Has David Graeber become a currency crank?

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jura's picture
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Apr 16 2014 08:28

Realize and create, all the same, right, alb...

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Apr 16 2014 13:32

OK, lets deal with the main point of contention

alb wrote:
ocelot wrote:
edit: from that Keen piece linked above -

Quote:
the model Krugman understood back then was the model of 'loanable funds', in which increasing debt can’t add much to aggregate demand, because debt simply transfers spending power from a lender to a borrower.

This seems to me to be similar to the position you are advocating, unless I'm mistaken?

Yes, I suppose I am saying something similar to that. As John Stuart Mill pointed out ages ago[...]
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I do hold the view that commercial banks are like what you concede building societies, credit unions, payday loan sharks and other moneylenders are in that they are only re-distributing already existing purchasing power which arose out of production as profits or wages. There is only one kind of bank that can create purchasing power "ex nihilo" and that is the central bank on behalf of the government. But this is not the equivalent of creating new wealth, only new claims on wealth. If the central bank creates too much extra purchasing power the result is a rise in the general price level, or inflation.

Well that is the conventional neoclassical view of "loanable funds" plus exogenous money created by the central bank alone. As supported by Krugman and most neoclassical macroeconomic textbooks.

In fact in some ways I've been a fool arguing this from my own knowledge and understanding, without going back to the original Bank of England report that sparked Graeber's Guardian article and hence this thread. However in another way I'm glad I didn't go back to it until now, as the exercise was useful for clarifying things for me. But even though I now know there are some details about the regulations governing credit unions, payday loan and credit card firms I would like to look into closer, as well as when building society regs changed to allow them to become more like banks (which I think happened somewhere between 1970s and 1990s at a guess - prior to demutualisation, I think), its time to just go to what the experts in banking regulations, financial accounting and bank practices actually say.

The relevant report is here - BoE: Money creation in the modern economy

BoE wrote:
Two misconceptions about money creation
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The vast majority of money held by the public takes the form of bank deposits. But where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them. In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.
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In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services. Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.(3)
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Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. In that view, central banks implement monetary policy by choosing a quantity of reserves. And, because there is assumed to be a constant ratio of broad money to base money, these reserves are then ‘multiplied up’ to a much greater change in bank loans and deposits. For the theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves. While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality. Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates.
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In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. As with the relationship between deposits and loans, the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England. It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England. The rest of this article discusses these practices in more detail.

(emphases in original)

So I recommend reading that report in full.

The accompanying BoE: Money in the modern economy: an introduction may also be of interest.

alb
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Apr 16 2014 22:33
jura wrote:
Realize and create, all the same, right, alb...

No, not at all.

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Apr 17 2014 11:46

OK, getting back to the other point of contention (and imo the more interesting one, well, ok, a bit more interesting...)

alb wrote:
ocelot wrote:
Profits do not "arise" out of production alone - this is the orthodox fallcy of taking the primacy of production as regards surplus value too literally. Yes surplus value is created in potentia in production (and there alone) but it still has to be realised in the moment of circulation, i.e. ...C' - > M' (this is why Volume 2 is so important, nothing worse than Volume 1 "Marxism"...). And in the full cycle there is the question of whether that surplus value is realised by a corresponding expansion of the money supply (through banks and now shadow banks credit creation) or the money supply is inelastic, in which case we get a problematic deflation dynamic.

.

ocelot wrote:
However what appears as "ex nihilo" is really the form of appearance of surplus value. The Zeitgeisters mistake that form of appearance for the thing itself - i.e. it is exploitation - however any value-informed analysis sees surplus value as conceived in production albeit actualised in the sphere of circulation where it "appears" to the superficial eye.

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I don't really understand what you are trying to say here, but it sounds dubious. Banks supply the money to realise surplus value? I've not read that in Volume 2 of Capital (nor in Volume 3). If banks could do that it would undermine the whole labour theory of value that wealth and value can only be created by some people applying their mental and physical energies to materials that originally came from nature. This in fact is the basic reason why socialists/communists need to oppose "currency crank" and "banking mysticist" theories which suggest that banks can actually create new value.

Regardless of whether the expansion of the monetary stock (as opposed to its rate of flow - another problem entirely) takes place purely within the central bank (the exogenous/Krugman position) or primarily through the lending activity of private banks (the endogenous/BoE position), we accept (as do even the monetarists... but not the goldbugs) that this expansion has a related effect (although exactly how related is a major problem*) on the expansion of the money supply. And that if the expansion of the money supply is slower than the growth in the economy, deflation results, and if faster, inflation.

