Modern Monetary Theory: The Fundamentals (Ft. L. Randall Wray)

I thought that the tariffs in the McKinley era are what made us so rich. As Donald Trump claims, we were so rich. We had more money than we ever needed. Government doesn't need revenue. you know that was a non-starter anyway because if the tariffs work there is no revenue if you keep out chinese goods there's no revenue from the tariffs so again it's mixing they always mix these things up

I don't tax tobacco so I can get revenue. I tax tobacco so you stop smoking. And all things equal, subsidies are better than tariffs. Trump says, you know, China cheats because they subsidize. Of course they subsidize. Everybody should subsidize. What should we subsidize? Biden subsidized EBS. Should we do that? Yes, absolutely.

We should subsidize EV production. Let's get off fossil fuel. So, of course, we should use subsidies. For many reasons, we need to worry about supply chains. We can't rely on those. we're going to have to increase domestic production. We need to bring production home. I think all of that is sensible and tariffs could play a role. You don't impose uniform 150% tariffs across the world. That's just plain stupid. There's nobody except Trump who thinks that's a good idea.

Become a patron at patreon.com slash one dime to support the show and get access to extra content. We think that ideology is something blurring, confusing our straight view. Ideology should be classes which distort our view. And the critique of ideology... When you talk about a revolution, most people think vile. without realizing that the real content of any kind of revolutionary trust lies in the principles and the goals that you're striving for, not in the way you reach them.

Philosophers call someone a relative, by which they mean it's a person that holds that any view is as good as any other view. My simple response to that is this. No one holds that view. No one believes that every view is as good as every other view. Welcome to One Dime Radio. Today I am here with Professor L. Randall Ray.

a key theorist of modern monetary theory, also known as MMT, somebody who I recommend as a legitimate source of learning modern monetary theory, one of the first that I was exposed to after Warren Mosler and Bill Mitchell. I remember when I was first learning about MMT, I found your lecture on the history of money, the real history of money, in which you cited David Graeber's debt and various anthropology and how that ties into

the MMT money story. So then I remember picking up your book, Modern Money Theory, which I believe you have a newer edition of now, but I have one from about four years ago. Very useful, in-depth technical overview of that. And yeah, I'm here to really pick Randy Ray's brain here on various topics regarding MMT and its relevance to our issues in our current economy.

So first off, I asked this to Mosler and Bill Mitchell. How did you originally come to MMT? When was this a sort of awakening for you in that? There actually is something new that needs to be added to economic discourse, aside from just post-Keynesianism. Oh, writing my dissertation, it was on money. And I did look. Back into the history of money, I never believed a barter story because as a MA student in Sacramento, I had studied institutional economics.

And so in tribal society, I read anthropology, Lewis Henry Morgan, and so on. So I knew that the Barger story couldn't possibly be true. And I got... interested in what became the endogenous money approach in the early 80s. I was a student of Hyman Minsky working on my PhD. And so that was going to be part of my dissertation too. He actually...

threw a draft paper at me and he said, see if you can make any sense of this. And it turned out it was a paper by Basil Moore that was published in 1984 in which he laid out what he called the horizontalist approach. to money so my dissertation had a bit of the history of money a bit of the history of banking updated to the endogenous money approach i had come across

Knapp and the state theory of money from reading Keynes' Treaties on Money. So I was somewhat familiar with that state money approach. My dissertation was focused on the private monetary system. So a lot of institutional analysis of what banks were doing as of the mid-1980s. And the new innovations in banking and all of that. So that's what I wrote about. That became my 1990 book, which is called Money and Credit in Capitalist Economies.

So there's a bit on the state's money, but mostly I was focusing on the private part of the monetary system. In 1996. I was on PKT, which was a discussion group, and I'm sure Bill and Warren talked about this. And Warren came on in January of 96. And he set out a few propositions that people started to debate, and they all made sense to me. I wouldn't say any of them was entirely new. What was new was the...

what Bill calls heuristics, but we can use a less fancy word, you know, sort of the metaphors, the little stories you tell. And Warren had very clever stories that would explain. why the government couldn't run out of money, why we wanted the government's money, and, you know, arguing taxes don't really pay for the government's spending and all of this stuff. And so that's when I started.

working on what became MMT. So we've gone over the basics of MMT many times on this channel, but it's one of those things that...

Like any new concept, it takes a while for people to really get it. And, you know, like it's ultimately repetition. And I noticed MMT thinkers have their different ways of telling the story. I want to start off with some basics, particularly the hardest thing, I think, that people have when it comes to just understanding it, because it's probably the most...

bold aspect of MMT, which is that most people think the government needs to collect taxes so that it can spend before it can afford all these programs. But MMT claims that this is backwards. Rather that taxes don't fund government spending, the government spends taxes after and the purpose of taxes isn't actually to garner money to afford this. I would like you to elaborate on that a bit because the idea that the government has to one-to-one generate the money it needs to afford things isn't...

To countering that logic isn't particularly new, because in the sense that Keynes, of course, I believe it was Keynes who said, if we can do it, we can afford it. which is the opposite of the typical dogma today, which is if we can't afford it, we can't do it. So what does MMT say that is new when it comes to the nature of government spending and taxation? I think... that most economists had not thought very hard about how the government really spends.

And so it's sort of, if you think of money as something that changes hands, which is the way orthodoxy thinks about it. So money is a medium of exchange. I've got some in my hand. I want to buy something from you. I give it to you and then you spend it, you know? So if you think of money that way, it sort of seems like, well, the government has to get the money somehow.

before it can spend. Just like you have to get the money somehow before you can spend. And, you know, there have been times when governments did. spend in the form of currency. They actually printed up paper dollar bills and they spent those. And you could imagine that, well, they collected them in taxes and they spent them. But obviously it doesn't work that way anymore. I knew in general how the government spent. I have my lecture notes from the late 80s. I taught students.

In the graduate courses, how the government really spends, using the tax and loan accounts, using its deposit account at the central bank, how it can... fill up the deposits at the central bank. And so I understood all of that mechanics. Most economists didn't know that. So when Warren came on and said, that, you know, the government spends before it receives taxes. In general, I understood that, that it's actually the Fed that makes the payment for the Treasury.

The Fed credits some bank's reserves. That's how the Treasury spends. And then the bank credits the deposit account of the recipient of government spending. Maybe it's my Social Security check. Okay. Suddenly, as Warren says, you could be online managing your deposit account online, which is a pretty new thing in 96, but you could do it and it's easy to do now.

And I can sit there and I can see at the first month, suddenly I've got a couple thousand dollars credited to my account. Where did it come from? It was a keystroke credit. The Fed. credited my bank bank of america with reserves and my bank credited me with deposits that's how the garment spends it's really simple The idea that, no, first I had to give the government some of its own currency so that it could credit my account. It just doesn't fit the real world. And I think what's...

People think about it. Just for a couple of minutes, it becomes obvious that that's true. So, you know, then the response to that is, oh, but the Treasury has to have a positive balance. at the central bank well does it really no it doesn't do you have to have a positive balance in your bank account To write a check? To make a payment? Well, it depends on the kind of bank account you have.

If you have an automatic overdraft facility at your bank in which they will make that payment and then charge you a fee or interest, it's sort of a temporary loan. You can do that too. Could we imagine that the Treasury could make payments even if its balance at the Fed is zero? Of course we could. It just depends on the rules.

So in the United States, since 1913, when the Fed was created, the Treasury is not supposed to do that most of the time. Could we change the rule? Of course we could. Congress could say, go ahead. and make the payments for the treasury, even if the balance reaches zero. Now, we know that the Fed does do that already.

It just makes sure that at the end of the day, the Treasury has a positive balance. So the Fed and the Treasury coordinate to make sure at the end of the day, the Treasury has a positive balance. But it's very likely that there have been many, many, many days during which the Treasury had a negative balance. And the Fed's manual even answers the question.

What do we do if the treasury's balance is zero and we receive a treasury check for payment? Do we make the payment? The answer is yes. And then what do you do? Enter a negative number into the treasury's balance. Okay. The Fed's manual tells the Fed what to do. So, and some countries allow overdraft. at the central bank by the treasury. So it's easy. So I want to get into the technicals as you just did.

while keeping it understandable, because this is where I noticed there's some immediate reactions people have to MMT. Like, for example, when responding to the claim that the central bank will credit. people's accounts that they have at their personal bank. And they'll say, well, the idea that it's the Fed is misleading because it's really private banks that account for the vast majority of money.

that is in our economy. So I would like you to clarify particularly how money is created or how most money is created in our world today, particularly with the role of the central bank. and the private banks, because that's where I think a lot of misunderstandings tend to form. So again, people have this vision, including the vast majority of economists.

of money as a medium of exchange. And so it's a physical thing. And that physical thing must have been created at some point. And then it is circulating. And that is how the government makes its payments. As I was saying, it's certainly not done that way anymore. What we have today, I put it this way, we have two degrees of separation between you. and your government now. Okay. One degree of separation is that you make all of your payments using your bank account.

