Home > Uncategorized > Randall Wray attacks “debt-free-money cranks” based on sloppy arguments

Randall Wray attacks “debt-free-money cranks” based on sloppy arguments

from Norbert Häring

Randall Wray is probably the best known representative of a branch of economic thinking called Modern Monetary Theory (MMT). On Naked Captilism I read his polemic called “Debt-free money and banana republics“. I am more than a bit disappointed. From somebody like Randall Wray, who specializes on debt, I would have expected a more careful treatment of the relation of money and debt, especially if he wants to be vitriolic and call those cranks, who argue for “debt-free money”. Randall does not seem to know, what debt is.

For anybody interested in monetary reform, it is worth reading Wray’s article and the comments, as they give a good flavor of his attitude and make it clear that it is pointless to try and form an alliance with him and people of his kind, even though the MMT-people are among the ones who understand money best.  But they are also hell-bent on telling us, it is the best of all systems. This is my comment:

Randall writes damningly:

 “Imagine a cloakroom that issues “debt-free” cloakroom tokens. You can return them to the cloakroom, but you don’t get a coat. The cloakroom attendant refuses to recognize the tokens as debt. They are your assets, but not cloakroom debts. What is a “debt-free” cloakroom token? It is a piece of plastic”. Its value is determined by the value of the plastic.”

 This is off the mark. A cloakroom is not issuing a debt-token. The coat still belongs to me. All I get is a token that helps me proof that I gave the coat for safekeeping. It is not money and it has no debt attached to it. Nobody will accept this token for payment.

In the case of government issued tokens he is also off, though not quite as far:

“Imagine a sovereign that issues ‘debt-free’ coins. When you take them back to the exchequer, your taxes are not paid. The exchequer does not recognize them as a debt—as a promise to redeem yourself in tax payment–but rather as a bit of base metal.”

Okay, formally, the coin is a debt of the government, but a very specific one and the macro-economic substance of the act of issuing the coin is very different from what banks do, when they issue what “debt-free-cranks” call “debt-money”.

By issuing the coin, the government allows a provider of goods or services to bring forward the settlement of their pre-existing tax debt to the government. The coin can be understood as a receipt that the tax has been pre-paid. If the recipient of the coin simply keeps it, till his taxes are due, he can show the coin to prove he already paid. Thus, by issuing the coin, the government creates a negative debt (which is made fungible to be able to serve as money).

This is very different from what banks do, when they create deposit-money by issuing a loan. There is no pre-existing debt of the customer taking the loan. By giving the loan, the bank creates new debt (for which interest is to be paid, whether or not it is put to productive uses).

Another sloppy argument:

“The ‘debt-free money’ cranks hate payment of interest by government. I’m not sure, but I think what they really want to do is to prohibit government payment of interest. That is fine with me. ZIRP forever. Stop paying interest on bank reserves, and stop issuing Treasury bills and bonds. I’m with them. Advocate ZIRP, not banana money.”

This whole thing of exemplifying debt-free money with bananas is beyond sloppy. Bananas are extremely perishable and thus the last thing you would use as money. Use gold or silver in your examples, please. By legislating ZIRP for the FED forwever, you will not have done away with the interest that banks charge for the money they create in the form of additional debt.

I find it quite troubling that some MMT-people who are usually so precise and clear when they make their own case are becoming so sloppy when they are in the business of discrediting the findings and convictions of neighboring tribes. This is sectarianism at its worst and really the best anyone can do to preserve the Wall-Street-inspired economic orthodoxy. 

 

  1. December 21, 2015 at 6:10 pm

    Good critique .I recommend Randall Wray read Between Debt and the Devil (2016) by Adair Turner , whose expertise as former head of Britain’s Financial Authority cannot be dismissed. Or at least read my review at http://www.seekingalpha.com . I give Lord Turner top marks for courage in calling for withdrawing from private banks the inordinate privilege of creating money as loans, thus contributing to our debt overhang . We need this deeper debate about the politics of money-creation , credit-allocation and debt.

    • December 29, 2015 at 2:34 pm

      HH,
      I am reading Turner’s book now, but to me the book that Wray MUST read in order to interrupt his own non-sequitur-based thinking here is “Wealth, Virtual Wealth and Debt” by Dr. Frederick Soddy.
      The reality of MMT-think today is that it pretends to being attacked by Austrian anarcho-capitalists and Classicists like Krugman, etc …. but in their heart of hearts they do fully understand that the monetary reform advocates that use progressive Fisher and conservative Friedman’s common grounds – the public money advocates – are its real threats, being why we are banned from commenting on their websites.
      I do have a critique of Turner’s approach if you care to hear it.
      Thanks.

      • December 29, 2015 at 3:22 pm

        My New Years prayer, “From your mouth to God’s ear”
        Why is it ? Soddy got it right, why is he denied. His writing were from 1921 to 1934.
        Money power has buried this “Truth”.
        Soddy even foretold how they would do that. “”So elaborately has the real nature of
        this ridiculous proceeding been surrounded with
        confusion by some of the cleverest and most
        skillful advocates the world has ever known, that
        it still is something of a mystery to ordinary
        people, who hold their heads and confess they
        are ” unable to understand finance “. It is not
        intended that they should.” Frederick Soddy (The Role Of Money)

      • John Hermann
        January 4, 2016 at 2:42 am

        Hyman Minsky remarked that monetary reformers must firstly answer three questions:
        1) What do you think is wrong with the current system?
        2) In what ways do you imagine your proposals would be an improvement?
        3) What theory about how the system works has informed your analysis?

        Even if a case can be made for monetary reform (and I think a case can be made), it needs to be thought through very carefully and the mechanics of any proposed changes to banking and finance must be well understood. A theoretical framework underpinning the reform proposals must be spelled out in detail. Too many reformers in the past have failed in this regard. This failure includes reform programs recently put forward by Positive Money, the AMI, and the Swiss sovereign money movement.

        The biggest single failures of many reformers include (a) their confusion about the nature of a banking deposit, and (b) their blindness to the fact that money creation necessarily operates endogenously, irrespective of whether that money happens to be bank credit money or state fiat money. Until they manage to get their heads around these issues, their proposed reforms, if put into practice, are unlikely to provide significant change from current banking practices.

      • January 4, 2016 at 7:15 pm

        John Hermann
        January 4, 2016 at 2:42 am
        Hyman Minsky remarked that monetary reformers must firstly answer three questions:
        1) What do you think is wrong with the current system?
        2) In what ways do you imagine your proposals would be an improvement?
        3) What theory about how the system works has informed your analysis?

        ********Frederick Soddy does answer these questions, and really in such a manner
        that it may, perhaps should not be called theory since history has proven most of his
        work- a truism!
        REAM ME A NEW ONE!!
        Prove Soddy wrong.
        “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”,(?)

        THE KISS SOLUTION TO DECREASE INEQUALITY GAPS, POVERTY, and NATIONAL DEBT.

        ONE SENTENCE -A CAPITALISTIC ECONOMY WITH A HONEST CENTRAL BANK.

        A BANK (GUARDIAN) THAT BORROWERS MONEY (Interest free) FROM ITS LAWFUL OWNERS, LENDS IT AND CHARGES INTEREST (TAX) TO SECURE AN INCOME STREAM TO TURN OVER TO CONGRESS TO USE FOR THE BETTERMENT OF ALL

        Translation: What is an honest Central Bank ?
        A Central Bank that safeguards the “money” of the entire community.

        A Central Bank that knows it does not own the money that is in trust, yet has the duty to make it available for transactions.

        A Central Bank that issues currency for transactions
        not by “creating new money” rather by ‘printing’ a physical receipt of money already owned by members of the community.
        To create new money without the creation of new -not-owned ‘goods or services’ would be creating TWO owners for the same “value” already entrusted by the community to its Central Bank.

        A Central Bank that must be the sole issuer of these receipts
        as they are bound by the rule that they must control the quality and quantity of the community ‘money’ and may not transfer this duty to a third party.
        Quote Frederick Soddy, “It was recognized in Athens and Sparta ten centuries before the birth of Christ that one
        of the most vital prerogatives of the State was the sole right to issue money. How curious that
        the unique quality of this prerogative is only now being re-discovered. The” money-power ” which
        has been able to overshadow ostensibly responsible government, is not the power of the merely ultra-
        rich, but is nothing more nor less than a new technique designed to create and destroy money
        by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of
        the community or the real role that money ought to perform therein.
        … It is concerned less with the details of particular schemes of monetary reform that have been advocated than with the general principles to which, in the author’s opinion, every monetary system must at long last conform, if it is to fulfil its proper role as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the
        government and, last, a rival power strong enough ultimately to overthrow all other forms of
        government. ”.