Given that growth is expanded accumulation, i.e. reproduction of existing values plus aggregate surplus value, we can say that in dynamic equilibrium of growth of both the real economy and money supply, that the additional money is being created to realise surplus value. Realise is not creation. In Marx's account there are two moments in the creation of value - the moment of production (...P...) where concrete labour embodies concrete labour time into the object of production, followed by the moment of exchange (...C'-M') where by finding a buyer the object of production is validated as an aliquot part of social production (in the contradictory mode of private production and appropriation) and thus concrete labour is transformed into abstract labour and concrete labour time participates in the determination of socially necessary labour time. If the object of production does not find a buyer, then all the capital invested into the means of production, including labour power, used up in its production has been for nought and no value has been created. Jura can find you the necessary Marx quotes if you need (we've been over this many times in repeated value threads in the past).

This is in contrast to what I would call the "catholic" theory that, like life, value begins at conception - i.e. in the moment of production, regardless of any success or failure in the subsequent moment of exchange. This is what I'm talking about in the difference between volume 1 and volume 2. Volume 1 deals mainly with the value-form (wertform) at a level of abstraction looking mainly at its essence. Whereas in volume two we look at value-in-process (wert-im-prozess), i.e. in its dynamic motion through the moments of its reproduction, as taken in its three different forms (depending on the moment taken as alpha & omega, beginning and end) - which for Marx correspond not only to different understandings of the cycle, but actually reveal different sides to the process (as opposed to a "one-sided" analysis, which for Marx is always the sign of an undialectical and thus incomplete picture). So yes, it's no wonder that the believers in the substantialist, embodied labour or "catholic" notion of value, don't understand volume 2 - at least not part 1 - to any degree (and this is also a fault in Heinrich's introduction, imo, but I digress...).

So, no, banks do not create the value their new money realises. That value is conceived in production and must be realised in exchange, and the creation of money facilitates that. Which is not to say that surplus value cannot be realised without the creation of money, but deflation creates systemic problems, not least the difficulty of obtaining operating credit for production, not to mention the drastic effects on aggregate demand and so on.

* Incidentally, it's notable that when the BoE under the new Thatcher regime after 1979 first tried to apply Friedmanite monetarism by targetting actual money supply measures, they targetted M1 (bank deposit money) rather than M0 (base money). Thus implictly admitting that they knew changes in M0 did not directly drive M1 up and down through a "money multiplier". They also quickly switched from targetting M1 to managing price stability - a second effective admission that money stock does not control money supply sufficiently directly for monetary policy purposes. Conceptually this is simple to imagine. Imagine A capitalist with 200 peanuts and his ten workers who he pays ten peanuts each a month. Every month the capitalist pays his workers a total of 100 peanuts, through the month they spend their peanuts on the capitalists products (that they make) so he gets his peanuts back. Then a recession hits and the capitalists cuts his workers wages to only 5 peanuts a month. At any one time the total (M1) of peanuts is still 200, but the velocity of peanuts has halved and so, has the money supply (and effective demand). OK it's not a full picture, but the basic point - that stock is not flow and the velocity of money (and hence supply) changes according to economic conditions - remains.

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Apr 17 2014 14:14

It's prozessierender Wert BTW.

alb
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Apr 17 2014 15:41
ocelot wrote:
And that if the expansion of the money supply is slower than the growth in the economy, deflation results, and if faster, inflation.

Given that growth is expanded accumulation, i.e. reproduction of existing values plus aggregate surplus value, we can say that in dynamic equilibrium of growth of both the real economy and money supply, that the additional money is being created to realise surplus value.

This sounds a bit like the false problem Rosa Luxemburg tried to tackle of where is the money to come from to realise all the surplus value created in production. And ended up giving an underconsumptionist theory of capitalism. Does "additional money" really have to be created to "realise" surplus value? I don't think so. Surely realising surplus value is a problem of exchange not of the means of exchange.

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Apr 17 2014 16:39

You're basically not listening to a word I say, other than to try and shoe-horn it into one of a few preselected boxes you think you already understand as wrong. For e.g. you blatantly ignored "Which is not to say that surplus value cannot be realised without the creation of money" when you asked, rhetorically (and obtusely) "Does "additional money" really have to be created to "realise" surplus value?"