And you could say, well, no, hold it. I use my credit card. But there is a bank that has issued that. So it's still going to be a bank account. Okay. And you receive all payments. to your bank account. So that's one degree of separation. If you're paying taxes, you either have an automatic deduction or you write a check to the IRS. And you probably did that a couple of weeks ago. Okay. And so you're paying the government using a bank liability, which is your demand deposit. All right.

And also, if you are receiving a payment from the government, whether you're a contractor or you're a retiree, it's going to be making that payment into your private bank account. So yes, it's true that it is private bank money that you're receiving in the form of a deposit. Okay. You no longer receive government money. When the government pays your social security and you no longer use government money directly when you pay your taxes. Okay. Now.

The second degree of separation is there's also a central bank. That central bank sits between your bank and the U.S. government. The Fed is the U.S. government's bank.

From the very beginning, central banks were set up to be the government's bank. Now, and this goes back to the 1690s, the first central bank, Sweden and UK. The U.S. didn't have a government bank, at least a permanent one, until 1913. We were extremely backward, and we had by far the worst monetary history of any country.

I mean, any country that became a major country. We had the worst history because we didn't have a central bank. So we had something of a mess of a financial system until 1913. Anyway, the Fed was created to be the government's bank. Didn't Hamilton central bank? Well, there was a very long, contentious history. Americans didn't really like banks. They didn't trust banks.

The majority of Americans did not live in New York City, and they didn't trust those New York bankers. So we had a very contentious history. with banks and the power of a central bank scared Americans. And notice the way that we set one up. We sort of have the Fed, but... It's divided up into districts because we didn't want all that financial power in either New York or Washington, D.C. So we sort of spread them around the country. Anyway.

That's sort of getting off the top. It's very interesting, though. Honestly, that fascinates me a lot, actually, particularly that history. Yeah, I'm not really the expert on that. I would recommend you have David Freund on at some point. He's more of an expert on the US financial system's history. I mostly studied the modern financial system in the US. So anyway, the central banks are set up to be the government's bank.

And the FAD is the one that makes the payments for the treasury and receives payments to the treasury. Now, we already said when you pay your taxes. You use bank money, your private bank deposit. And then what the Fed will do is credit the Treasury's account at the Fed. So that's the form in which the treasury receives the tax payment. It is a deposit at the Fed. Now, obviously, you can't make that payment directly to the treasury.

Because you do not have a deposit at the Fed that can be debited. Instead, your bank has a deposit at the Fed. So your bank's deposit is debited. And your bank debits your account. That's how taxes are paid. So there's two degrees of separation. You can't see what's going on behind the scenes. It involves your bank and the Fed.

every time you make a payment to the treasury. When the treasury makes a payment to you, there's a get your degrees of separation. The Fed debits the treasury's account and credits your bank's account. which is called reserves, and then your bank credits your deposit account. So that's the way the modern system works everywhere. You have a central bank and a private bank between you and the treasury. So we no longer...

receive currency directly from the federal government, and we don't pay taxes using currency. I used to think it wasn't legal for you to do it, but it turns out it is legal. If you really want to, you can get a wheelbarrow full of pennies and wheel them up to the treasury and pay your taxes that way. You really can. And there is one guy who doesn't.

And he was asked, you know, why do you do this? He said, I want to make sure at least one person at the treasury has a bad day. That's why he does it. Okay. But anyway, normal people don't do this. You use your bank account. And so people are not wrong to say that it's private bank money. They're not wrong. Okay.

Because you're not directly receiving government money when the government spans and you're not using directly government money when you pay taxes because we have the private bank and the Fed in between. Would it be safe to say that at a very technical, literal level, the money people use and get is private bank money, but that...

creation of private bank money is essentially facilitated by the central bank. It wouldn't be possible without it. Is that basically what the point is? In the case of the transactions with the government. Yes.

where there's government policy yeah not just like loans etc but like social security is what you're talking about or unemployment insurance and all that Because like, for example, I remember in Canada when the government handed out helicopter money during COVID through CERB, the unemployment benefit about like $2,000 a month was much better than what Americans got.

And I got it for like two months because I was working and couldn't work for two months. And it said from Bank of Canada in my account. It literally said that, like where the check was coming from. But it's given to me by the private bank, let's say TD. So that's basically what's going on. It's private bank money, but it's the government giving me the money. Well, I'm sure that the Central Bank of Canada credited your bank's reserves. Yeah. And they're just letting you know that your deposit...

Is being credited because of a check, maybe from the Bank of Canada. And that's not how we did it. We got treasury checks for our COVID relief. So you mentioned the wheelbarrow thing. What would happen if people were to pay their taxes with just dollar bills? Their federal taxes, that is. What would... they do with them or what do they do? You could do it. So how would you do it? You would take the wheelbarrow to your bank first and you would make a withdrawal.

Okay. And then they will debit your bank account. Your deposit will go down and they will hand you stacks of notes, bills, dollar bills, we would say in the U.S. And you would push that wheelbarrow to Washington, to the Treasury, and you say, I'm here to pay my taxes. The Treasury would take that, and then they would either burn it, shred it. or they will have the Fed store it. The Fed is the one really that distributes the currency among the banks.

The U.S. government never spends that currency in the United States. We spend it in Iraq. So when troops are abroad and they need to bribe local officials or whatever it is they're doing with the dollars, they will actually spend dollars, dollar bills. But they never do that in the United States. The only way the dollar bills get into our economy is because somebody goes to the bank and draws down their deposit account.

And so the currency is shipped to the bank so that they can put it in the ATM machines and keep some in the drawers for the people who want to come in and make withdrawals. But the Treasury doesn't spend those. Now, if we go back 100 years ago, well, a little bit more than that now, 150 years ago, the U.S. Treasury did spend that way. They did print up notes. And so, yeah, in MMT. We have told the story of the American colonial government. I remember you mentioned those...

That's the thing I remember most actually of those lectures, the hut taxes. That was really eye-opening. Of course, the American colonists were completely used to money. They're completely used to markets, okay? They were using money. But because we were a colony, we were controlled by Britain. And Britain did not want the American colonies to issue their own currency. They wanted the American colonists to earn British coins. How could they earn it?

By exporting, because why do you want a colony? You want the colony to produce stuff that England wants. And so the only way that the American colonies could get the coins. British coins was to export. And so that's why they prohibited them from coining currency. But the American colonial governments had the brilliant idea. of using a loophole because the law didn't say anything about paper money, they would print up paper bills.

So there would be Virginia pounds. Every one of the 13 colonies had some version of this. And they would pass a law that allowed the... colonial treasury to issue say 10 000 pounds worth of paper notes and then at the same time they would impose a new tax usually a head tax or an import tax in order to create a demand for the paper notes. So they could use the notes to pay taxes. So this is why we use the example, because it's very obvious that the government has to spend first.

to put the notes into the economy and then it can tax them back. So it makes it very clear that you spend first, then you tax, which, you know, was what Warren was saying. Back in January of 96. So it fit the story very well. And it demonstrated the logic. Spend first, then tax. It demonstrated the government. Didn't need the tax revenue in order to spend. Okay. It just needed the, the. To need the currency.

so that the government could buy what it wanted using currency. It's a nice story. I'm a little more hesitant to use it now because it sends lots of wrong messages too. It's very useful for driving that point home, the logic.

But it can't tell you anything about the origins of money. Because the colonists were completely aware of money. They used it all the time. This wasn't the origin of money. It was the origin of... a paper currency currencies had existed for thousands of years before this markets had existed for probably 10 000 years before this So money, prices, markets, all long predate this story about the American colonies. It's not a story of the origins. So that's one reason I don't like it.

Other problem with it is we don't do it that way anymore. So it's very misleading. Then people get all confused and say, hold it a second, but I never pay my taxes using currency, which is true. You know, they write a check. They say, I pay my taxes using bank money, not government money. Yeah, that's true. But your bank has to use its reserves at the Fed.

to make that payment for you. It's actually your bank that makes the payment, not you. So I prefer to start with reality, you know, the way things work today. rather than start with the story of colonial currency. In Mosler's work, I believe it's The Seven Deadly Frauds, one of the things that shocked me the most.

