and the market order. These apply to any monetary system, and have implications which system is preferable.

November 18, 2010 at 7:25 PM  
Anonymous jkr said...

zanon i would recommend you read hans hoppe on the economics of democratic vs monarchic govt, to get an idea of why a "good" thing, like monetary sovereignty, becomes a bad thing in the context of democratic govt. MM has pointed to hoppe as an influence on his own thinking, so if nothing else it could give you some insight into the background of MM's own ideas on the subject. find the post on UR about mises-to-carlyle.

November 18, 2010 at 8:31 PM  
Anonymous jimbarino said...

jkr -

While I am a fully paid up MMTer, I do see something of (what I take to be) your point: while in principle it is as easy to see a MMT-enabled small government as it is a big one (after, what counts is not the amount of spending, but the deficit which allows for private savings - low spending/lower taxation does the trick nicely), the fact is that the illusion of limited financial resources may be the only restraint on the growth of government.

A currency sovereign faces no financial constraints, but it does face real ones. But as the difficulty of getting even smart people to understand MMT illustrates, this is a distinction that is virtually impossible for many people to grasp. If it ever became generally known that a government had no limits to how much money it could spend, how would you argue against any new program? "Real resources" are, paradoxically, too abstract for most; they can only think in terms of the abstraction called "money". If they ever truly believed that there was no limit to how much the government could spend, we truly would end up with hyperinfation as spending went ever skyward with no appetite for countervailing taxation to reduce demand. This might be an area that calls for a Straussian "nobel lie"...

November 19, 2010 at 8:57 AM  
Anonymous zanon said...

jkr: pretty much every third world country ends up with mixed currency regime, where the local fiat currency mixes it up with various foreign currencies plus often gold. This severely limited monetary, and therefore operational sovereignity of that third world country, but I have yet to see it produce good governance.

Every individual State in US similarly is operating on de facto gold standard, and it is ridiculous argument to say that in US States are governed well, but Country is governance badly. We are not at Nigeria level but I do not see limiting monetary sovereignity producing responsible rule. Anywhere. Like Democracy, this may fall into "nice in theory, bad in practice" category.

I also find it interesting that on site which generally support strong, clear sovereignity, as well as truth, makes principled exception in this area where suddenly you want weaker sovereignity and widespread lie "for the greater good". Either we have found the one turd that makes the barrel of wine more delicious, or we have a barrel of sewage.

MM, Cato, Harvard, Alan Greenspan, Ben Bernankes, Hayek, Hoppe, and Barack Obama all think US has gold standard system where banks and shadow banks maturity mismatch in order to enable lending. They are all wrong. And yes, it is accurate to lumps them all together.

1970s is a good time for you to think about, because there was very important event that has lead to very bad financial system we have seen since. It was not Nixon act though, it was something else. Something that is obvious if you understand how financial system actually work.

Finally, in me you find no friend of democracy or the Fed. You also find no illusions about what can or can not create responsible governance. My ideal Fed would be eliminated entirely, except for 3 areas where it would be much much strong than current incarnation. But, if you think maturity matching is how (shadow) finance system works, you will not understand any of my choices.

November 19, 2010 at 10:16 AM  
Anonymous zanon said...

jimbarino: shouldn't noble liar know that they are lying?

what do you call someone who spread falsehood not knowing it is falsehood? Noble prattler? Useful idiot?

November 19, 2010 at 10:17 AM  
Anonymous jkr said...


somehow you took my statements to meant that a commodity standard (market money) produces good governance. you have a habit of reading into people's arguments that which is not there. this is usually called straw man. defend your views, don't attack views i haven't expressed.

let me ask you this. should each state in the union, each district, each township, exercise monetary sovereignty once a popped bubble destroys its revenue and bloated unions cry?

would poorly run third world states perform better with monetary sovereignty? do you see where this leads? the world would never have accumulated a dime of capital without a common market based money.

November 19, 2010 at 2:12 PM  
Anonymous jimbarino said...

I dunno - useless idiot?

And I was just musing, anyway - I'm not sure I'd support the noble lie, even if the powers that be knew how their own system worked.

But reading back, I think jkr and I disagree about the dangers. He sees an MMT-aware government as prone to tax-and-spend totalitarianism. I think if anything, MMT makes raising taxes more difficult, since people would know that government didn't "need" the revenue. It would seem to set up a tendency toward hyperinflation, as governments realize they don't need to "pay for" their spending. It would work for a few years, (as it did during WWII), but eventually there would come a need to raise taxes to cool down the economy and there might not be the political will to do it.