Absolutely nothing to do with Luxemburg or underconsumptionism. Other than that Luxemburg used words and I too am using words - "Aha - sounds connected. Must be connected. Must therefore be the same thing. Here is a pre-prepared argument against Luxemberg..." . We're into Comrade Appleton territory at this stage. Any more and I will ask omen to make a cartoon.

Anyway diminishing returns has clearly been reached in this particular exchange. My next post on this topic will be looking back at Graeber, Pilkington and MMT. i.e. going back to the OP.

alb
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Apr 18 2014 03:56

If I've misunderstood you I've misunderstood you, but I don't think so. And I never said that you embraced Luxemburg's underconsumptionism but merely that you were dealing with the same perceived problem as her of where does the money come from to realise surplus value. Your proposed answer is not the same as hers, if only because she did not think that banks could create money out of thin air. (If she had, that would have solved her perceived problem). So, agreed, let's forget her.

What you concluded was:

ocelot wrote:
So, no, banks do not create the value their new money realises. That value is conceived in production and must be realised in exchange, and the creation of money facilitates that. Which is not to say that surplus value cannot be realised without the creation of money, but deflation creates systemic problems, not least the difficulty of obtaining operating credit for production, not to mention the drastic effects on aggregate demand and so on.

Correct me if I'm wrong but I take this to mean that if the banks did not create ex nihilo enough money to buy the part of production embodying surplus value then there would be a serious economic problem.

Since in Marx's day money was gold or silver and notes convertible on demand into a fixed amount of these (so he wouldn't have seen bank loans as money) and since Marx did not think that banks can create credit out of nothing (he saw them as financial intermediaries), I can't see how you can attribute this view to Marx.

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Apr 18 2014 07:52
ocelot wrote:
We're into Comrade Appleton territory at this stage. Any more and I will ask omen to make a cartoon.

jcopley
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Apr 18 2014 11:20

I have enjoyed reading the posts on this forum, because they have been quite sophisticated in terms of monetary theory. But I think we need to emphasise more the totality of capitalist social relations, based upon the creation of surplus-value in the sphere of production. Otherwise we are in danger of fetishising the sphere of credit, as Graeber does.

There is no question that deposits do not act as a limit to financial lending. "There's really no limit on how much banks could create, provided they can find someone willing to borrow it". This is a true. It is immediately evidenced by the fact that the period of financialisation from 1973 onwards was accompanied by a secular decline in household savings.

However, it simply does not follow that:
1) "there's no question of public spending "crowding out" private investment. It's exactly the opposite".
2) this insight has "effectively thrown the entire theoretical basis for austerity out of the window".

This is because the wealth of a capitalist economy is entirely dependent upon the exploitation of labour for a surplus though the production process. This process is fraught with possibilities of breakdown, either through the falling rate of profit due to labour-replacing technology, the expansion of production beyond the limits of the market, or working class agitation at the expense of capitalist surplus. The credit system can at first appear to have the magical power to suspend these contradictions, as Simon Clarke writes, but it is ultimately limited by the possibility of value creation. In turn, the continuation of value creation necessitates the periodic disciplining of labour and recreation of the conditions of accumulation.

Graeber correctly points out, here and in the original article, that governments have been creating huge volumes of credit since the crisis, with no sign of inflation. Does this prove him right that austerity is simple ideology? No. Inflation has been non-existent because growth has been incredibly weak, fuelled by declining rates of investment, fuelled - ultimately - by weak profitability. There was no threat of inflation in the 7 years leading up the financial crisis, does that mean that the credit creation during that period was sustainable?

Peter Burnham hits the nail on the head: "as accumulation stagnates productive capital seeks to overcome barriers to accumulation through increased levels of borrowing; the expansion of credit in other words is adopted as a measure to postpone crisis...; however, since accumulation based on credit is feasible only on the expectation of some future extraction of surplus value, the increased separation between financial and productive accumulation inevitably becomes unsustainable in the face of mounting bad debt; the result is a massive destruction of fictitious capital (credit crunch) expressed as a banking crisis, the destruction of inefficient capital, mass unemployment and a global downturn; finally, the crunch can only be addressed through increased levels of state debt (recapitalisation and appropriate monetary and fiscal policies) which in turn must be replaced by tighter monetary policies to re-impose at least temporarily the discipline of the market and so begins a new cycle of class recomposition, economic development and renewed crisis".