And it's one of the things that people tend to not believe when I've told them it is when he says, you know, the bank doesn't have any use for your money, your tax money. If you were to pay your taxes with a bunch of bills. they would just shred it or store it for somewhere they wouldn't actually need to use it. That shredding or burning of currency, you know, can you like just...

Like, a lot of people just think that that is bullcrap when I tell them that. Well, tell them. Where can people confirm that? Yeah, tell them. Take a tour of the Fed. So you can go to one of the district banks. We had one in Kansas City. So sometimes a professor would take the students on a tour. At the end of the tour, they give you a little baggie that's shredded.

$100 bills. Okay. What does the Fed do with $100 bills when they're a bit worn out? Well, they shred them. Why? Because it's just paper. Once it's received back by the government... Our currency today is mostly Federal Reserve notes, plus some coins. But Federal Reserve notes are actually liabilities of the Fed, not liabilities of the Treasury. In the U.S., the Treasury used to issue notes.

But those are collector's items now. They don't circulate. The Treasury stopped a long time ago, I think before I was born. So ours are all central bank notes. Some countries still have treasury notes. Some countries have both. But in the U.S., we only have Federal Reserve notes. Okay. So anyway, Eric Des Moines came up with the best analogy.

to explain this. So he said, yeah, Joe opens a new pizzeria and he's trying to build up the business. So he mails out coupons for free pizzas to everybody in the neighborhood. Coupon is an IOU, just like a dollar bill is an IOU. What does Joe owe you? He owes you a pizza. You bring in the coupon, you get a pizza for it. You know, in the case of the dollar bill.

The IOU is the treasury must accept it back in payment. If you go to the treasury and you want to pay your taxes using that, the treasury has to accept it. So there's the analogy. Now, once you do get the pizza. You give Joe his coupon back. What does Joe do with coupon? Does he say, oh, I'll put it in my cash register drawer next to the dollar bills because this is a valuable piece of paper.

No, it's just a piece of paper when it's in Joe's hands. When it's in your hands, it's worth a pizza. When it's in Joe's hands, it's a piece of paper. So what does he do with it? He burns it. And dollar bills are just a piece of paper to the Fed. They aren't worth anything to the Fed. Just like the IOU is not worth anything to Joe. It's only worth something when it's in the hands of a creditor. You're Joe's creditor. He's a debtor. He owes you a pizza. If you're holding...

The Federal Reserve note, you're the creditor and the Fed is the debtor. Submission, you prefer to start with... reality now, rather than going immediately to the historical examples. But of course, the money story and the anthropology regarding the history of money is crucial to MMT. The question I want to ask is, in what ways does modern findings in anthropology validate the MMT money story? What is the MMT money story?

And how does what we know from actual facts of human civilization, how does that validate his view on money? I guess you could say, debunk what were the previous dominant wisdoms on how money worked in its evolution? Yeah. So, you know, now we're sort of moving into a... a completely different level of discussion. A lot of times what we will say is MMT is a description. We describe the way the government really spends today.

And the way that orthodox economists and the average person in the street describe it is just not correct. Okay. So it's a description. And then sometimes people say, well, MMT. It's all about policy because MMT has a policy, right? And yeah, I guess there are a couple of policies that I would say every MMT proponent accepts the job guarantee.

It is a policy proposal. And what's called functional finance approach to budgeting says, don't worry about the budgetary outcome. Okay, whether it's a deficit, a surplus, or a balanced budget. worry about the functional impact of the government's budget. That is the impact on the economy. Okay. So you could also say, well, MMT is about policy, description and policy, but.

You can't describe or have policy without a theory, a theory of money. And you can't have a theory without a paradigm. So the paradigm... is the view of the world within which you try to come up with theories that explain how the world works. Okay? And so now we're getting into... The theory of money. You know, what is money? Where did it come from? Why do we have it? You know, those kinds of questions. And it's useful.

to go across disciplines and look at the best work that's been done in other disciplines. And I told you, I study anthropology. At the same time that I started studying economics, which when I was fairly old, I didn't study any economics as an undergraduate. And then I worked for a while. So I was late 20s, the first time I studied economics. I think if you had asked me after I graduated with a BA what economics was, I would have no idea. Never studied it.

I had studied political science a bit, and I guess a little bit of sociology. So anyway, we can look at other disciplines. How do they approach money? Very different from economists. So economists are the ones who say... Oh, it all started with barter. People had this natural propensity to want to barter coconut for fish. Okay. And that's where money came from. It simplified the exchange.

But if you look at the other fields, no, that's not where they begin. So you can look at anthropology. And what we know from anthropology is tribal societies did not have markets. Okay. They had exchange, but it was nothing like a market. It was more like Christmas, gift exchanging. And the purpose of the exchange actually was to get rid of your wealth. It was to redistribute.

Because what you're trying to do is build social cohesion. And that's what you do in tribal society. So anyway, you could look at anthropology, somehow we get this shift. out of tribal society, which are democratic, which are egalitarian social arrangements to eventually capitalism. completely different kind of social organization. How did that happen? Okay. And money is involved in that story. Or you look at sociology, sociologists.

have been doing research on money. What is the nature of money? What is the nature of this institution? I also studied institutional economics. When I finally started studying economics, I studied Marx. Marxian. I studied Veblen institutionalists. I studied Keynes, Keynesian. All three of those from the very beginning, the very first classes in economics, I studied those.

Those are the three main heterodox traditions. So anyway, I was somewhat familiar with all of those. And when we started the MMT project, I went back to those. And looking at those and how people view it, how do sociologists view money? Well, it's an institution. And what is the nature of money? Well, it's a measuring unit.

Very different. It's not a medium of exchange. Medium of exchange function is derived from that, but it's not very important. For the orthodox economist, it's the most important thing. Nothing else really matters. It's a medium of exchange and it's neutral. It doesn't really matter. Okay. But for the anthropologists, for the sociologists, it's a unit of account. It's a measuring unit. What are we measuring?

Credit and debt. What is debt? Debt is a social relation. Would you rather be a creditor or a debtor? There's a social relationship there, right? And so it's all about social relations. So that's why we do that. That's why I already had looked at anthropology and then David Graeber was writing his great book.

I did not know him. I had not heard of him. He sent me the book manuscript. It was in my email. It got buried. I never responded to him. I didn't know who he was. Sometimes I do get book manuscripts. And, you know, sometimes I'm just too busy. I don't look at him. So after the book came out, my students said, you got to read David Graver's book. And so I got a hold of it. And then I got his email and I wrote to him.

I told him I was sorry that I had not responded to him. It was great. I got to meet him, got to know him and use his work in MMT, but also in other areas that I'm working on in economics. And another person very important to our story is Jeff Ingham, who is the best on interpreting money as an institution. And he's a sociologist at Cambridge. So he became good friends, and he's been aligned with MMT from the very beginning. And there are other sociologists who also are aligned with MMT.

You know, why do we do this? Because we're working within a paradigm and we come at it from different angles. You know, the story of the elephant, you know, I got the tail and somebody else has got the leg. And you're trying to figure this thing out. We're trying to figure out this social system that we call capitalism. And I think the three...

Heterodox economic traditions all have a very similar view of what capitalism is. Marx, Veblen, Keynes. My professor, Hyman Minsky, adds another angle to it. So he's very important. to what we do. But then we also, we want to get outside. We want historians. We would like our historical stories to be historically accurate, right? So you need the work of historians and then anthropologists and political scientists, I guess. I'm not as familiar with that.

So how is, I mean, I kind of, I think the answer is obvious, but it might not be to some listeners and people on the more libertarian right. How does this history of money, this true history of money... problematize the assumptions of those who advocate for hard money and Bitcoin, you know, whether that be, you know, the average gold bugger like James Rickards or like, yeah, just the.

people who really believe that cryptocurrency is something better and that deflation is good, which that invites another set of analysis too. It's like, is deflation good? from an economic perspective. So, you know, I'll let you address those two things because that's kind of like the trend or fad, depending on how you view it, of the moment.

Well, crypto is not money. It's not a currency. At worst, it's nothing but a pure fraud. And I think... I lean that direction. At best, it's a speculative asset like tulip bulbs, except that it has no... real value. Tulip bulbs can produce flowers. It can't produce anything. It's a speculative asset. Its value can go up, it can go down. Okay. So I wouldn't count that in any way as a new type of money. It's a highly speculative asset whose true value is zero. Okay. What about gold?

Gold is an asset. It has a positive value. And probably the majority of the gold in the world is locked up in prisons behind bars. And that helps to keep it valuable. If it was released from prison, its value would decline to, you know, what it's worth in teeth and on fingers. and a few industrial processes. So its value would go down substantially if we broke it free from prison, you know, held by central banks in jails. But it does have a value.