Of course (putting my technocrat hat on again), one doesn't necessarily need taxation. Since savings is the same as taxation, a savings incentive plan could prevent overheating...

November 19, 2010 at 2:26 PM  
Anonymous jkr said...


of all the names you listed, i had only referenced one, hayek. hayek is dead. on what basis do you claim that post-1971 hayek failed to see the possibility of a full fledged fiat regime? i would find it hard to believe that hayek did not understand that, theoretically, a government could be run on chartalist principles. if you can show me otherwise, please do. have you read any hayek?

popular presentations of MMT generally fail to take into account the structural realities outside pure economic theory; legal, institutional, and other obstacles and restraints to the system envisioned by MMT. they treat these real obstacles as self-imposed restrictions without any real political backbone. these are real restrictions. political currents underlie many of these obstacles.

e.g., FED not allowed to buy direct from treasury. FED not allowed to engage in fiscal policy. treasury not indepedently in control of monetary policy. in a true MMT regime, no justification for banks profiting from free money. if all debt is full faith and credit of us gov, should be no risk spread for banks to extract. banks would be public utilities.

if money has no price, cost of capital is free, every loan becomes profitable if borrowed can turn even a 1% profit. debt saturation, zero interest rates and exhaustion of all possible profitable investments. the result is a need for deflation and return to market money and interest, or monetize debts. you tell me, how does gov't know cost of capital?

fed and treasury are institutions with back-stories that range decades. they are evolving institutions associated with individuals and groups who have interests separate from theoretical public interest.

why assume FED are public servants rather than agents of banking cartel? jp morgan bailed out us gov, when, 1897? banking cartel was much larger and more of a power than tiny us gov of early 20th cent. wall st. created the fed, not vice versa. it had a totally different nature and role in 1913.

its nature developed and changed over time, and continues to act as if an agent of the banks rather than an agent of a sovereign state. its a revolving door between wall st. banks and public policy, at fed and treasury.

ag demand would have been restored by allowing bad loans to be liquidated by failing financial corps. citi fails, dumps its mortgages 50% discount, private equity group acquires bundle of loans, can now renegotiate with borrower profitably, cutting principal to 60% and still getting a levered 10% spread. bailing out banks prevented liquidation of household debts, strangling AD as no new loans can be profitably issued o debt saturated private sector.

November 19, 2010 at 2:50 PM  
Anonymous jkr said...


to assume a nationalistic us gov could wrest control from the power that largely created us gov is political unreality. us gov was tiny until private interests created it to serve their own ends. when some populist in latin america wants to nationalize industry and ditch dollar peg, what happens? us gov, even under progressive presidents, send in the troops, no? IMF, austerity, etc. are ways to serve US banks, US companies like HAL, etc. this doesn't mean these populist leaders wouldn't mismanage equally bad on socialist principles, it all depends on the individual situation.

much of economics literature likely reflects interests that fund it and sponsor it. this may even be true of mt perelin and cato type orgs. i don't think its true of mises institute or levy institute, which i admire both. but most are inside beltway and driven by private interests, not public interest or pure theory.

much more going on behind scenes than pure econ theory, to be used by benevolent public minded us gov officials.

even after a genuine popular revolution, a generation or two would prob suffice to result in the bureaucracy existing to serve itself.

read foseti's blog for some insight into how the permanent govt bureaucrat is the true maker of policy and author of most laws, in self interest.

look at TSA and former DHS head michael chertoff's company selling the naked body scanners and punishing those who opt out, with being groped by glorified DMV employees.

people call the govt incompetent and point to things like drug war, education. many have called bullshit on this. read robert higgs on how these failures are exactly what grows and funds the bureaucrats and budgets to fight these problems. govt doesn't fail; it merely falsely states its objectives.

i am not generally a rothbard fan; he fails by proposing 100% banking and by believing in natural rights.

one thing he was good at was examining the power networks and political relationships behind the political surface.

i recommend you find some of his writings in this vein, because it's super interesting, and quite a dif perspective than textbook economics (even good textbook economics).

i also implore you to read hans hoppe. do it for me, do it for America, but most of all do it for yourself.

finally, stop falling back on defending your criticism of maturity mismatch claims. i was never in that argument. i'm dealing with other things you said or implied. just assume i agree with you 100% on the descriptive theory of MMT.

November 19, 2010 at 2:50 PM  
Anonymous jkr said...

Steve Keen seems to be the most potent gateway drug between Austrian business cycle interpretations and understanding endogenous money/MMT, how the credit and monetary systems really work, etc.