        FREE DOWNLOAD: “The Role Of Money”
        ”http://archive.org/…/role…/roleofmoney032861mbp_djvu.txt

        “There never was an idea stated
        that woke men out of their stupid indifference
        but its originator was spoken of as a crank.”— Oliver Wendell Holmes, Sr.(1809-1894) American Poet

        .***Why not read and challenge a Noble Laureate ?
        **Excerpt from http://en.wikipedia.org/wiki/Frederick_Soddy
        “In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”, offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”. While most of his proposals –
        “to abandon the gold standard,
        let international exchange rates float,
        use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends,
        and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”.
        Soddy wrote that financial debts grew exponentially at compound interest…”

        ***Why not read and challenge a Noble Laureate ?
        http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

    • January 3, 2016 at 4:21 pm

      HH: ” We need this deeper debate about the politics of money-creation , credit-allocation and debt”.

      Joe: The place to look is in Soddy’s book, but “I do have a critique of Turner’s approach if you care to hear it”.

      Well, I would, Joe. But I agree with you on Soddy (read him yet, Heather?) and echo Lucky’s New Year’s prayer: time now being short, for a political conversion as dramatic as that of Constantine?

      • January 5, 2016 at 12:54 am

        Help, I am trying to read your article on Seeking Alpha.”Between+Debt+and+the+Devil+(2016)+by+Adair+Turner+BY+DAVE+TAYLOR”
        Can’t find it (SEARCH:Sorry… We couldn’t find Between%2BDebt%2Band%2Bthe%2BDevil%2B%282016%29%2Bby%2BAdair%2BTurner%2BBY%2BDAVE%2BTAYLOR
        in any of our transcripts,try another search!

  2. December 22, 2015 at 1:02 am

    “Randall does not seem to know, what debt is.”

    I must disagree. “Debt” is a word in English – and in every human language. Even nonhuman social animals have some grasp of it. Wray uses the word in the standard very general dictionary meaning of a social, moral obligation.
    Here is the full definition from the #1 on google online dictionary:

    1. something that is owed or that one is bound to pay to or perform for another:
    2. a liability or obligation to pay or render something
    3. the condition of being under such an obligation:
    4. Theology. an offense requiring reparation; a sin; a trespass.

    Basically, 4 ways of saying the same thing.

    ” A cloakroom is not issuing a debt-token.”

    It most certainly is. To say it is not is to insist on an alternative meaning of “debt” and to avoid the standard general dictionary meaning, which is Wray’s usage. Alternative meanings involving money & interest are obviously not applicable. Money is credit/debt and obviously this view would be useless & unintelligible gibberish if the latter were defined in terms of the former.

    “Nobody will accept this token for payment.” The cloakroom attendant will. Therefore it is a debt, a social, moral obligation, relationship between two moral agents. That is the point.

    ” the macro-economic substance of the act of issuing the coin is very different from what banks do.”

    No, it is precisely the same thing, no more different than the US issuing dollars & the UK issuing pounds. Minsky’s “anybody can create money ….”

    “By issuing the coin, the government allows a provider of goods or services to bring forward the settlement of their pre-existing tax debt to the government.”

    This is not at all what happens. It could not happen that way, the way the rest of the story proceeds. Issuing of a debt in one direction must precede the settlement, the cancellation of the debt, which can only occur by a debt going the other way.

    Here the coin recipient pays the coin to settle his subsequent, not pre-existing taxation. I can’t really understand what is being said here in a coherent way. If the coin is considered a receipt, it is a receipt for taxation-in-kind, taxation in real terms, like a government employee being “taxed” of his labor and given government currency in return. Taxation in kind or taxation in real terms is another word for government spending, which is the opposite of financial taxation – which is what “taxation” means nowadays. In any case, in any system, the coinholder of course relinquishes it, rather than merely keeping & showing it – that’s more like how titles of nobility operated, not coins!

    “There is no pre-existing debt of the customer taking the loan. By giving the loan, the bank creates new debt (for which interest is to be paid, whether or not it is put to productive uses).” More errors, at least on what seems to me to be the plain meaning.

    As above, there was no pre-existing debt in the government / tax case and the bank doesn’t create the new debt of the customer to the bank, the customer does. There are two credit-debt pairs being created in bank loans, but only one in government spending. That’s a difference between monetary and fiscal.

    Basically, this is just Mitchell-Innes & his great predecessors. But only the MMTers – or circuitist / creditary economists like Ingham, Gardiner etc who contributed to the book on Alfred Mitchell Innes great papers seem to get things right. It is all so simple, so obvious, so natural, so easy, so entirely trivial…. That everyone makes a complete mess of it, by scorning the “trivial” chore of getting the trivialities right!

    It was in a million textbooks – only a little overcomplicated & muddled – in the “Keynesian” era – but everybody has forgotten that, and didn’t take it seriously, thought it was just soporific filler, rather than the heart of the matter. Not many know enough of the history of thought, mathematics, science and philosophy to know how the “deepest” most epoch-making progress is this “entirely trivial” stuff & how common the subsequent tragic farce of focusing on irrelevancies & ignoring the crux, of throwing out the baby and keeping the bathwater is.

  3. John Hermann
    December 22, 2015 at 3:14 am

    If we are interested in applying precision of thought to this issue, it is clear that the general dictionary definition of “debt” – which equates it with “liability” and perhaps also with “credit” – must be abandoned. To conflate debt with liability is indeed sloppy analysis. In a rigorous economic analysis the word “debt” will imply a payment schedule (i.e., a timeline), while a “liability” will not necessarily have this feature. And although a debt is a form of liability, the words are not synonymous.

    With a monetary deposit (taking the form of bank credit money), the depository has a contingent liability towards the depositor — an obligation to provide the depositor with currency on demand. However a deposit is not, in itself, a borrowing or a debt.

    Likewise, the government has a liability towards those who possess currency (or its equivalent) to accept it for the payment of any tax obligations. This liability is also contingent, because not every citizen in the possession of currency has an obligation to use it for paying tax to the government, or even to pay tax to the government at all. And it cannot be construed as a debt because no payment schedule is attached to the mere possession of currency.

  4. December 22, 2015 at 8:27 am

    Quite agree with Prof. Haring’s critique, and more might have been said.

  5. Peretz
    December 22, 2015 at 9:14 am

    Debts of States are only but numbers. They are nothing else than the sum which should be coming from inflation. I prove it in my book. Banks are winners. Without inflation they can loan money at its first value, and earn agios for it.

  6. December 22, 2015 at 5:34 pm

    Money, cranks, and morons
    Comment on ‘Randall Wray attacks “debt-free-money cranks” based on sloppy arguments’

    Sloppy thinking has always been the hallmark of economists, and their natural mental state since Adam Smith is utter confusion.* This thread shows that it is not clear what money is and what the relationship between money and debt is and, most important of all, how the monetary economy works.

    Norbert Häring maintains that “the MMT-people are among the ones who understand money best.” That is not the case, the formal foundations of MMT are defective.**

    It is decisive to start with an elementary consumption economy without government and taxes in order to make it absolutely transparent how the quite different functions of the transaction unit and the credit unit of the central bank fit together. The historical form of money (token, coin, note, deposit, etc.) is irrelevant for the theory of money.

    Money and debt are produced like any other good by the banking industry which can be at first reduced to the central bank alone. If, in the simplest case, interest on debt is equal to the total wage bill of the central bank then profit is zero. In this case, the rate of interest depends on the productivity of central bank. To charge interest for creating money ‘out of nothing’ is therefore in principle not different from charging a price for any other produced good/service. The credit rate of interest is in the grand scheme of things just another price. If this rate is set to zero the central bank makes a loss. Things are again different if the debit rate is set to zero.

    The case is a bit different for the creation of pure transaction money (= financing the wage bill of the monetary economy). For the special case of interest free helicopter money see (2015, Sec. 7).

    What neither the orthodox nor the heterodox would-be economists realize is the relationship between change of debt and profit/loss, which is of existential importance for the functioning of monetary economy, and how all is related to the quantity of money (2011a; 2011b).

    Not before the elementary relationship of household sector debt and money is crystal clear the case of government sector debt can be tackled. It is moronic to throw all forms of money (token, coin, note, deposit, etc.) and debt (household-, government-, business sector) together.

    Debt free money is ultimately a debt that the central bank owes to itself.