Unlike Bitcoin. Has it ever been money? No. There's never been such a thing as gold money. Has it been... put into coins. Yes, it has. From the very earliest times, gold and silver, the very earliest coins were made of a mixture of gold and silver. Okay. Did that mean that the gold or silver was money? No. Poins almost always have been valued nominally. not by the quantity of gold. So a way of putting it, and I think Ingham put it this way, you valued coins by counting them.

rather than by assessing the gold content. So in other words, a king would announce this coin is worth one pound. Actually, that's a bad example. England never coined the pound. They coined shillings. But imagine a lira. This coin... Gold coin is worth a lira. And they would change the amount of gold in the coin. Typically, over time, they would reduce the amount of gold in the coin. So they could get more coins.

out of a limited amount of gold. But if you had a court case where someone was saying, well, you're paying me with coins. that have less gold in them than the coins I lent to you five years ago. I'm going to take you to court because I want the same amount of gold that was in the coins that I lent to you. you know, plus interest. The court was going to rule against you because value was nominally determined. And if the king or the democratically elected assembly

had changed the gold content, it made no difference. If the coin was a lira, it was still a lira, no matter how much gold in it. Okay? So in other words, they were nominally valued. not valued by the amount of gold content. So then the question is, why bother putting the gold in the coin? Gold is a relatively rare... metal, and it has other uses. You want to wear it around your neck and so on. The reason they did it, it seems, was it was like collateral.

Okay, what do we say? Trust, but verify, right? Trust the king, but verify. So the king tells you this is worth one lira, and he puts some gold in it just in case. just in case of what well he could be overthrown you could get a new king and say no that's not worth a lyric you might need to use that outside the kingdom of the king that issued it. Okay. And no one would take it at the value of a lira. So what it did.

Putting a bit of precious metal in the coins was to ensure a minimum value. The value of the coin wouldn't fall much below the value of the metal in the coin. So it was like collateral. The coin is the king's debt, but what if he defaults on his debt, which kings did do? They say, nope, I will no longer accept those coins in payment of taxes, or I will no longer...

I'd set my tally sticks in payment of taxes. I want gold bullion or something like that. It gave you some confidence that the King's IOU printed on gold is going to have some value, even if the king is overthrown, even if some other country comes in and conquers, even if the king defaults on all of his debts. I still have something of value. So instead of minimum value to the currencies, that's why they, as best as we can determine.

And then if you go all the way back to Greece, why was it precious metal? There are theories about this, but, and I've written about it. I won't go into the detail. We can't be absolutely sure why the very first ones not only had precious metal in it, except that it seemed that coins grew out of this habit of gift exchange. And where precious metals were a highly prized gift you could give people. And so the polis seems to have chosen those same precious metals to coin them.

So a couple of follow-up questions. Is it also plausible that, because I haven't looked as deeply in the historical scholarship as you have. That's a big part of why there was a tendency to use hard money or to back currency up through gold, silver, etc. in various regimes, particularly monarchies. like Spain, Portugal were very intent on using that. Is it in a way also driven by a desire for elites to have a sense of security in their wealth?

Unlike something that is merely money being solely a unit of account to reflect their wealth, having it be backed up by something that is a scarce resource gives a sense of... reality to their wealth and a security to it because or else why would people you know care like why would people hire blacksmiths right Is that in any way a factor in why hard money was such a big part of human history? I think...

Probably there are some differences across cultures. When you're talking about it, I'm sort of thinking of the upper class in India, which seems to like to accumulate gold. I would say in the West, you remember Scrooge. I think that accumulation of shiny objects. was not consistent with Western capitalist societies. I don't think that that was much of a driver of it. I think it's probably true in some cultures.

And in the West, other kinds of property or the measures of wealth. I mean, you think about slavery. That's where most of the wealth was. At the beginning of capitalism, by far, slaves were more valuable than anything else. By far. Far more valuable than factories. That's where the wealth was. I keep having trouble with my throat. Now, I don't want to be misleading because when I was saying that gold was in coins, but gold wasn't determining the value of coins.

There were countries and there were time periods in which countries tried to peg their currency to gold. Okay, that's different. What that is doing is maintaining a fixed price of gold in terms of your currency. It's not really that gold is giving value to your currency. It's that you're determining the price of gold in terms of your currency. And most people, I think, look at the gold standard backwards, thinking...

that it's gold that gives value to your currency, but it's the other way around. You're choosing to run what Warren and Bill would say is a buffer stock program in gold. Rather than a buffer stock program in job guarantee, keeping people employed, you run a buffer stock program in gold, you peg the price of gold. Now, most people think...

Well, the gold standard must have been the normal thing because you wanted to keep your currency valuable, so you pegged it to gold. Actually, gold standards were not common. They weren't the normal thing. They got a big boost in the period of conquest. You know why Columbus went on his voyage. I read The Log of Columbus's First Voyage, and I highly recommend it. It's just absolutely fascinating. He talks these guys into getting on the boats and sailing off across the ocean.

The whole time he's worried about mutiny, as they get farther and farther away, his main concern is mutiny. These guys are going to take over the ships and sail home. But he's... going, and he thinks he's on his way to Japan, and he has heard that there are islands that are full of gold. When he finally gets to the New World and hits an island, he thinks, oh, well, we're very close to Japan, and we're going to find gold here.

And so the mission was to get gold. Why did they need the gold? It was to fight the Crusades. It was to go conquer the Holy Land. That's what it was all about, is to get gold. Why did they need gold to fight wars in the Holy Land? Because nobody is going to take the IOUs of the kings in the West.

You're hiring mercenaries to go fight wars. You need gold. Why? Because they don't trust these kings. Okay. And so this whole period of conquest, And, you know, all the works among your organizations were fought for gold by gold. You were fighting by gold because you were hiring mercenaries. They didn't have B-52s to deliver supplies.

You hired the armies and you paid for their supplies in the country you were attacking. They're not going to take your paper money. They're not going to take your tally sticks. They will take gold, okay? So that's another reason why gold coins were used. But in any event, after this period, we do have experiments with the gold standard. And Britain goes on a silver gold.

Sometimes they had both. Sometimes they had silver. Sometimes they had gold. They had a 400-year, nearly unbroken record of pegging their currency. one or both of those precious metals. This was very unusual, but because, you know, all of us in America and Canada, we're all offspring of Britain. British history plays a big role in the formation of our understanding of the world. And so we think the gold standard was a normal thing because Britain had it for so long.

Gold did play a role in building confidence in the British currency, in the value of the British currency. It's not that gold was ever money, but... The British currency was relatively stable for 400 years in terms of gold and that built confidence in it. Now they had to do several things to... develop what we consider now the modern monetary system that MMT studies. That was developed in Britain. Okay. The first thing they had to do was take...

power away from the king. And the king of England, I think King Charles, defaulted on his tally stick debts. The way that the kings of Europe spent. was not usually with gold coins, except when they're hiring mercenaries. It wasn't with paper money. They didn't use it. America was the first in the West to use paper money. They used tally sticks.

So I don't know if you've talked about it on your show before, but they would take a stick and they'd put scores across. We still use the term score. Scores across, split it down the middle so you have a stock and stob. The king would spend with half of the stick and then collect it back in tax payment, match them, make sure nobody cheated. And then the taxes were paid. So he spent a lot of tally sticks. And then when it came tax time, he said.

I'm not going to accept those in tax payment. I want gold coins. So he was overthrown, and Parliament invited a foreign king in. Here, come be king. We don't like this guy anymore. And... We're going to take much of the power away from you, and Parliament's going to take that power. You no longer have the power of the purse. We have the power of the purse. We don't trust kings anymore. And we're going to create a central bank.

And the central bank is going to issue our currency. Okay? That was the beginning of the modern monetary system. And then for 400 years, they kept the value of the pound relatively constant.

and developed the system that we have with the century. They didn't create the Bank of England to be the central bank. They had no idea of central banks. It was the government's bank. It was Parliament's bank. It would make all payments for parliament. It would receive payments for parliament. Gradually, they discovered, oh, given its position, it can become the bank for the bank.

So that's what we think of as central banking. That didn't really completely develop until the 19th century. We had this long period where the Bank of England was just a bank, but it was the government's bank. So it was very important. But then it became the central bank. And that's where central banking then becomes normal. You have the central bank at the top of your monetary system in every developed capitalist country. We all do the same thing.