I think Graeber's points with regards to the nature of austerity and the limits to credit creation are incompatible with the labour theory of value. Nevertheless, he is a comrade and I don't think it's productive to engage in the kind of name-calling that has been undertaken here. We can hold different opinions without being charlatans, cranks or the like.

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Apr 18 2014 19:55

Unrelated to OP, but still disappointing to see from Graeber:

http://www.pbs.org/newshour/making-sense/why-americas-favorite-anarchist...

Quote:

So you think the market is so skewed that a dramatic move against it would be an improvement?

Yes… If everybody has the same means to vote, then the market will actually represent what most people want.

When they’re voting with their dollars?

Yeah, exactly.

alb
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Apr 19 2014 05:14
jcopley wrote:
There is no question that deposits do not act as a limit to financial lending. "There's really no limit on how much banks could create, provided they can find someone willing to borrow it". This is a true. It is immediately evidenced by the fact that the period of financialisation from 1973 onwards was accompanied by a secular decline in household savings.

It is true that deposits from household savers do not act as a limit to bank lending, but this is because they are not the only source of the funds banks lend. They can themselves borrow money from the money market. In fact, over the years this source of funds has increased as a proportion of what banks lend. Even, in Britain, building societies which rely more heavily on household savers, have been permitted to borrow from the money market up to 20% of what they lend. Only credit unions have to rely entirely on household savings for what they can lend.

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Apr 19 2014 10:12

Ok, I've now read the two BoE pieces on this. I think Graeber either seriously misunderstands or misrepresents (or just read the summary and not the detail of?) the BoE papers. For example:

Graeber wrote:
There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short

The BoE paper has an extended discussion of these limits. The overview, on page one, says "Although commercial banks create money through lending, they cannot do so freely without limit." This is expanded in the text: banks only make profitable loans, dependent on the spread between cost of funds and interest charged; individual banks need to competitively attract deposits to avoid depleting reserves, which puts up the cost of funds; banks need to manage liquidity risks (not having enough liquid assets to meet liabilities) and credit risks (borrowers defaulting or missing payments); banks also need to meet regulatory requirements, explicitly because market forces can lead to them getting 'caught short'; there's also the limit that borrowed funds are either used to pay down debts (which destroys money but isn't inflationary), or is used for spending ('the hot potato effect') which can boost economic activity but with inflationary potential (thus pushing up interest rates, the cost of funds etc). The piece finally argues that the ultimate limit on money creation is the central bank's monetary policy.

This is very different from 'no limit', 'can't get caught short'.

Graeber wrote:
In fact, with "quantitative easing" they've been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

This is what makes me think he might not have read to the end, since there's an extended discussion of why this is a common misconception. The Bank might be wrong, but Graeber doesn't critique their argument, he apparently endorses it as remarkably honest, yet it argues explicitly that QE is not 'pumping money into banks'. If you're a bit mystified as to what QE is, the bank paper is very clearly written. According to the BoE, "QE works by circumventing the banking sector, aiming to increase private sector spending directly", and banks function only as middle men (since non-bank financial institutions like pension funds can't hold central bank reserves).

Graeber wrote:
What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this

The bolded bit seems to be the key to Graeber's position here, and this isn't drawn from the paper, it's just asserted. I would have thought willingness to borrow for different actors is based on the following: governments - anticipated economic growth and tax revenues; firms - profitable investment opportunities; ordinary citizens - income, job security, house prices. In other words it all devolves back to an expanding economy, capital accumulation. I don't rule out that state borrowing and spending could provide a counter-cyclical stimulus (i.e. Keynesianism), though that's where the existing levels of state debt matter: if money markets don't believe that economic growth will allow states to pay down debts then the cost of further borrowing for states (the interest rate on bonds) will be high. Hence the sovereign debt crisis.

But more to the point, the argument about the possibility of a Keynesian fix for the crisis doesn't really have anything to do with the BoE "letting the cat out of the bag" about how money is created. It's not at all obvious - and imho Graeber doesn't come close to demonstrating - why an acknowledgement of how money creation works means austerity is unnecessary and basically limitless money can be conjured up to fund social programs.

alb
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Apr 20 2014 06:30

Those are precisely the points (especially the last) I was trying to make earlier in this thread.