    Egmont Kakarot-Handtke

    References
    Kakarot-Handtke, E. (2011a). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL http://ssrn.com/abstract=1895268
    Kakarot-Handtke, E. (2011b). Reconstructing the Quantity Theory (II). SSRN Working Paper Series, 1903663: 1–20. URL http://ssrn.com/abstract=1903663
    Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

    * See the blog-post ‘How the intelligent non-economist can refute every economist
    hands down’
    http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html
    ** See the blog-post ‘Modern moronomic theory’
    http://axecorg.blogspot.de/2015/08/modern-moronomic-theory.html

    • December 30, 2015 at 4:39 pm

      Please, ” The credit rate of interest is in the grand scheme of things just another price.”
      NOT in the case of money issuance or bank loans.
      Then it is a tax. A mandatory payment for your own money

  7. December 22, 2015 at 6:41 pm

    Debt can specifically be a loan or an obligation of exchange of goods and/or services…as is money whatever form it takes.

    Good. Now that we’ve established this perhaps we can look at the fact that the present system creates a higher rate of flow of total costs and so prices than it does a rate of flow of total INDIVIDUAL incomes, and that this systemic condition is rapidly being exacerbated by artificial intelligence….and then resolve these realities by gifting the individual with a supplementary income not associated with employment. Then, if we’re really smart, we can gift them with a sufficient income to reduce the consumer financial market to the extent that it reduces the business model of Finance from an oppressive and manipulative monopoly to a garden variety business model like any other that exist in the economy. Finally, we can gift both consumers with a discount to prices at retail sale (which is where all costs for any item or service are terminally summed and so a discount becomes a true macro-economic tool) and retail merchants with a rebate of their total discounts to consumers thus not only eliminating inflation but actually effecting price deflation while maintaining the positive things of profit making systems and simultaneously creating a much more equitable distribution of money that not coincidentally will also enable an increasingly mechanized and AI economy to actually be functional. Doing these things will create much more than either one or both of the separate agendas of left or right have been able to produce for the last 80 plus years.

    • December 30, 2015 at 4:34 pm

      Translation: A Central Bank that safeguards the “money” of the entire community.
      A Central Bank that knows it does not own the money that is in trust, yet has the duty to make it available for transactions. A Central Bank that issues currency for transactions
      not by “creating new money” rather by ‘printing’ a physical receipt of money already owned by members of the community. A Central Bank that must be the sole issuer of these receipts
      as they are bound by the rule that they must control the quality and quantity of the community ‘money’. To create new money without the creation of new -not-owned ‘goods or services’ would be creating TWO owner for the same “value” already entrusted by the community to its Central Bank.

      “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”,(?)
      K.I.S.S.
      Create an honest Central Bank that shall fund-
      ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””
      When a honest Central Bank functions for the betterment of the community in a capitalistic economy, it will be the greatest system ever devised by mankind.

      FREE DOWNLOAD: “The Role Of Money”
      ”http://archive.org/…/role…/roleofmoney032861mbp_djvu.txt

      THE KISS SOLUTION TO DECREASE INEQUALITY GAPS, POVERTY, and NATIONAL DEBT.

      ONE SENTENCE -A CAPITALISTIC ECONOMY WITH A HONEST CENTRAL BANK.

      A BANK (GUARDIAN) THAT BORROWERS MONEY FROM ITS LAWFUL OWNERS, LENDS IT AND CHARGES INTEREST (TAX) TO SECURE AN INCOME STREAM TO TURN OVER TO CONGRESS TO USE FOR THE BETTERMENT OF ALL.

      “There never was an idea stated
      that woke men out of their stupid indifference
      but its originator was spoken of as a crank.”— Oliver Wendell Holmes, Sr.(1809-1894) American Poet

      .***Why not read and challenge a Noble Laureate ?
      **Excerpt from http://en.wikipedia.org/wiki/Frederick_Soddy
      “In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”, offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”. While most of his proposals –
      “to abandon the gold standard,
      let international exchange rates float,
      use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends,
      and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”.
      Soddy wrote that financial debts grew exponentially at compound interest…”

      ***Why not read and challenge a Noble Laureate ?
      http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

  8. December 22, 2015 at 8:04 pm

    It seems to me everyone is missing the point here. Perhaps nearest the mark is Wray’s cloakroom-ticket argument, but no-one seeing its inverted hypothetical nature and the point of it, i.e. if the token is debt-free, then the issuer [banker] doesn’t owe anyone, and if he did it is the banker who owes the depositors, not the depositors who owe the bank. The problem which reserve banking was invented to circumvent, though it cannot cope with Ponzi bubble shows closing and everyone wanting their coat at the same time. The banks actually adopt Wray’s approach, claiming the value of the real goods borrowers of liquid currency have mortaged if the borrower is unlucky enough to lose his ticket, i.e. job. Of course they also charge interest on these fraudulent contracts (invalidated, incidentally, by lack of consideration), which they money-launder by selling on their risky profit-making opportunities to pension-providers in the stock-markets. Spell out the details and it becomes very clear why we need to start again.

    Wray’s teaser on taxation is also being taken far too literally and (thanks for your conclusion, Calgagus) too little focussed on “trivia” like where the words we are using come from. In pre-Christian times, if a farmer’s harvest failed he might have to borrow seed-corn and sustenance from a more fortunate neighbour, but if it failed again he could end up selling his farm and even himself and his family to repay the debt: “jubilee years being urged to prevent undue accumulation by reversing resultant changes in ownership. The Christian alternative was to give credit from the community pot as needed, continued credit-worthiness being judged on the basis of “those who won’t work won’t eat”. Pre-Reformation taxation, “Give to Caesar that which is Caesar’s”, thus look the form of “the Divine Right of Kings” to expect of landlords the goods, services and soldiers the King needed to do his job; local church communities ran a similar system of tythes to provide for the equivalent of today’s public services. The switch to credit-money taxation (originally a tally stick recording how much each landlord could afford) served a very important mathematical purpose, equivalent to turning a set of fixed numbers into a variable. With a given amount of credit at his disposal, the King could buy goods and services if, as and where he needed them, rather than try to collect them from inconvenient places in advance of being sure of the need for them. From this evolved the rolling budget financing rates of pay rather than rewards in the form of landed property. 0f course the landlords never liked this and the kings were rarely trustworthy, so by 1694 landlords and bankers were running the government and the king had been pensioned off. Mathematically, reserve banking would have been a good move, had landlords and bankers proved any more reliable than kings.

    Tony Lawson is extremely interesting on how the socioeconomic system has developed its terminology, accomodating its diversity by means of mutual acceptance and trust. See Steve Pratten ed: “Social Ontology and Modern Economics (2015, Routledge), pp. 34-5.

    • December 26, 2015 at 1:02 am

      Dave Taylor, “It seems to me everyone is missing the point here. Perhaps nearest the mark is Wray’s cloakroom-ticket argument, but no-one seeing its inverted hypothetical nature and the point of it, i.e. if the token is debt-free, then the issuer [banker] doesn’t owe anyone…”

      Would that simply be because ‘the token’ was not created to represent ANYTHING of value for which the bearer can
      later claim ?
      As Soddy stated, “”Money now is the NOTHING you get for SOMETHING before you can get ANYTHING” (The Role Of Money)
      The ‘token’ is not a NOTHING because no one has given up anything for it.There is no debt, no liability.

      …, and if he did it is the banker who owes the depositors, not the depositors who owe the bank. The problem which reserve banking was invented to circumvent, though it cannot cope with Ponzi bubble shows closing and everyone wanting their coat at the same time. The banks actually adopt Wray’s approach, claiming the value of the real goods borrowers of liquid currency have mortaged if the borrower is unlucky enough to lose his ticket, i.e. job. Of course they also charge interest on these fraudulent contracts

      When the banks ‘print’ new issuance they are creating a liability on a liability that already exists on the money supply. If the money supply in existence today is $150 trillion,
      when the banks make loans for $15 trillion and deposit that loan amount: they have taken (albeit, temporally ), $15 trillion of that $150 trillion (who have already given up that amount which is supposed to be redeemable upon demand) and created two owners for that amount of ‘receipted’ goods and services.
      What if all the holders of todays money wanted to demand their “payment” all at once?
      Is it a fact that 97% of todays money is “Bank created” ?
      Would that be the “Systemic failure, Monetary collapse” talked about?

      “…These legally allowed … fraudulent contracts which they money-launder by selling on their risky profit-making opportunities to pension-providers in the stock-markets.

      The banks were paid trillions of dollars for the future interest income, this cash was distributed to the top 10% as dividends and profit.

      ” Spell out the details and it becomes very clear why we need to start again.”