And the central bank makes and receives payments for the government too, which was the original purpose of the Bank of England and the Bank of Sweden. So we develop our modern monetary system. I'm not trying to completely dismiss gold. Gold played a role. But once they had set up the system, gold was a barrier to the system. So they got rid of the gold standard.

because it tied the hands of the government too much. And whenever there was a crisis, they had to go off gold for a while and then try to come back on. When they tried to come back on after World War I, that's what led to the Great Depression. So regarding the origins of central blank banking, what are some good resources where people could learn more about this? Because when researching that...

The scholarship, or I don't even say scholarship, but like popular books, if you just do a cursory Google search and a YouTube search, it tends to be heavily... saturated with like gold bug libertarians who have this very shadowy conspiratorial depiction of the history of central banks. And sometimes they'll always find a way to tie it to Jewish people.

So what are some actual credible sources for learning about this topic? Yeah. Okay. Well, so to get something reasonably short, very good, Charles Goodhart, who also is... but sort of accompanied MMT, always been a friend of MMT, wrote the entry in the new Paul Grave, I think, on central banking. So I would start there. So that's going to be like an encyclopedia entry. But he's an expert. I think he would agree with everything I just said. So that's a place. My new book explains.

how the modern monetary system was developed in Britain. So it goes through the history of the development of modern central banking, but also the modern monetary system, how the government really spends. All of that is in my new book that will be out in May. It's May. It'll be out this month. I think it's called Money and Credit in Capitalist Economies.

understanding modern money, or it could be the reverse, understanding modern money, money and credit and capital economics. I can't remember which comes first. So anyway, there's a chapter on the development looking at the example of Britain. This conspiracy thing about central banks, I think is definitely an American thing. We've had this, I guess, since the beginning.

Yeah, there was supposed to be some meeting on an island in New York City of Jewish people, and they did it. That's not how it happened. Okay. The first central banks were set up. by Parliament. It was much more of a democratic thing, taking power away from monarchs. Now, in the case of the United States, as I said, we didn't have a central bank. We sort of had Bank of the United States, one, Bank of the United States, two, neither of those stuck. We had times when the...

The government tried to use private banks as their banks, so under Lincoln and so on. Again, David Freund is the guy to read on this, not me. I don't know that much about it. But the point is, we didn't have one until 1913. What was the conspiracy? What happened was we had a terrible financial history. Every generation, we would have bank runs. bank collapses, and a depression. So Americans all know about the Great Depression. Okay, it was great. But that was our sixth depression.

We had serial depressions. Every generation went through one. We had a really bad one in the 1870s. We had another bad one in the 1890s. And then we had a financial crisis in 1907. And so J.P. Morgan, it's the name of a bank now, but he was a real living guy. He called all the New York bankers into his meeting room. and had the doors locked. They said, nobody is leaving this room until you all agree to put up the money to save the banking system. And so they did. They stopped the run.

Private banks stopped the run by agreeing to lend to other banks so that they could pay depositors and stop the run. By this time, we already knew how central banks can stop runs. And so Bejit was the guy who came up with the principles of how you stop bank runs. And the basic answer is the central bank lends reserves without limit. So Bank of England.

would do that. They could stop runs, but we didn't have a central bank to do that. So as a result of this meeting, the banker said, we don't want to ever have to do this again. We need a central bank to be lender of last resort. So the Fed was set up. The specific purpose was to be lender of last resort. That was their purpose. They were not set up to be the government's bank.

which the first central banks were. They then discovered lender of last resort. Our central bank set up to be lender of last resort, not to be the government's bank. Okay. It gradually became the government's bank. But not in the beginning. It wasn't supposed to be. So it was to stop bank runs. It's not some Jewish conspiracy. It was the realization we had to have a central bank.

You know, they tell lots of stories about the Fed that just are not true. So one of the stories is the Fed was set up so that the big banks own the Fed. Okay. What happened was they wanted to capitalize. They wanted the Fed to have equity. And so they made member banks buy these sort of shares. in the Fed. So that's why it said they are owners of the Fed. Okay, what do they get by buying a share in the Fed? They get a guaranteed maximum return of 6%.

Really, it's more like a bond than a stock. What's the difference? If you're a stock owner, at least in theory, you get votes, right? You can vote. to change policy of the firm, to change the directors of the firm, and so on. The banks don't get that. There are no votes that come. The Fed remains a creature of Congress.

The Fed does what Congress tells it to do. And notice it doesn't do what the president tells them to do. They're just ignoring President Trump. They do what Congress tells them to do. They don't do what bankers tell them to do. So nominally, yes, the Fed is owned by banks, but the banks get no special privilege. Do I believe that the Fed pays particular attention to the top half dozen banks and will bail them out no matter what? Yes.

The Fed will do that. They will say, we're doing that because these are systemically important institutions. And if they fail, the whole economy goes down. Okay. I call them systemically dangerous institutions that should be shut down. Okay, but that's a completely different matter. The Fed, I think, does stand behind them too much.

So I agree with critics on that. And the answer is to shut them down. They are too big. If they are too big to fail, they are too big to exist. If they are systemically dangerous... They should not exist. But that's not something the Fed can do. Actually, shutting down banks is FDIC. So that needs to come out of the Treasury.

I don't know if that answered your question, but- Very much, very thorough. Okay. To play devil's advocate for the audience is that today, the people who still would support gold money, I will do so from the- assumption that having hard money is one more trustworthy more reliable in case of a crisis and two that it essentially forces the government to not spend as much

which they think will reduce inflation, and perhaps some of the more very big gold bug and pro-crypto people could encourage deflation, which they see as good. The main question here would be, what is the problem with that thinking? Is deflation in any sense a good thing? Why do the current central banks aim for a 2% inflation rate instead of having a deflationary economy? Yeah. Yeah. So a gold standard.

absolutely guarantees crisis. Absolutely will guarantee crises, serial crises, without any question about it at all. And yes, deflation can occur. If you have a deep enough depression. So deflation, depression, they go together. That's how you get deflation. A lot of gold bugs will say, you know, we take the price index in 1800. And then we look at the price index in 1900. They're the same. There was no inflation in the 19th century. And that's because lots of countries had gold standards. Okay.

What they're leaving out is the hundred years between those two points. It is true. Now, price indices are human constructions. There's different ways to put them together. And so it makes... A big difference on how you construct them, but you can construct a price index that will be 100 in 1800 and 100 in 1900. And they say, see, no inflation. Yeah. intervening prices go like this okay every time we have a depression and we had six of them prices go down and it's a disaster

It's extremely hard to get out of the depression. It's not a recession. It's a depression. Okay. And then when we recover, oftentimes it's war that helps us recover. because the government starts spending more, we get inflation. Okay, so we get deflation, then we get inflation. And it just so happens if you pick those two endpoints, the price level will be the same. But in between, prices were not constant.

They went up, they went down. What happens after we go off the gold standard and we get a big government? That's what happened in the 1930s.

That's what the New Deal did. The world got off gold standards. We developed a new monetary system called Bretton Woods, which I can get into a bit before doing that. So the federal government goes from 3% of the economy in 1929, before the aggression hits, before Roosevelt. It goes to 50% of the economy during World War II, but of course, that's unusual. 50% of the economy, we ramped up the war effort, okay? After the war, we go down to about 25%.

So the federal government is about 25% of the economy. If you add on Social Security, various kinds of welfare and so on, you get more like a third. But government spending... And it's about 25%. Government taxing is about 20%. And then what does that leave us with? Well, the deficit, right? So anyway, the point is the government is six, seven, eight times bigger. after the New Deal. We have no depressions. We had never gone through a generation without a depression. We have no more depression.

We had a whole generation without even a serious recession. Now, we started getting recessions, and we had a very bad one, the global financial crisis in 2007. Some people say 2008, but it already started in 2007. And then, of course, we had COVID. COVID is an unusual sort of a thing. We had similar in 1919 with the flu. where it's caused on the supply side. So it was unusual, but we recovered very quickly. Why? You already mentioned it. Relief checks came from the government.

And so we had the sharpest drop ever since 1900. The sharpest drop, even sharper than the Great Depression, but the fastest recovery of employment and GDP. Because of the relief checks. So anyway, the point is that what we did was we eliminated deflation and we eliminated depressions. Okay. What that means is that prices never go down. Now, Japan has had prices going down. It's a special case we could talk about. The United States.

Despite having the highest debt to GDP ratio in the world, which is crazy. Yes. They've got problems that we could talk about. Their problem is not the deficit and the debt, but they have problems. They have supply side problems. They have an aging population and so on. So there are reasons for this. But the United States has not had deflation. We had very low inflation.

since the mid-1990s. And then we had an increase of inflation, largely because of the COVID problems. And now we're down to 3% more or less. Okay, so the benefit of getting off gold and of having a big government is we don't have deflation and depression. Why is deflation so bad? Why does it lead to depression? Because it forces debtors to default. Deflation means prices and wages are going down.