Steve Keen (video, 1:17)
Why Credit Money Fails

Another helpful resource, the 2008 paper "No One Saw This Coming?," which profiles the 10 or so econ forecasters who accurately predicted the credit crisis and housing bust, and describes their methodology and analysis... highlights Austrians like Peter Schiff as well as post-Keynesians like Steve Keen, among others.

Very informative paper which helps you see the overlap between the different approaches and the common factors where the analysis converged.

There don't appear to be any prominent MMT proponents profiled. Not sure what that means. They seem out and front with government solutions to the economic crisis and all else that ails humanity, but I don't know if any foresaw the bust coming or have explained it in terms of market dynamics.

All I've seen is simplistic posts by Scott Sumner and Warren Mosler excoriating the government for not maintaining a constant level of nominal aggregate demand/GDP in the face of a collapsing asset bubble and debt deleveraging, as though it were as simple as flipping a switch.

Here's a link to that fascinating paper,

“No One Saw This Coming:” Understanding Financial Crisis Through Accounting Models

November 19, 2010 at 6:57 PM  
Anonymous jkr said...

Its been 2+ years since I read that paper. I think Wynn Godley might count as full-fledged MMT. There seems to be some slight difference between PK curcitists and the neo-Chartalists, maybe Zanon could elaborate. Either way... the list used very strict criteria, there were many others of various intellectual backgrounds who accurately identified the economy's unsustainable path and made accurate assessments of how it would end, at least up to the point of uncertainty (government response).

The divergence becomes great at that point, since that's when understanding the nature of our credit and monetary system is most important. Idiot inflationists like Bob Murphy who talk about how QE and excess reserves were going to create hyperinflation due to the money multiplier are just pathetically ignorant.

The private sector wishes to delever; to do so it must either cut consumption, sell assets, or default on debt. If the private sector saves without the government increasing net private sector financial assets (by deficit spending), the deflationary adjustment will be severe. The government must inject net financial sector assets (for example a simple payroll tax holiday until some criteria is reaches) until the private sector desire to delever is achieved and debt deflation pressure subsides. Debt/GDP, CPI, other measures could be used as criteria. That's basically the shortest way of putting the MMT position. Anything beyond that ceases to be descriptive and becomes prescriptive, involves non-neutral value judgments about what is good and bad, what is appropriate or inappropriate, and delves into areas it seems not to understand.

For example, there is a political component to preferring inflation vs. deflation; inflation props up existing business and political elites at the expense everyone else; deflation reshuffles the deck and replaces existing structures. Read Hulsmann for more in depth exploration of these ideas.

November 19, 2010 at 7:24 PM  
Anonymous zanon said...

jimbarino: you raise interesting points. I agree, MMT-aware Govt is more likely to hyperinflate, although given how strong antibodies are against inflation I don't think it is that likely. I mean, we have FFR of zero plus QE2, both deflationary, and people begin screaming inflation. Inflation is unpopular and it is hard for Govt to do unpopular things.

I do not agree with you that MMT-aware Govt would not tax. Tax is important for aggregate demand, redistribtion, and final demand. The form of taxation may change very much though, and I have been dissappointed with lack of MMT thought on this area. Given they are still trying to explain to MORONS different between asset and liability, I forgive them for not considering this additional element.

November 19, 2010 at 9:18 PM  
Anonymous Anonymous said...

Of course an MMT-aware government would tax. That's fundamental to Chartalism. The foundation of Chartalism is that taxation gives the government's fiat currency value.

November 19, 2010 at 11:33 PM  
Anonymous zanon said...

jkr: Godley is good to read. Schiff is garbage. Steve Keen I am torn about.

He is OK at horizontal money, but merely OK because he has decided to invent his own accounting system for some bizarre reason. This lead him to all kinds of problems, like saying profit is impossible. There is long technical discussion of problems with Steve Keen here:

Steve is completely MORON about vertical money. I do not know hows someone who gets horizontal cannot get vertical, but somehow he manages it.

So on one hand he is 70% wrong, instead of 100% wrong. On the other hand, he has less excuse.

I have no interest in parsing out the various flavors of inanity that make up economic "thinking". I am just interested in how system actually work

November 20, 2010 at 7:22 AM  
Anonymous jkr said...

"Steve Keen I am torn about.

He is OK at horizontal money, but merely OK because he has decided to invent his own accounting system for some bizarre reason. This lead him to all kinds of problems, like saying profit is impossible."

he says exactly the opposite. you have no idea what keen says, obviously.

November 20, 2010 at 9:51 AM  
Anonymous zanon said...

jkr: i move beyond keen a long time ago. he may have evolve. if you have link where he talk about vertical money and net financial asset please share

November 20, 2010 at 5:22 PM  

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