      THE KISS SOLUTION TO DECREASE INEQUALITY GAPS, POVERTY, and NATIONAL DEBT.
      IN EIGHT WORDS: A CAPITALISTIC ECONOMY WITH A HONEST CENTRAL BANK.
      As Frederick Soddy said,
      ” So elaborately has the real nature of
      this ridiculous proceeding been surrounded with
      confusion by some of the cleverest and most
      skillful advocates the world has ever known, that
      it still is something of a mystery to ordinary
      people, who hold their heads and confess they
      are ” unable to understand finance “. It is not
      intended that they should.”
      ————————

      ————
      Reverse “ an economic recovery program that has privileged the recovery of financial markets and corporate profits has fueled the increase in wealth inequality, in the United States and across the world.”, reverse that program, make it fund “…a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”

      “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”,(?)
      SOLUTION.
      “LEGISLATE FOR “We the People” WHAT WE HAD LEGISLATED THE CENTRAL BANK TO DO FOR THE Private For Profit Banks (PFPB) ! ISSUE OUR OWN MONEY AS LOANS AND CHARGE A TAX CALLED INTEREST ! ! ! ”
      We have paid over $60 TRILLION to the Private For Profit Banks-They have given that income to the top 10%.Yes $60 trillion taken from the 95% (who ever has borrowed money). This year alone an additional $600 BILLION has been paid as an entitlement called “DEBT SERVICE”.
      Create an honest Central Bank that shall fund-
      ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””

      FREE DOWNLOAD: “The Role Of Money”
      ”http://archive.org/…/role…/roleofmoney032861mbp_djvu.txt

      -A CAPITALISTIC ECONOMY WITH A HONEST CENTRAL BANK.

      A BANK THAT BORROWERS MONEY AS THE GUARDIAN OF ITS LAWFUL OWNERS, LENDS IT, AND CHARGES INTEREST
      AS INCOME TURNED OVER TO CONGRESS TO USE FOR THE BETTERMENT OF ALL.

      Someone once said,” If you wish to complain about a problem, you should offer a solution.”

      • December 29, 2015 at 4:35 pm

        Lucky (near the top): “The ‘token’ is not a NOTHING because no one has given up anything for it.There is no debt, no liability”.

        As I understand it, few loans are unsecured, and what has been mortgaged is the direct equivalent of the theatre-goer’s coat.

      • December 29, 2015 at 10:27 pm

        Reply to Dave Taylor Quote LRW,” “Imagine a cloakroom that issues “debt-free” cloakroom tokens. You can return them to the cloakroom, but you don’t get a coat. The cloakroom attendant refuses to recognize the tokens as debt. They are your assets, but not cloakroom debts”
        This is really , perhaps ‘non sequitur’ on LRW’s part: The use of the term “cloakroom token” is by definition a receipt for someones cloak and attendant gives that up while waiting for redemption. The token is a debt that if their is no charge for it; it is Debt Free”
        it is barter, not money because there is no guarantee for exchange for ANYTHING at the same value.

  9. December 22, 2015 at 11:07 pm

    Money does not have to be debt, that is a myth that has been perpetuated too long in the interest of those who lend money into existence. You should all read Gesell’s Natural Economic Order. The line between public and private is being ignored, or intentionally blurred, but a money system in which money is created by private institutions as debt, doing so in order to make profits, i.e. for personal gain, is going be very different than money publicly created and spent into the economy for the needs of society. This is THE political issue, the revolution that has never been won. The American Revolution was won militarily but was betrayed monetarily. As Salvador Allende would say much later, “We won the revolution but we did not win the power.” The issue is, who controls the money supply, and for what? As Henry Simons said, “The mistake lies in fearing money and trusting debt.” I think MMT is the academic line of defense for the existing system of using debt for money. Money is easy to understand, they make it intentionally difficult and confusing… like Adam Smith and a host of others over the years. They oppose “debt-free” because that is the heart of monetary reform. They are natural allies of the Public Bank folks who want government to get into the banking business instead of getting the banks out of the governing business. We need modern monetary reform, not theory, and we know the basic reforms we need to begin with, which are clearly articulated in House Bill 2990, The NEED Act. We’ve all been conditioned by this system to be divided and categorized individuals with no public obligation. We need to change that and step into a new paradigm.

  10. Larry Motuz
    December 22, 2015 at 11:38 pm

    A token is not a debt-instrument. A token is a claim of ownership of an item that has been temporarily put into the possession of another; and, it must be honored as such.

    The cloakroom has no inherent ‘right of own use’ during the time the item is in its possession. Though possession usually implies a right of own use :: as when one rents a property :: this is not the case with a cloakroom or, for that matter, a laundry.

    A loan may be fiduciary :: given on trust :: or it may be secured against assets. Unlike tokens which are not even near monies, possession of a loan confers rights of own use. In a monetary society, this ‘own use’ means that monies will be used in exchange for goods and services.

    Loans always represent claims by their issuers. Those claims are debts.

    I agree fully with Norbert Häring..

  11. John Hermann
    December 23, 2015 at 12:44 am

    Dr Wray’s unfortunate remarks are linked to the Credit Theory of Money, which originated with Mitchell-Innes. This theory, which in a nutshell regards all money as a form of debt, has been subjected to considerable criticism. It seems to me that many who hold to this theory fail to recognise that bank credit money is created in several ways, not only when commercial banks lend to their retail customers. Bank credit money is also created when banks spend into the private sector, in order to accommodate their many costs (payment of share dividends, interest paid to depositors, salaries and overheads, etc.). Bank credit money is also created when a central bank buys financial assets from the private sector, including from non-banks like large institutional investors. This occurs via their open market operations, and by quantitative easing.

    • Ernest Scott
      December 24, 2015 at 5:19 pm

      Can you point me to some of these criticisms of Mitchell-Innes theory?

      • John Hermann
        December 25, 2015 at 7:43 am

        See, in particular, the section “Is all money debt? Money may be credited into existence, but does not need to constitute debt” in the paper by Prof Joseph Huber “Modern Money Theory and New Currency Theory: A comparative discussion, including an assessment of their relevance to monetary reform”

        http://www.paecon.net/PAEReview/issue66/Huber66.pdf

        Other useful sources:

        http://www.monetary.org/critique-of-innes/2012/06

        Walsh, Steven / Zarlenga, Stephen 2012: Evaluation of Modern Monetary Theory, American Monetary Institute research paper, http://www.monetary.org/mmtevaluation.

      • John Hermann
        December 31, 2015 at 2:39 am

        The point is that there is a multiplicity of ways in which bank credit money is created, not just by bank lending (which is what many monetary reformers seem to falsely assume). Bank credit money is also created when governments spend and when people use credit cards. This form of money is not generally created as debt, and therefore it is incorrect to assert (as many uniformed reformers do) that bank credit money has an interest component attached to it.

  12. December 23, 2015 at 11:34 am

    Money and debt in six elementary steps
    Comment on ‘Randall Wray attacks “debt-free-money cranks” based on sloppy arguments’

    Money has taken various historical forms (token, coin, note, deposit, etc.) and the banking system in each country is the outcome of a murky historical process. Therefore, the first thing to do is to abstract from historical detail and to define a clear-cut analytical frame of reference. This frame has been called by Keynes the ‘monetary theory of production’ and it is as close as possible to the economy we happen to live in. The frame of reference consists of the elementary structure of the monetary economy.

    (i) The pure consumption economy consists of the business and the household sector. The household sector provides the labor input to the business sector which consists initially of one firm. The product of the firm is sold to the household sector. Example: the wage income per period (e.g. year) is 100 [thousand/million/billion, euro/dollar/yen]. So, in a period of defined length the households put in their work and the firm owes in total 100 monetary units to the household sector.

    (ii) The firm issues IOUs and these are used in turn by the households to buy the output. For simplicity, the wage income of 100 monetary units is fully spent on the consumption good. Starting from zero at the beginning of each period IOUs are created by the firm and vanish completely until the end of the period. Clearly, IOUs are debt and they are used exclusively for the transactions between the business and the household sector.

    (iii) IOUs work fine with one firm but not with many firms. If the business sector consists of many firms the need for a general IOU arises. This general IOU is produced by the central bank and is called money. The central bank gives the firm money in the form of current deposits and the firm owes overdrafts to the central bank. The firm pays the workers by transferring the deposits instead of IOUs. The workers spend their income and the deposits return to the business sector which reduces the overdrafts. At the end of the period all deposits and overdrafts are again zero. So money is created out of nothing and vanishes into nothing until the end of each period. This process can continue in principle in all eternity no matter how big or small the economy is. There is no such thing as a fix quantity of money.