The problem with your debt is it's in nominal terms. It doesn't go down. And so as your wages go down in nominal terms, the real burden of your debt goes up. because it stays fixed in nominal terms. You have to make a payment of $1,000 a month to keep your home, but your wage falls in half because of deflation. You can't afford the payment. You lose your home. bad for you. But it's not just bad for you. Somebody holds your debt. So it's bad for them too. And the problem is they have debts too.

who have the interconnected, we're all indebted. And even the creditors are debtors. And none of us can make payments on our debts. Because our prices and income all went down in nominal terms. So what we did is widespread defaults. It wipes out financial wealth. That's the good and the bad thing about depression.

Miski used to always say, you know, there is one good aspect of a depression. We all default on debt. Okay. Which means all the financial wealth gets wiped out. But we get to start all over again. Without debt. So that's the good thing. He says it's called simplifying the financial system. That's the one good thing that comes out of depression, but depressions are terrible. And we decided we will take the trade off.

No more depressions. But what it means is prices will creep up on trend. They'll go faster when the economy is doing well. They'll grow slower when the economy is not doing well, but we won't have deflation and we won't have depressions up to the current day. Okay, so that's the good and the bad.

What did I say? We talk about the Bretton Woods system. Yeah, which actually is a good segue to the question I wanted to ask, which is, well, you got this... post-war consensus or really post-economic depression consensus to some extent, then post-war you get the Bretton Woods. But ultimately, this sort of thinking that involved much more government involvement in the economy was disrupted by the 1970s stagflation crisis, catalyzed arguably by the...

OPEC price shock, right? And ultimately, the reason why this new, what people seem to call neoliberal thinking, why that was able to triumph over the old Keynesian consensus. It's because the key in scenes is didn't really have an answer to the stagflation. Now, the question I want to ask is what does MMT bring to the table that gives an answer?

to the inflation question which keynesianism was not able to provide and was ultimately left kind of not totally defenseless but a little weak when it comes to the onslaught of the neoclassicals and neoliberal thinkers who ultimately triumphed ideologically and politically. I'll stick to the U.S. because I know our history. And the story in Europe, I think, is slightly different, but I'm not going to go into it. So in the United States, we had Keynesian consensus, but it wasn't based on James.

So they used the name, but they didn't understand Keynes. And it's a very simplistic view that we can reduce poverty. We can increase employment, increase living standards, simply by raising aggregate demand. That's what they thought they learned from the general theory. And that's actually not in the general theory, but it was an interpretation. And it doesn't really matter much what we spend on. So let's spend on the military. Okay.

Let's spend on the military-industrial complex. We're going to focus on, you know, being number one in the world in terms of military power. And then have some related things like we'll go to the moon. And stuff like that. And jobs will trickle down to the poor. This will help to solve the poverty problem. Because we, there's a famous book by Harrington that came out in 1960 and said, you know.

Here we are, and we're living the post-war dream, and everything's great, and we're building the suburbs, and everybody's happy. And they will hold a second. No. We have massive poverty still around the U.S. There's this other America. And we need an anti-poverty program. So President Kennedy announced a war on poverty. And then he was assassinated. So Johnson took over. And they said, well, our war on poverty.

is mostly going to be that we're going to keep agri-demand high, that will create jobs, and then we will try to increase the training and change the behavior of poor people. Because if they would just behave a bit better, they could get jobs. Well, Minsky, who was my professor at the time, said, no, you need a job guarantee. He called it employer of last resort.

But they didn't do that. They didn't create jobs directly. They just said the private sector will create the jobs. But it didn't work. It didn't reduce poverty. But it did increase demand. especially for high-skilled unionized workers. Because, you know, that's the kinds of jobs that the military industrial complex supplies. It's the most advanced sector of the economy.

You know, producing the most advanced weapons that the world could produce. And then also going to the moon. So these people already had jobs. And we already had a shortage of these kinds of workers. So we're tending to bid up the wages in those sectors. And in those sectors, basically, the government has... a cost plus markup pricing approach so the the firms didn't have to care very much about costs because

They had cost plus markup. They're guaranteed a 15% profit rate for their government contracts. So you sort of built inflation into this system at the same time. government spending was going up on the military industrial complex, we did start creating welfare programs, not a jobs program, but a welfare program for those who couldn't or shouldn't.

or wouldn't work. So we created a welfare system. So the government also spending on that. So the argument is that because we didn't target the spending, we had to run the economy hotter. to try to have jobs trickle down to the fore. And the economy already was somewhat inflationary biased. And then, as you mentioned, OPEC quadruples the price of oil. And the whole world faced this. Japan, interestingly at the time, said, okay, our response is going to be, we'll become energy efficient.

The U.S. and Japan at the beginning of the price hike used about the same amount of energy per unit of output. Okay, we were both very energy inefficient. And equally so. But Japan decided to become more energy efficient. And what they did over the 70s was to change their production processes so they could produce twice as much. given a unit of energy input, twice as much output. The U.S. didn't do that. What we did instead was we tried to fight the inflation through austerity. Let's...

hold down government spending and have a recession, our first deep recession in the post-war period, and reduce demand that way. So that's how we try to tackle it. So when OPEC again quadruples the price of oil in 79, Japan is in a much better situation than we are. They're more energy efficient. And what did we do? We said, oh, let's have another recession.

So Volcker comes in, increases the interest rate to 20%, and we have a deeper recession. We never learned the lesson. Biden finally said, let's become more energy efficient. with Build Back Better, but he only got a little bit of that through Congress. And now we've completely reversed course and we're going to go back to fossil fuels and pump more oil with Trump.

So anyway, that's my story of why we got the inflation and the inflation bias. If you look at our high inflation periods, and I've done this. People can go to the Levy website, www.levy.org, and look back 1994, and then a series of papers that have looked at U.S. inflation, including the most recent one. In which we've shown in the U S our high inflation is always driven by three components of the price index oil. Okay.

Obvious. Oil goes into producing everything. If the price of oil goes up, everything's going to become more expensive. The second one, food. Well... Food price is 70% oil. It takes oil to produce food, fertilizers, transportation, processing, all that stuff. So those two are connected. If oil goes up, food goes up. And then the third is shelter. What is shelter? It's this bizarre thing called owner equivalent rent because we want to proxy for

the cost of living in a home. But most Americans own their homes. And so we want to... impute a rental equivalent as if they were renting their home rather than owning their home. And we put that into the index and it's a bizarre thing. And it's the biggest component of the index. The shelter component, if you total everything in shelter, it's 40% of the index. So if that thing goes up and oil is going up and food is going up, the measured inflation rate is going to be very high.

And that explains all of our inflation periods. It's not the other stuff that people buy. Okay. And that's also true of our last one. So. Our problem is never too much demand. We can have misdirected demand. If you direct your government spending to the military industrial complex, that's going to tend to be inflationary because that's the most advanced sector that already has shortages.

of skilled workers and of the plant and equipment required to produce the military goods. If instead we directed demand to direct job creation. or people who are unemployed or underemployed, it wouldn't be inflationary. It would be increasing output at the same time that you're producing wages. It would make us more productive.

and make our workers better skilled so they can move up the skill ladder. So it's not a simple matter of too much government spending. It's a matter of where the government is spending. If you spend in the right areas, it won't be inflationary. There's nothing inherently bad about a big government. There is something inherently bad about spending on the wrong things.

Things that don't increase what Minsky called the capital development of the economy. We could just say increasing your productivity to satisfy the needs of your population.

So, when it comes to the stagflation in the US, the 70s, the main arguments that often get brought up from like neoclassicals, neoliberals, which for a while, to some extent still... is the dominant narrative, is that it was like Lyndon B. Johnson's Great Society program spending, too much government spending, coupled with the wage price spiral.

of unions having too much power bargaining for higher wages leading to higher prices and this was a justification for basically a whole anti-union onslaught ideologically and literally at the level of violence You know, so I'd like you for just again to kind of clarify why exactly those didn't play a role. And I think that ties also nicely into the job guarantee, which you briefly mentioned. It was another question I was going to ask after.

Because part of the argument against job guarantee from that neoliberal standpoint would be that, well, if workers can't, if you have like a job guarantee, you have an ability to bargain. which would lead to higher prices because of higher wages. And that's kind of the argument they make against that. So I'd like you to kind of address those, starting with the...