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Apr 24 2014 05:17

in "The Democracy Project" Graeber claims that virtually no profits are made in manufacturing, that virtually profits are made in the financial sector. I suspect this also revolves around the question *where* profits are realized. He takes finance outfits of manufacturers (like GM) as part of financial sector, but this is wrong. The fees, interest, they make in financing auto sales are simply a way that the consumer pays the manufacturer.

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Apr 24 2014 19:41

Financial Times editor Martin Wolf is now calling to Strip private banks of their power to create money.

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Apr 25 2014 22:10

I think Graeber ignores the various deflationary pressures in the economy, which account for why vast money creation didn't lead to inflation. This includes home owners in arrears on mortgages, mortgage write downs, a big increase in people being pursued by collection agencies, the reduction in the willingness of banks to lend, tightening up of credit standards for things like mortgages, very high levels of unemployment that reduces demand.

Historically when crashes have punctured major bubble periods in the past, there has been serious deflation, due to all sorts of deleveraging, bankruptcy, mass unemployment. Actual monetary deflation has been avoided this time due to the vast money creation pumped by the Fed.

alb
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Apr 28 2014 08:47
Joseph Kay wrote:
Financial Times editor Martin Wolf is now calling to Strip private banks of their power to create money.

Interesting reply to Wolf here.

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Apr 29 2014 11:10
alb wrote:
Joseph Kay wrote:
Financial Times editor Martin Wolf is now calling to Strip private banks of their power to create money.

Interesting reply to Wolf here.

Despite the initially off-putting tone, Worstall's criticism re seignorage is correct. But that's only a small part of what's wrong with that Martin Wolf article, which is frankly embarrassing in its illogicality, incoherence and self-contradiction. It's as if after so many years of believing in the exogenous/intermediation conventions, the realisation that it's not only completely unsustainable in light of the recent evidence, but now even the BoE are saying that the banking system just doesn't work the way it "should"*, that he's flown into a panic and gone - "but, but, but... this must be what's wrong, we must make it exogenous then".

Izzy Kamiska (who imo is a lot more on the ball than Wolf**, despite being far lower profile, hidden as she is the wilds of Alphaville) makes a more interesting point in her first blog comment on the Wolf article:

Quote:
None of this thinking, of course, is new.
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Wolf’s piece, for example, borrows heavily from recent findings presented by the Bank of England in their Quarterly Bulletin.
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The BoE report, in turn, borrows heavily from a new school of monetary thinking which rose to prominence just after the 2008 crisis struck. In the UK, this is typified by the views coming out of institutions like the New Economics Foundation NEF (which has been around since 1986), themselves influenced by the works of more established economists like Wicksell, Keynes and Fisher.
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As Josh Ryan-Collins from NEF tells FT Alphaville, the theory is not inconsistent with what John Maynard Keynes was saying in his Treatise on Money in 1930 and Schumpeter in his Theory of Economic Development (1934). And these authors themselves drew on the work of Henry Dunning Macleod’s The Theory of Credit’ written in 1889. Macleod’s work was expanded on by Alfred Mitchell-Innes in his papers What is Money? (1913) and The Credit Theory of Money (1914) where he argued against the then conventional view of money arising as a means to improve the medium of exchange – then known as ‘metallism’
[...]
Which makes one wonder why any of this should be considered provocative thinking at all? A more pertinent question perhaps is what led the economic profession to wilfully forget about endogenous monetary theory in the first place, and cause it to step backwards in time to the more orthodox monetary thinking of the classical era.

It's that last question (emphasis added) that's the interesting one. What is it about capitalism's social processes that ideologically reproduces the need to believe in money as a real substance. As somehow "essentially" different from "transferable private debt"? Why does the phrase "ex nihilo/stroke of a pen/out of thin air" always express such anguish, such an affect of abomination? What is it about the ideology of exchange that creates such fetishism around money? Answers on a postcard...

But, one point of commonality between Kaminska and Wolf (and most of the econ twitter/blogosphere) is the frame of "financial instability". Financial instability contains within it the presumption that the crisis of capitalist growth is the result of a fault or bug in the credit system. Once properly diagnosed and fixed, endless growth can be resumed. Because, as we know, capitalism itself, as opposed to it's shonky financial system, is perfect, immaculate and eternal....