    (iv) Only deposits are money but, clearly, deposits are always exactly equal to overdrafts. Hence, money is the central bank’s half of what is essentially a credit relationship. Both sides of the central bank’s balance sheet are equal at any point in time by logical necessity. So Randall Wray is fundamentally right: there is no such thing as debt-free money. But note that deposit/overdraft money as transaction medium is entirely different from credit for houses and cars or for financing real investment of the business sector or for financing public deficits. Not to keep these things properly apart is a recipe for guaranteed mental breakdown.

    (v) The production of deposits and overdrafts is in principle not different from the production of bread or haircuts. The central bank pays wage income to its employees and recovers its costs by charging a transaction price. The transaction price is economically different from interest on credit. The sum of wage incomes of the consumption good producing firm and the central bank is fully spent by the household sector. There is neither saving nor dissaving of the household sector, and the profit of the firm and the central bank is zero throughout. This process can continue in in principle in all eternity. What we have is the most elementary version of a proper functioning monetary production economy (2014).

    (vi) Things are different if the central bank does not charge a transaction price but interest on overdrafts, which in sum must again be equal to its wage bill. This is how things have developed historically. And this is how the creation of money as a means of transaction became linked to interest. As a matter of principle, these things should be kept institutionally apart. In a well-designed monetary economy the central bank finances the wage bill of the business sector whatever it is and charges a transaction price that covers exactly its costs. Problems of the monetary order do not arise because money is created out of nothing, or because money is one half of a debt relationship. Problems arise because the transaction function and the credit function are not properly kept apart.

    Conclusion: Wray is right on insisting that debt-free money is a nonsensical concept. His banana and cloakroom examples, however, are idiotic. The advocates of ‘debt-free money’, on the other hand, have a valid point: the production of transaction money should not be paid for by interest but by a cost covering transaction price. For the inclusion of the store-of-value function and household-, business- and government sector debt see (2015a; 2015b).

    Egmont Kakarot-Handtke

    References
    Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517242
    Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Financial Markets. SSRN Working Paper Series, 2607032: 1–33. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607032
    Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Money, Credit, Interest. SSRN Working Paper Series, 2569663: 1–19. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2569663

  13. December 23, 2015 at 8:24 pm

    Prof Wray, “My point is that we use double entry book-keeping, and if “money” (however defined) is someone’s financial asset then it is on the liability side of another’s. Call it a “credit” (from the point of the view of one holding it), or a “debit” from the other’s point of view; or a debt; or a liability.”
    Thank you, great definition.
    Money is a physical anything you get for SOMETHING given up so you can exchange for ANYTHING at any time.?
    That physical thing (paper, coin, bananas, whatever-one wishes to surrender at todays value) actually becomes a receipt the owner is willing to accept at todays value.
    Why can’t any economist answer when asked , “What is money, simply state as Frederick Soddy stated,
    “Money now is the NOTHING you get for Something before you can get ANYTHING” (The Role Of Money)
    This should be total agreement as to what money is…a redeemable receipt. A debt to be exchanged.

    Please, once again as Soddy said, “”So elaborately has the real nature of this ridiculous proceeding been surrounded with confusion by some of the cleverest and most skillful advocates the world has ever known, that it still is something of a mystery to ordinary people, who hold their heads and confess they
    are ” unable to understand finance “. It is not intended that they should.” Frederick Soddy (The Role Of Money)
    Please bear with us.
    The words, “debt-free money” lead only to confusion and can not be debated. Money vs. Anything other than money.
    BUT:
    Please Prof Wray, not for my sake, but for the sake of mankind give more than 60 seconds to
    your magnificent contribution to… agreed to come on to say that they can achieve everything they want through ZIRP !
    Perhaps, maybe the first step to reduce the gaps of inequality, increase jobs, Income, life style .
    What a powerful voice to proclaim “that ZIRP can do this, damn it could even be fund a JG program.
    The top ten percent will not allow that to happen.
    The top ten percent will not allow the loss of this $600 billion (just in 2015 alone) ENTITLEMENT.
    Yes, Prof. Wray, $600 billion (greater than SS ?) is being paid to China, Japan and other owners (you can bet NONE of which are in the bottom 42% in poverty) just this year alone. Perhaps over $10 trillion in the last 30 years.
    WOULD THIS RESOLVE THE QUESTIONS REGARDING “DEBT FREE MONEY”
    namely Federal money while deposited in the bank—-suspends its debt liability of redemption at no cost until it is used.

  14. December 27, 2015 at 1:08 am

    Deficit spending, helicopter money, and profit
    Comment on ‘Randall Wray attacks “debt-free-money cranks” based on sloppy arguments’

    There are two fundamentally different types of profit/loss: monetary and nonmonetary. The latter stems from the change of value of assets. The former emerges in the sphere of production. It is common knowledge that the familiar profit theories are defective. As the Palgrave Dictionary sums up “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

    To this day, neither the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian sect can tell the difference between income and profit. This is not exactly a noteworthy scientific achievement of the economics profession.

    Keynes had no correct profit theory, and Post Keynesianism never realized that deficit spending is the source of monetary profits (2011). So, by fighting unemployment, Keynesians in actuality became the benefactors of business.

    How does the Invisible Hand perform this feat? To answer this question the methodologically correct approach is to take the simplest economic configuration as analytical point of departure.

    The pure consumption economy is defined for one period by three rather straightforward equations. (i) Yw=WL wage income Yw is equal to wage rate W times working hours L, (ii) O=RL output O is equal to productivity R times working hours L, (iii) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For the graphical representation see here

    At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of budget balancing, i.e. C=Yw and market clearing, i.e. X=O. Note that the ray in the southeastern quadrant is NOT a linear production function; the ray tracks ANY underlying production function. Note also that the wage rate W is an AVERAGE if the individual wage rates are different among the employees, which is normally the case. These details are of no consequence for the question at hand.

    Under the conditions of market clearing and budget balancing in each period the price is given by P=W/R, i.e. the market clearing price is always equal to unit wage costs. All changes in the system are reflected by the market clearing price. Things are different, of course, if the price is not the dependent variable.

    In the next period, the households save. The result is shown here

    Consumption expenditure C falls below Yw and with it the market clearing price P. With perfect price flexibility there are NO unsold quantities and NO change of inventory. The product market is always cleared and there is no such thing as an inventory investment. Monetary saving of the household sector is given by Sm=Yw-C.

    The business sector makes a monetary loss which is exactly equal to the household sector’s saving, i.e. Qm=-Sm. Therefore, loss is the exact counterpart of saving; by consequence, profit is the exact counterpart of dissaving, that is, of the growth of household sector’s debt. This is the most elementary form of the Profit Law. It follows directly from the profit definition Qm=C-Ym and the definition of household sector saving Sm=Yw-C. The sector balances always add up to zero, i.e. Qm+Sm=0.

    With dissaving/deficit-spending the debt of the household sector increases in each period. For simplicity debt takes here the form of current overdrafts at the central bank, which stands for the banking industry. As a mirror image, monetary profit increases the current deposits of the business sector. The stocks of overdrafts and deposits are equal at any point in time.

    Helicopter money is deficit spending without a simultaneous increase of households sector debt. To balance the accounts, the central bank enters a debt claim against itself in the books. This ‘drop of money from the sky’ in no way alters the fact that the additional household sector spending increases the profit of the business sector as a whole by exactly the same amount. Ultimately, the business sector is the beneficiary of all forms of deficit spending of the private or public households. Whether the household sector’s debt increases or is taken over by the central bank is a matter of indifference for the business sector.

    The Profit Law for the more complex investment economy reads Qm=Yd+I-Sm (2014, p. 8, eq. (18)). Legend: Qm monetary profit, Yd distributed profit, Sm monetary saving, I investment expenditure. Deficit spending of the household sector means that Sm has a negative sign, hence the effect on profit is positive -(-Sm).

    With the correct profit theory we arrive at the result that ‘QE for the people’ directly leads to an increase of the volume of financial wealth of the business sector. If employment L and productivity R remain unchanged output remains unchanged and the real situation of the household sector as a whole does not change at all through the issuance of helicopter money. If employment increases the situation of the household sector improves but total profit of the business sector remains unchanged because it is always equal to the amount of deficit spending and independent of employment, productivity, or the wage rate.

    Independently of the original intention to benefit the ‘workers’, both Keynesian deficit spending and helicopter money ultimately benefit the ‘capitalists’. In the course of time this leads to an extremely unequal distribution of financial wealth. This is what everybody can observe.