First part about, you know, those causes of inflation is and to what extent those actually were real causes or insignificant compared to the other ones you mentioned, like mainly the price of oil. Sure. For Europe, some people, I think, plausibly argue a wage price spiral was a major cause of inflation in Europe. In the United States, looking at the data, that just doesn't look true. Is it hypothetically possible? Sure, it is. And there are two ways to approach that.

One would be, well, okay, let's beat the economy down. Nixon tried to do some of the things Trump was doing, refusing to allow Congress to spend the money that it had budgeted. Trump's trying to do that now. Nixon did that too. And the Fed raising interest rates, trying to cause a recession in order to fight the inflation. So that's one way to do it.

The problem with that is, yes, it can lead to stagflation, which is what we got. So it causes suffering. It hurts your economy. What you want to do if you have shortages that are... You know, too much demand, too little supply is a shortage. You want investment because you want to increase the supply side capacity.

so that you can meet the higher demand. Let's say because you are spending on welfare, you're trying to reduce poverty. You need more supply. You don't want higher interest rates. That's going to prevent investment. So you don't want to do that. You don't want to cause a recession because firms aren't going to invest in a recession. They need to be optimistic about the future before they're going to invest.

You know, and that's why Japan is in such a problem. Firms don't want to invest in Japan. Okay. So high industry is not the right policy. What would be a good policy if you did find yourself? In a wage price spiral, because demand had been too high, what you want to do is you need to have cooperation among the government, firms, and labor unions.

Centralized bargaining helps a lot. Jamie Galbraith wrote a piece where he looked at the difference between, difference among, I think, Canada, Germany, and the United States. I don't remember all the details, but... In Germany, you have centralized bargaining and you have give and take from all sides, government, business, and labor unions. And you can get an agreement.

to hold the line on wages so that you can break the spiral. In the United States, that's very hard because we have highly decentralized bargaining. No individual labor union has an incentive to forego asking for a wage hike when there's inflation going on. So they're representing their own individual workers and they say, well, let somebody else do that, not my workers. You need centralized bargaining. That tends to help. You need the government to spend in the areas.

that are causing the inflation if you can increase the supply. And so what, you know, Biden, part of his moving to alternative energy. was in the Inflation Reduction Act. You know, this is exactly the right way to think. If inflation is coming because of energy prices, let's build more capacity. with the safest, cleanest, cheapest kind of energy there is, which is wind and solar. So that's the right approach.

What Jimmy Carter did, Warren Moser talks about this, and we had high inflation when Carter comes in. And so Volcker boosts the interest rate to 20%, as I said. But Carter did do one good thing. He deregulated gas prices and natural gas. And so the U.S. started producing a lot more natural gas. And Carter...

went on TV announcing, it's in his very famous malaise speech that people know for being a real downer, where he said, we're suffering from a national malaise. But he had a lot of good things in that speech. He said, since energy is driving this inflation, we need to look at possible sources of energy in order to increase the supply.

in order to fight against OPEC's rate hikes. And he included natural gas in that. He also included solar. And he put solar panels on the White House that Reagan removed as soon as he defeated Carter. in the election. So even the White House was going to go solar. That was the right response to inflation. Tackle the problem directly. And then finally, on the welfare thing.

MMT has always argued that you get to full employment using a job guarantee, not by pumping up aggregate demand. You don't want the government to just start spending on Other things, hoping jobs get created, the government should spend directly on the jobs. That's the way to get to full employment without being inflationary. It's actually disinflationary because you're increasing the supply of workers.

to the private sector. So is that why MMTers like yourself advocate for a job guarantee as opposed?

to universal basic income, which is a quite hot idea at the moment, at one point proposed even by the likes of Milton Friedman, but now increasingly proposed by people on the left. Even people like Varoufakis seem to support both a job guarantee and UBI, or some might propose UBI on the basis that they think there's just not enough jobs available. But why is UBI, why is the job guarantee one better as a policy? And also, would it be less inflationary than UBI? Yeah, so Hyman, Minsky.

wrote in the 60s when he was advocating the job guarantee, calling it employer of last resort as an alternative to the Kennedy Johnson war on poverty, which. Mostly it was welfare plus job training, but not jobs. He said, the welfare or UBI is the conservative rebuttal to the ancient challenge of the progressives. which is full employment. It's a conservative response, okay? Because he said, it's admitting that the capitalist system cannot provide jobs.

for all who want them. And what Missy is saying is, yes, we can even under capitalism, but it has to be the government creating the jobs. That was his response. There's nothing strange about a conservative like Milton Friedman advocating some kind of welfare system or UBI. It's not strange. That is the conservative response.

because they don't want the government to create jobs for people who want jobs. Instead, they want to throw a little bit of money at the poor so that they don't rise up in a revolution. It's a conservative response. The progressive response is, if somebody says, I want to work, the progressive response is, okay, we will give you a job. Okay? Now, I don't have a problem.

with providing income to people who can on or should not work. Okay. So there are people who cannot, there are people who should not. What about people who don't want to work? I do agree that people have rights. I think all people have a right to health care. All people have a right to food. All people have a right to shelter.

All people have a right to education. All people have a right to creation. Those are all human rights. And we should supply those to everyone, whether they want to work or not. whether they can work or not. Okay? But let's give jobs to everybody who wants to work, and then let's meet our commitment for all of those human rights to everyone in America.

and then beyond America, to the ability of the United States to help people in other countries, we should help satisfy those human rights for everybody. I think virtually all Americans, I think that all dogs have a right to decent care. They shouldn't be maltreated. They should have food. Okay, look, Knox. I think all humans should have rights. The list I gave is probably a partial list. They probably need more than that.

But all of those should be supplied whether you work or not. Now, the question is, how do you supply them? Do we just give people money? No, that's a bad idea. We got to make sure. We're actually satisfying the rights. If we're going to say, you know, all families have a right to childcare. So their children can be cared for. If the parents go to work, do we just give them money? No. What's that going to do? Massive inflation of the cost of childcare. Okay.

We need to actually provide the child care. What about housing? Give them checks in the United States? Rents are already being driven up. We have a massive shortage of rentals. No, what we do is we build the units and give them housing. Okay? We provide the basic... necessities to satisfy human rights. We have to supply those. We don't give them money. We supply them. We don't rely on the market to provide those things.

We do it directly. Now, that doesn't mean the government is actually going to build the houses. The government will probably hire contractors to do it. What I'm saying is... To meet the rights, we need to supply the thing that they need. And we should do that for everyone, regardless of whether they work or not. After seeing...

how a lot of people totally wasted their stimulus checks that they got in Canada. And seeing people use, maybe mainly people who have money a lot, who get a lot from their parents. and use it to just really put off their life. I've become much more pessimistic about the idea of UBI in that I don't think everyone's necessarily stupid or whatever.

It's just without changing the social relations of the economy at all, and you just give people money, it's not necessarily going to actually improve people's lives in a meaningful sense, notwithstanding all those other factors you've mentioned about.

rent. I mean, probably most of that money would get forked up by the landlords. But I mean, the big thing, right, is what is... being done and a job guarantee is not only just like reducing employment it also changes the dynamic of social relations because now if you work for like workers have

power, much more power than before, because it's not like if you can't find a job on the private market, you're now like destitute and that the people working can't bargain because they're going to be thrown out in the streets. So it changes the whole dynamic of just class conflict even, which is probably why the wealthy don't really like the idea of the job guarantee very much and maybe prefer UBI, like Elon Musk even used to prefer UBI.

But to play devil's advocate, the argument that I hear brought up today a lot is, well, what about AI? What about automation? Will there even be enough jobs to go around for everybody? Another less common point, but actually one I've heard from people who've lived in former communist countries, Soviet bloc countries, is that they had full employment there.

And sometimes, especially in the later period, when they were way past industrialization, there was a lot of bloat in the economy. Like, for example, I often hear about... a whole industry of useless jobs in East Germany from someone I know who lived there. And that there was like, for example, way more people than there needed to be.

in one area and sometimes just bureaucracy created out of nowhere to kind of, you know, hand out more jobs. And this is a thing, to be fair, in Ottawa, particularly in Canada, the Liberal Party, it's actually part of... Part of how it holds on to power for a long time is it creates a lot of jobs through the bureaucracy and a lot of people depend on it, but a lot of questionable value there. So what I want you to address is like...