The alternative is that the current growth crisis is more fundamental to the profitability of the system as a whole. Where I would differ with the likes of Kliman et al, is that I think posing the decline in the rate of profit as cause, rather than effect, begs the question of what causes the cause? And I'm afraid their answer - the OCC - is in my opinion a "Mencken solution", i.e. one that is "neat, plausible and wrong".

Marx (somewhere) made the point that of course all periodic recessions in capitalism appear in the form of overproduction - if the capitalists could still sell everything they had produced, there wouldn't be a crisis. The same logic, imo, applies also to secular crises. Of course a secular crisis appears in the form of a crisis of the rate of profit - if the rate of profit was still high, investment capital would still be employing labour power and there wouldn't be any stagnation. The challenge is to explain the crisis in the profit rate in a non-circular way.

Neither "fixing" financial instability/the money creation process, or boosting aggregate demand through direct transfers of MMT "free money" to consumers (aka Basic Income, as Wolf didn't explicitly say, but clearly has in mind) are addressing the fundamental contradictions of capitalism, because they won't ultimately admit they exist, all evidence to the contrary.

After his Treatise on Money, Keynes came to the conclusion that even if money was endogenous, it didn't really matter that much. In some ways I tend to agree. If the system is in crisis then a real "magic wand" would have to operate to a logic external to that system, and endogenous money (clue's in the name) actually doesn't (in this sense only, perhaps, Wolf's reaction makes slightly more sense than the MMT nonsense - strange that Worstall doesn't see the difference, or maybe he's just too ignorant to notice or care). A fascination with the difference between the ideology of how money "should" work and how it really does, or the (very real) catastrophic bugs in the financial system, shouldn't distract from the main point that the only power that really operates to a logic external to the system is proletarian antagonism. And if the contradictions of the system are not merely contingent but immanent, then that's the only place to look for a long-term solution.

* and hasn't done for a long, long time.
** having said that, after that abortion of an article, my personal category of people more on the ball than Wolf, has expanded hugely.

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Apr 30 2014 15:11

Krugman now claims to have been a supporter of endogenous money all along...
Krugman: A Monetary Puzzle

Quote:
OK, color me puzzled. I’ve seen a number of people touting this Bank of England paper (pdf) on how banks create money as offering some kind of radical new way of looking at the economy. And it is a good piece. But it doesn’t seem, in any important way, to be at odds with what Tobin wrote 50 years ago (pdf) — indeed, the BoE paper cites Tobin extensively. And I have always thought of money in Tobinesque terms, even if I sometimes use shorthand descriptions that can be misread if you take them out of context; the same is true of many economists.

LOL. As the Walrus said to Alice - "Words mean exactly what I intend them to mean... except when they are shorthand for something else entirely, in which case they mean that other thing I meant".

Could. Not. Make, This. Shit. Up. laugh out loud

On the second part, however:

Quote:
Furthermore, the key Tobin insight — which is fully consistent with the BoE analysis — is that while banks are indeed more complicated creatures than the mechanical lenders of deposits we like to portray in Econ 101, this doesn’t mean either that they have unlimited ability to create money or that they are somehow outside the usual rules of economics. Don’t let monetary realism slide into monetary mysticism!

The "unlimited" aspect is something of a strawman as far as most endogenous theorists are concerned, as previously discussed. However as a counter to the MMT argument that governments can just print and spend as much money as they want, without any effect other than the desired beneficial increase to aggregate demand, he has more of a point.

However, he is rather side-stepping the question of his earlier defence of the "loanable funds" model in his 2012 debate with Steve Keen. "Shorthand" or no, the admission that private bank credit creates money, is not apriori consistent with the view that banks only intermediate between savers and borrowers - adding no net buying power.

edit: ok, it was Humpty Dumpty, not the Walrus. - "When I use a word,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less."

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Joined: 6-01-07
Jun 5 2015 14:18

Despite the title this discussion is not all about David Graeber but is probably one of the more detailed on this site looking at various issues related to banking, credit creation and currency myths which still attract mistaken proposals for sorting out capitalism's economic woes and working class poverty, (such as from the likes of the 'Positive Money' campaign). Since despite some important political differences I have respect for the contributions of both alb and ocelot I thought this worthy of further highlighting. I was reminded of this by my particular pleasure at this polite spgb 'put down' of an arrogant letter from the academic Di Muzio here:
http://www.worldsocialism.org/spgb/socialist-standard/2010s/2015/no-1330...