    Egmont Kakarot-Handtke

    References
    Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL http://www.dictionaryofeconomics.com/article?id=pde2008_P000213
    Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438
    Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792

    • January 2, 2016 at 9:03 pm

      “Independently of the original intention to benefit the ‘workers’, both Keynesian deficit spending and helicopter money ultimately benefit the ‘capitalists’. In the course of time this leads to an extremely unequal distribution of financial wealth. This is what everybody can observe.”
      But;If in the course of time the “money ultimately (that) benefit the ‘capitalists’ were TAXED
      for the sole purpose of redistribution; then perhaps lesser gaps could be achieved over time.Capitalism demands gaps, a democratic sovereignty demands “for the general welfare” smaller gaps.

      “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”,(?)(Pontifical Council?).
      SOLUTION.
      Create an honest Central Bank that shall fund-
      ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””
      When a honest Central Bank functions for the betterment of the community in a capitalistic economy, it will be the greatest system ever devised by mankind.

      FREE DOWNLOAD: “The Role Of Money”

      BTW, why have you never referenced SODDY ?

      THE KISS SOLUTION TO DECREASE INEQUALITY GAPS, POVERTY, and NATIONAL DEBT.

      ONE SENTENCE -A CAPITALISTIC ECONOMY WITH A HONEST CENTRAL BANK.

      A BANK (GUARDIAN) THAT BORROWERS MONEY FROM ITS LAWFUL OWNERS, LENDS IT AND CHARGES INTEREST (TAX) TO SECURE AN INCOME STREAM TO TURN OVER TO CONGRESS TO USE FOR THE BETTERMENT OF ALL.

      “There never was an idea stated
      that woke men out of their stupid indifference
      but its originator was spoken of as a crank.”— Oliver Wendell Holmes, Sr.(1809-1894) American Poet

      .***Why not read and challenge a Noble Laureate ?
      **Excerpt from http://en.wikipedia.org/wiki/Frederick_Soddy
      “In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”, offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”. While most of his proposals –
      “to abandon the gold standard,
      let international exchange rates float,
      use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends,
      and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”.
      Soddy wrote that financial debts grew exponentially at compound interest…”

      ***Why not read and challenge a Noble Laureate ?
      http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

  15. December 29, 2015 at 4:09 pm

    I must beg for consideration once again
    .Please Prof Wray,
    not for my sake, but for the sake of mankind give more than 60 seconds to
    your magnificent contribution to… agreed to come on to say that they can achieve everything they want through ZIRP !
    Perhaps, maybe the first step to reduce the gaps of inequality, increase jobs, Income, life style .
    What a powerful voice to proclaim “that ZIRP can do this, damn it could even be fund a JG program.
    The top ten percent will not allow that to happen.
    The top ten percent will not allow the loss of this $600 billion (just in 2015 alone) ENTITLEMENT.
    Yes, Prof. Wray, $600 billion (greater than SS ?) is being paid to China, Japan and other owners (you can bet NONE of which are in the bottom 42% in poverty) just this year alone. Perhaps over $10 trillion in the last 30 years.
    ********DEC. 30, 2015*****

    Entitlement For The Top 10%..for 2016 will be budgeted at over $725 Billion. Yet they will still tell you “we need to cut SS and Medicare.

    Title should read….”PLUS THE $700 BILLION DEBT SERVICE ENTITLEMENT FOR 2016.”

    Federal Reserve will pay banks $12 billion in 2016
    Yahoo Finance
    By Jared Blikre December 24, 2015 11:52 AM

    In 2016, the Federal Reserve will pay at least $12.2 billion to U.S. and foreign banks to keep the money created via its quantitative easing programs out of the economy. If the Fed raises rates as expected next year, the amount nearly doubles to $23.1 billion.
    From 2008 to 2015, the Fed purchased over $4 trillion worth of bonds to stimulate growth in the economy. Risk markets responded, as is demonstrated by the close correlation between the S&P 500 and growth of the Fed’s balance sheet through its bond purchases.
    http://finance.yahoo.com/news/federal-reserve-will-pay-banks–12-billion-in-2016-165253054.html#

  16. January 1, 2016 at 3:25 pm

    First I must apologize for having attempted to answer the questions in my own words, I am but a fool who has by chance stumbled upon a certain book that this fool believes answers all
    our questions and concerns about “The Role Of Money” as well as the role of banks.
    Please, read the exact words of the author and then, please examine the book and express any profound opinion. (FREE DOWNLOAD….. https://archive.org/details/roleofmoney032861mbp

    CHAPTER II

    THE THEORY OF MONEY. VIRTUAL
    WEALTH

    WHAT is Money ? Let us commence our
    study of the role of money by a compre-
    hensive definition of what modern money is.

    Money now is the NOTHING you get for SOMETHING
    before you can get ANYTHING.

    Our task is to understand all that this implies.
    The definition is, of course, an economic one
    referring to ordinary transactions such as earning,
    buying, and selling among ordinary folk generous
    uncles and other voluntary benefactors not being
    under contemplation and the nothing, something,
    and anything of the definition refer to things of
    real value in themselves, usually termed goods and
    services, or simply wealth, unless hair-splitting
    or purely technical distinctions turning on the
    precise definition of wealth are involved. More-
    over, it refers to ordinary people, in the sense of
    those who neither have the opportunity nor the
    power of uttering money themselves.

    As a matter of fact, this definition not only
    answers comprehensively what money now is
    but answers perfectly satisfactorily all that money
    has always been, whether it has been coin or

    24

    THE THEORY OF MONEY VIRTUAL WEALTH 25

    paper or any other form. From the point of view
    of the owner or possessor of it, money is the credit
    he has established in his favour with the com-
    munity in which it passes current or is ” legal
    tender “, by having given up in the past valuable
    goods and services for nothing, so as to obtain
    at his own convenience, in the future, equivalent
    value in turn for nothing. It is merely an ingenious
    device to secure payment in advance, and in
    a monetary civilization the owners of money are
    those who have paid in advance for definite
    market values of buyable goods and services,
    without as yet having received them.

    There is nothing mysterious about all this.
    What has been termed ” the moral mystery of
    credit “, meaning credit-money, might just as
    well be termed the immoral mystery of debt.
    For there is no credit without debt any more than
    there is height without depth, East without
    West, or heat without cold. The two are related,
    and although it takes only one to own wealth
    it takes two to own a debt, because for every
    oVraer there is an ower. Money, of course, is an
    entirely peculiar form of the credit-debt relation,
    if only because whereas all other forms are entirely
    optional, the creditor at any rate being a free
    agent to enter into this relation or not, money is
    a credit-debt relation from which none can
    effectually escape.

    Let us right from the start get the signs right.
    The owner of money is the creditor and the issuer

    26 THE ROLE OF MONEY

    of it is the debtor, for the owner of money gives
    up goods and services to the issuer. In an honest
    money system the issuer of money who gets
    for nothing goods and services would do so on
    trust for the benefit of the community. In
    a fraudulent money system he does so for the
    benefit of himself. It makes no difference whether
    he passes off the money and puts it into circulation
    himself or lends it at interest for others to pass off
    for him. In every case what he so gets to spend or
    lend is given up by someone else. Ex nihilo nihil
    fit. Nothing comes from nothing, or, in modern
    phraseology, matter and energy are conserved.

    Barter and Barter-Currencies. The invention
    of money marks a distinct step upwards in civiliza-
    tion. In barter the owner of one sort of property
    gives it up to another in exchange for another
    sort of equivalent worth. Money was able to
    replace barter not because it enabled people to
    obtain other peoples’ property without giving
    anything up, but because they had in a former
    and independent transaction already given it up.
    All the shades of distinction which money in the
    course of its evolution has passed through, from
    barter to pure credit (or debt), concern not the
    something initially given up for it, which is the
    one essential to all its forms. They concern
    merely what is received in exchange for it. This
    may vary from the full value in the form of a gold
    coin to an intrinsically worthless paper receipt,
    and nowadays not even that.

    Pages 45-47….

    … the general public is to-day too wide
    awake to the diametrically opposite interests of
    those who live by creating and destroying money,
    and of those who have to acquire it as a licence to
    live at all, to be hoodwinked any longer by such
    evasions.

    Money not now a Tangible Token. The
    distinction between what has a physical and
    tangible existence, like coins and notes, and what
    has not, like bank deposits, is a highly sinister
    and dangerous one, but it is not a distinction
    between what is money and what is not. A legal
    right of action against a bank to supply money
    on demand is to the owner of it as effective as
    money itself and usually more convenient. It is
    of no great significance that the bank is able
    to cancel, by the cheque system, the bulk of the
    cheques drawn on it against those paid into it,
    so as to dispense with tangible money altogether
    except for the difference between the two amounts.
    This merely substitutes for an automatic system
    of accounting by physical counters a clerical
    book-keeping system which is fraudulent because

    46 THE ROLE OF MONEY

    it does not start reckoning from zero but from
    some continuously varying negative value.