What about these factors when considering a job guarantee? How would we develop a job guarantee in which there is jobs that are actually needed, useful, meaningful? David Graeber's book after the debt book was on the jobs that are being created in the capitalist economy. Most of these are absolutely useless jobs. That's his argument. So it's not unique to the Soviet Union. It's here in the United States and every other country in the world, most of the jobs are not needed. Hey, I think...

that there are two things that should happen. One is that a lot of tasks will be taken over by robots. or computer programs. Perfectly fine. That's been going on since the first human picked up a club, you know, so no. There's nothing strange about this at all. Things that lots of people do will be done by machinery. That's fine. What if we reach the point where nobody really needed to work?

more than eight hours a week. What's wrong with that? It just means that we're going to need a lot more recreational activities to keep people busy. I don't think that that's actually what's going to happen. I think that what's going to happen is we will invent all sorts of new kinds of jobs for humans to do. And I used to fly quite a bit. I don't.

Since COVID and because of my age, I try to avoid flying now. But anyway, I was always surprised when you ask the person sitting next to you and see, what's your job? 90% of the time, it would be something I had never heard of and never thought we needed. So good. And I think that's what's going to happen. You know, everybody needs a light coat.

And each life coach can probably only handle three or four people to keep them on track. And that means, hey, somewhere around a quarter of our whole workforce will be life coaches. You can think of all sorts of personal social relationships that will become new jobs. And if we do get lots of free time, we'll have a lot more people working in the... recreational sector so i'm not that worried about that humans are extremely good at coming up with things to do

And those can become our new jobs. You know, Bill Mitchell always talked about one of the job guaranteed jobs would be to surf because you're entertaining the people on the beach. So we'll pay people to surf, you know. We can always find something for people to do. And I think that would be fine. And if we can reduce the work week, that would be great. Keynes wrote this famous essay.

about, you know, 100 years from now, the economic possibilities for our grandchildren. And we're there right now. We should have been there. He thought the work week would be like four hours, four hours a week. That's all it would take. to satisfy all human needs. And satisfying needs would no longer be an issue. We would have satisfied all of them for all humans on earth, he thought, by today. Okay, well, we're not there.

Obviously. So there's a lot to do and hopefully we can reduce the work. We can get people more time to engage in recreational activities. And I can't remember the... I think for beyond the AI part of your question. But we always have advocated very decentralized programs for the job warranty. My professor, Minsky, He came out of the New Deal and probably his first job. He was a New Deal employee, I think, in the WPA.

estimating Cobb-Douglas production functions for Professor Douglas, who became a famous senator. That was his job in the New Deal. So his vision of the Job Guarantee Program was... It would be run by the federal government. The federal government would do the kinds of things it did in the Great Depression, in the New Deal programs. We have always argued for a decentralized program.

formulated at the community level. And this ensures that the jobs actually are serving the community. So the community comes up with the kinds of things they want done. And they put forward the proposal. And then the federal government pays the wages. So the federal government is not the planner. It approves projects and provides the funding.

That way you make sure that the people are doing something useful. The federal government would only step in if you had communities that were not living up to that. So, I mean, you can imagine in the American South. in conservative towns where we still have lots of racism and prejudice, that the local governments might not create jobs. for unemployed African-Americans, for example. So federal government would step in and provide those jobs there, but otherwise decentralized.

And we went down and Pavlina, Jan Kregel, Marta, and I went down and studied the Argentinian Hefe's program. which was a limited job guarantee program that they put in place in the aftermath of a severe financial and economic crisis. So we went down in the early 2000s to study their program. And they did this. They had local communities, areas that we would call slums or favelas. They weren't on any map, but there were thousands of people who lived there.

completely off the grid. They would attach a few wires to get electricity in. They put forward proposals and they created jobs for the people who lived there. They built bakeries. And women learned how to cook bread, the first job they'd ever had in their life. We interviewed women who had never cooked a meal for their family. They had no stoves.

They had no money. They relied on begging. They became bakers. They made bread for their community. They were so proud. We interviewed well over 100 women. I don't remember the number. And we asked them, what do you like best about this program? We thought the answer will be, I get to earn money. That was never the answer. The answer always was, I get to do something useful.

I'd feel productive for the first time in my life. My children look up to me. I'm out here working, making bread. Okay? It went way beyond money. We could have just given them money. It wouldn't have satisfied them in the way that the job satisfied them. So these projects were put together by local activists. We also... went to co-ops. So these were worker-run co-ops, for example, making school uniforms. So in Argentina, the kids wear uniforms. I don't know if you do that in Canada.

Pretty rare in America. But anyway, the kids had to have uniforms for school. They couldn't afford the uniforms, of course. So co-ops produced school uniforms. And they were on the hefe's payroll. So their wages were paid, but their goal was to become profitable. And so they could work and say half the day producing school uniforms given away.

and half the day producing clothing that was sold in shopping malls. And gradually they hoped that that line of business could become profitable and they could become a for-profit cooperative. And if you saw Naomi Klein's great movie, The Take, it was about workers that took back their factory that had gone bankrupt and turned it into a worker co-op. So an idea is that in addition to having communities plan projects for job guarantee workers, you also can have workers get together and say,

We hope to turn this into a for-profit enterprise, but it's going to take us a couple of years. So can we be job guarantee workers for a couple of years with our wages paid? by the federal program, and then we can break free. And so that's another way to go about it through work and co-ops. Fascinating.

Worker co-ops, as well as the question of degrowth, are things I want to discuss briefly in the back room. The last thing I want to ask, it's a very short follow-up question to this, and that is... I think the aversion people mainly on the left have to more the far left have towards the idea of a job guarantee is because, you know, understandably, though, a lot of people work a nine to five and they hate the idea of a nine to five.

And, you know, a lot of people listen to this show do that on company time. And so the idea is like, well, you know, in a different society, I don't really, the idea of just doing this, but I get paid a little better. That's not all I want. But to clarify what you're suggesting, and that's why you brought up the Keynes quote, is under an arrangement of a job guarantee, which would be employer of last resort, everyone would be working, but working a lot less, right?

Like significantly less, leaving them more time energy to, you know, build relationships, have a family, pursue, you know, their passions and whatnot while contributing to society. Well, I... Initially, no, but whatever the standard is in the job guarantee program is going to become the minimum. You know, obviously, whatever wage is paid in the job guarantee program, that's going to be the minimum wage, no matter what the law is. If the job guarantee program pays $25 an hour.

Who's going to work in the private sector for 12? Probably nobody. So it becomes the minimum. If the job guarantee program offers healthcare benefits. Which in the United States, you know, we don't get that with our job. But if the jock beer tea offers health benefits, the private sector will have to do it too. Or they're going to lose their workers. Or they're going to have to pay you enough.

You won't jump ship. So it becomes the minimum. If the job guarantee program gives you five weeks of paid vacation in the United States, we have no. law about paid vacation. Firms don't have to give you any. But what if they give you five weeks of paid vacation? That will become the norm. And the private sector doesn't match that or give you something better.

maybe higher pay, something, then they're going to lose their workers. So if the job guarantee program goes to, reduces the work day to six hours. When you still get the same pay, the private sector is going to have to do the same. So it's a way to improve the working conditions and compensation throughout the whole economy. Because if you do it in the job guarantee program, the private sector has to match it.

So the answer is kind of like whatever the government decides, basically. It could decide to make us work more or less or less or for more, which would mean it could be like, I don't know. 70s Sweden or fascist Italy. We had full employment, but under a very different type of policy arrangement, right? It is supposed to be a democracy. Yeah. And so, yes, it should be Congress or Parliament. Thank you very much for coming on. I really appreciate your insights.

Is there any upcoming books or book past works of yours in particular that you would recommend listeners of this show to check out before we now move into it? I think your listeners. Oh, yeah. This one is good for young people. And there's Why Money Matters is the one that's a bit more advanced. And then Modern Money Theory is... This is the more advanced. And then the one that's coming out this month is much more advanced.

So listeners of the show, pick that up. If you honestly like a graphic guide for MMT, that's pretty useful. Pretty easy to read. So yeah, if you aren't part of the backroom yet, if you haven't become a patron and you've been listening to the show for a while, I'd highly recommend so. Because you get access to, at this point, over 60 exclusive episodes.

Some of the most fascinating conversations I've had on the show. And you also get to keep the show going because these episodes do not generate much ad revenue whatsoever. So it's how we stay afloat. Take care and see you in the back room. My only hope is that when enough people become pessimists, then out of despair somebody maybe does something. But you know why I also like to be a pessimist?

because it's the only way to have a nice life. If you're an optimist, then always bad things happen and you are always disappointed when you are a pessimist. Then you look around, okay, there are pets, but from time to time, something nice, and you are, as a pessimist, you are a little bit glad all the time, no? You are listening to One Dime Radio. Become a patron at patreon.com slash one dime to support the show and get access to extra content.