    Money is a right of action against the com-
    munity to supply goods and services or, what is the
    same thing, to discharge the debt incurred through
    obtaining them from the vendor, so that a right
    of action against a bank to supply money on
    demand is a right of action against the com-
    munity to supply goods and services on demand.
    Every ordinary person, of course, knows that
    money is a claim to goods and it is of no practical
    importance if, in theory, he has to claim that claim
    from a bank before he can claim the goods. One
    might as lief argue that a bicycle left in a cloak-
    room was not a bicycle but a right of action against
    the railway company to supply a bicycle. The
    highly sinister and dangerous distinction refers
    not to the aspect usually stressed, nor to that so
    far stressed in this chapter, but rather to the origin
    of the money and, if it is destroyed, to its
    destruction.

    The definition of modern money with which we
    started makes clear that before it can come into
    existence some one has to give up something for
    nothing to the issuer of it in the first instance,
    and the aggregate the community so gives up is
    called the Virtual Wealth of the community.

  17. January 6, 2016 at 3:49 pm

    Please, any profound opinion.
    Excerpt from recent blog,re ‘debt free’ issuance.(Great but I believe Soddy whould slightly disagree with the author and Fisher because their is no accountability for the government
    ‘creating’ new value ‘out of thin air’ which is impossible. This creation must be returned to ‘thin air’ or it is will remain value with two owners.)
    The real solution is a honest central bank that as guardian of the entire community value (money) temporally issues new money must have an attachment in order to return it.
    *******”The Federal Government Does Not Create Money
    We do not use government-issued fiat money, positive sum money that is “spent” into existence, where the money supply is not owed as repayment debt to the money-issuer.
    Fiat money is not issued as “credit” that is owed as “debt” within a zero sum balance sheet equation. Fiat money is issued as net positive sum “money” that is not owed to “anybody”.
    MMT is not alone in believing balance sheet money is some kind of inviolable law of the universe, so that money cannot exist without an equal amount of debt existing. If all assets are also liabilities, and if money cannot be anything other than a financial asset, then all money is debt. As balance sheet inverse twins of each other, money and debt come in “linked pairs”. One cannot exist without the other.
    MMT claims to be describing a fiat money system where “the government issues the money supply” as linked pairs of financial assets and liabilities. MMT believes there is no other way that fiat money can come into existence. Debt-free money is “a non-sequitur in search of a policy”. Wray — trapped inside the zero sum paradigm ofcorporate balance sheet accounting — sees a logical mismatch between “debt-free” and “money”.
    But wait.
    True Fiat Money Has Existed
    Starting in 1690 colonial governments issued those very non-sequiturs in the form of debt-free scrip money. The government simply printed up the money, and spent it buying from the economy whatever the government needed. Benjamin Franklin is often associated with government creating and spending — “issued” — off balance sheet money, money that was not issued as a repayable “debt” owed to the money-issuer.
    Franklin did not violate the laws of reality. The space-time continuum held. The Almighty Balance Sheet did not demand Franklin pay its money back. God expressed no outrage (though bankers did), so no commandments were broken.
    Franklin simply “issued fiat money”. Lincoln did too, to money-fund rather than debt-finance the North’s Civil War effort, to circumvent the ruinous 24-36% interest rates bankers demanded for loans of their ‘gold-backed’ credit/debt money. The South issued their own graybacks for the same reason.
    Franklin’s and Lincoln’s governments issued their own debt-free fiat money, instead of borrowing balance sheet money from banks.
    The “policy” of that “non-sequitur” was to pay for what the government needed by issuing spendable money rather than by taxing the people and rather than borrowing bank-issued credit/debt; and in the same process the fiat money-issuance policy provided the economy with a supply of debt-free and interest-free fiat “money” to use. This was in lieu of the bankers’ repayable loans of interest-bearing credit/debt money.
    So the non-sequitur found its policy.
    Some call it monetary democracy.
    Or monetary sovereignty: governments issuing money as positive sum “money”, instead of banks issuing zero sum repayable credits as debts.
    Government-issued fiat money is a positive sum alternative to the commercial bank-issued zero sum credit/debt monopoly.
    http://econintersect.com/pages/opinion/opinion.php?post=201512300112

    • January 8, 2016 at 3:39 am

      Justaluckyfool: Like anybody else who makes weird distinctions between money & debt, like any “debt-free money” fan, like anyone who thinks there is something wrong with MMT or accountancy he is simply not using ordinary words with their ordinary meanings, but confusing himself by random, purposeless misuses. Unfortunately this weird way of speaking is very widespread in talking about money & economics, because nobody wants to admit they have no idea!

      BTW, Soddy was an honest man, was mostly right and the MMTers have read & do credit him. I’d appreciate it if you could shorten your posts on him a bit though. Though I would say that being such a Soddy fan makes you less confused than many commenters above. Just avoid the debt-free psychosis.

      Abe Lincoln: If I called a dog’s tail a leg, how many legs would a dog have?
      Answer: Five, I guess.
      Abe: No, four. Calling a tail a leg doesn’t make it one.

      What the debt-free people are doing is more like calling one of a dog’s legs “a tail” and fanatically insisting that all dogs have three legs. No wonder those poor dogs don’t hunt!

  18. January 8, 2016 at 4:42 pm

    Calgacus commented on Randall Wray attacks “debt-free-money cranks” based on sloppy arguments. in response to justaluckyfool:
    “Justaluckyfool: Like anybody else who makes weird distinctions between money & debt, like any “debt-free money” fan, like anyone who thinks there is something wrong with MMT or accountancy he is simply not using ordinary words with their ordinary meanings, but confusing himself by random, purposeless misuses. Unfortunately this weird way of speaking is very widespread in talking about money & economics, because nobody wants to admit they have no idea!
    BTW, Soddy was an honest man, was mostly right and the MMTers have read & do credit him. I’d appreciate it if you could shorten your posts on him a bit though”

    First and foremost, Thank you for your reply and I must thank Rwer for allowing dialog on their site.
    I am an almost 80 year old “fool” who just by chance discovered the writings of Frederick Soddy.
    I have no right to a valid opinion in these discussions. I feel that I have a moral obligation to quote
    Frederick Soddy because…”***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),
    As for your statement…”BTW, Soddy was an honest man, was mostly right and the MMTers have read & do credit him.”
    ….”was mostly right”…? What part of his definition of “The Role Of Money” was right and what part was wrong?
    Please, since I have received this burdon, I have been tormented by my inability to get answers, so I plead for your help for peace of mind…” due examination and analysis”.
    As for your statement, ” MMTers have read & do credit him.”
    Where, when, and how??
    MMTers are diametrically opposed to Frederick Soddy’s basic theory (A fools opinion of actual now proven fact).
    I must beg for forgiveness while at the same time make use of this wonderful forum. I must answer not in my unworthy
    voice but rather n the words of Frederick Soddy,

    It is important to realize that whichever way it
    works it is a case for the bank of ” Heads I win,
    tails you lose “. Moreover, the money in which

    6 2 THE ROLE OF MONEY

    they are repaid is, on the average, worth more in
    goods than that which they create to lend.

    There was essentially nothing new in this, or
    different in principle from lending ” promises-
    to-pay-gold ” instead of gold itself, save that the
    banks avoided the necessity of giving printed
    receipts for the goods and services their borrowers
    obtained for nothing, and there was a secret instead
    of open creation of money. Instead of lending
    notes, the banks, in effect, now lend cheque-
    books and the right to draw cheques up to limited
    sums beyond what the borrower possesses. For
    nearly a century, until the revelations of the War
    made it impossible to conceal the truth from the
    general public, the bankers stoutly denied that
    they were creating money at all, and claimed that
    they were merely lending the deposits their
    clients were not using. The President of the Bank
    of Montreal not a year ago continued to repeat
    this, but, nearer the centre of things, all this was
    known and admitted by the orthodox apologists
    for this monstrous system even before the War,
    usually by some such lying phrase as ” Every
    loan makes a deposit “.

    Genuine and Fictitious Loans. For a loan, if it
    is a genuine loan, does not make a deposit, because
    what the borrower gets the lender gives up, and
    there is no increase in the quantity of money, but
    only an alteration in the identity of the individual
    owners of it. But if the lender gives up nothing
    at all what the borrower receives is a new issue

    THE EVOLUTION OF MODERN MONEY 63

    of money and the quantity is proportionately
    increased. So elaborately has the real nature of
    this ridiculous proceeding been surrounded with
    confusion by some of the cleverest and most
    skilful advocates the world has ever known, that
    it still is something of a mystery to ordinary
    people, who hold their heads and confess they
    are ” unable to understand finance “. It is not
    intended that they should. But if, instead of
    trying to puzzle it out along the lines of ” what
    you get for money “, these people will reverse
    the procedure, as in this book, and do so on the
    of ” what you give up for it “, the trick is clear
    enough.

    The evils of genuine usury in the Middle
    Ages, through the shortage of the precious metals
    and insufficiency of the medium of exchange,
    cried aloud to heaven for redress. But the genuine
    usurer did at least give up what he lent and that
    for which he received interest, whereas the banker
    does not, but levies upon the goods and services
    of the nation for what he pretends to lend and
    upon which he receives interest. It is bad enough
    to be put in the grip of the money-lender who
    does lend his money, but it is a million times
    worse to be in the grip of the pretended money-
    lender who does not lend his own money
    but creates it to lend and destroys the means of
    repayment just as fast as the debtors succeed in
    repaying it. This is a surrender of the powers
    of life and death over the nation’s economic
    life into the hands of irresponsible impostors. “

    • January 12, 2016 at 10:56 pm

      Lucky, it may please you to know that Philip Mirowski, before drawing the moral of his story, finishes his delightful and most informative history of economic concepts, “More Heat than Light” (pp. 394-5), with an appreciation of Frederick Soddy, among others:

      “One of the most striking and least noticed aspects of the history of anti-neoclassical thought in the twentieth century is the sheer volume of scientists – that is, research workers trained in physics, chemistry and biology – who have been under the impression that … the only true economic value is energy. … Although we shall not grapple with these texts in this volume, it is imperative that the reader not write them off as irrelevant or simply quirky. In order to truly understand the impasse of neoclassical economic theory, we must appreciate that the importation of physical metaphors into the economic sphere has been relentless, remorseless, and unremitting in the history of economic thought”.

  19. January 13, 2016 at 12:18 am

    With a deep appreciation, and thanks.
    Gandhi’s famous quote:
    “First they ignore you, then they ridicule you, then they fight you, and then you win.”
    And therefore, I do believe that Soddy’s works will prevail.

    • January 13, 2016 at 3:30 am

      MMTers are diametrically opposed to Frederick Soddy’s basic theory ,

      As I suggested, this is not true, does not give MMT ” due examination and analysis”. MMT has absorbed & refers to Soddy. But the very first place to start is to use ordinary words in their ordinary meanings, to not change their meanings in a crazy inconsistent way as soon as one talks about money – completely confusing oneself in the process, as many of the above commenters and the author of this piece do. MMT does this very first thing, but very few other writers do. So this goes a tremendously long way.

      One thing Soddy & many others were wrong about is the sequence from barter & real exchange to credit. Credit/debt is ancient & fundamental & simple- everything else is more complicated and derived. Allied is the use of the phrase “medium of exchange”. There is no medium of exchange, there never was one. It is credit all the way down.

      • January 13, 2016 at 4:49 pm

        Calgacus,”MMT has absorbed & refers to Soddy.”
        Thank you, but please as I am a fool, I do not wish to express an opinion so I ask;
        Where in MMT does it state any agreement or rebuttal to ..”Genuine and Fictitious Loans”.
        (Please forgive the length of my responces, I am compled to use direct quotes)
        MMTers are diametrically opposed to Frederick Soddy’s basic theory (A fools opinion of actual now proven fact).
        I must beg for forgiveness while at the same time make use of this wonderful forum. I must answer not in my unworthy
        voice but rather n the words of Frederick Soddy,

        It is important to realize that whichever way it
        works it is a case for the bank of ” Heads I win,
        tails you lose “. Moreover, the money in which

        6 2 THE ROLE OF MONEY

        they are repaid is, on the average, worth more in
        goods than that which they create to lend.

        There was essentially nothing new in this, or
        different in principle from lending ” promises-
        to-pay-gold ” instead of gold itself, save that the
        banks avoided the necessity of giving printed
        receipts for the goods and services their borrowers
        obtained for nothing, and there was a secret instead
        of open creation of money. Instead of lending
        notes, the banks, in effect, now lend cheque-
        books and the right to draw cheques up to limited
        sums beyond what the borrower possesses. For
        nearly a century, until the revelations of the War
        made it impossible to conceal the truth from the
        general public, the bankers stoutly denied that
        they were creating money at all, and claimed that
        they were merely lending the deposits their
        clients were not using. The President of the Bank
        of Montreal not a year ago continued to repeat
        this, but, nearer the centre of things, all this was
        known and admitted by the orthodox apologists
        for this monstrous system even before the War,
        usually by some such lying phrase as ” Every
        loan makes a deposit “.

        Genuine and Fictitious Loans. For a loan, if it
        is a genuine loan, does not make a deposit, because
        what the borrower gets the lender gives up, and
        there is no increase in the quantity of money, but
        only an alteration in the identity of the individual
        owners of it. But if the lender gives up nothing
        at all what the borrower receives is a new issue

        THE EVOLUTION OF MODERN MONEY 63

        of money and the quantity is proportionately
        increased. So elaborately has the real nature of
        this ridiculous proceeding been surrounded with
        confusion by some of the cleverest and most
        skilful advocates the world has ever known, that
        it still is something of a mystery to ordinary
        people, who hold their heads and confess they
        are ” unable to understand finance “. It is not
        intended that they should. But if, instead of
        trying to puzzle it out along the lines of ” what
        you get for money “, these people will reverse
        the procedure, as in this book, and do so on the
        of ” what you give up for it “, the trick is clear
        enough.
        END OF QUOTE FROM “The Role Of Money.”

  20. John Hermann
    January 13, 2016 at 4:20 am

    Calgacus,

    I will start by stating that I accept the thrust of MMT and what I regard as its essential features. The most important one being that only a sovereign government can create net financial assets, which it does whenever it deficit spends. However I do not see the Mitchell-Innes credit theory of money as being one of those essential features.

    The absurd debate about Soddy (who was a visionary) is a mere distraction from the main issue.

    The dismissal, by you and Randy Wray, of those who view money differently as misguided cranks does not help in any way. This does not imply that uninformed fanatics do not exist within the ranks of monetary reformers, however it should not be generally assumed that this is the case.

    In regard to the correct use of ordinary words, I would submit that you are guilty of conflating the meanings of credit, debt, liability and money. They are in no way synonymous. And it beggars belief that you do not seem to be aware of this.

    You should also be aware that there is no general agreement about the definition of money — even amongst those who are fully informed and have thought deeply about the issue. Therefore my view in this regard is at least as good as yours, and it demeans you to label those with whom you disagree as cranks.

    Let me be more precise. In my view you are dead wrong about “medium of exchange”. There is a respectable point of view to the effect that currency held by the public is neither credit, nor debt, nor a liability to the central bank or the government. I have read several independent critiques of the application of an accounting convention to the central bank and to government identical to that employed in the non-government sector. This amounts in part to saying that the description of currency on issue as a liability is flawed and arguably misconceived. I am well aware of arguments concerning its supposed acceptability for the payment of taxes being a government liability, and also of its supposed status as a liability to society as a whole. I will expand on this theme if you are interested.

    • January 13, 2016 at 4:59 pm

      John Hermann, “The absurd debate about Soddy (who was a visionary) is a mere distraction from the main issue.”
      Maybe, perhaps Gandhi got it right… “Gandhi’s famous quote:
      “First they ignore you,”
      BTW let me quote you, “In regard to the correct use of ordinary words, I would submit that you are guilty of conflating the meanings of credit, debt, liability and money. They are in no way synonymous. And it beggars belief that you do not seem to be aware of this.”
      ****why do you deny Soddy, his just do ?***
      “So elaborately has the real nature of
      this ridiculous proceeding been surrounded with
      confusion by some of the cleverest and most
      skillful advocates the world has ever known, that
      it still is something of a mystery to ordinary
      people, who hold their heads and confess they
      are ” unable to understand finance “. It is not
      intended that they should.” Frederick Soddy (The Role Of Money)
      Why would you not honor…..*** BUT, why not read and challenge a Noble Laureate for Physics and challenge ? ******Excerpt from http://en.wikipedia.org/wiki/Frederick_Soddy
      “In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”[this quote needs a citation], offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”[this quote needs a citation]. While most of his proposals – “to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”[this quote needs a citation]. Soddy wrote that financial debts grew exponentially at compound interest…”

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