Recommended reading: Hockett and James, "Money from Nothing"

[jke...@pobox.com]

On this list I've often recommended publications by Cornell legal scholar
Robert Hockett.  Today something different:  a book by Hockett and UC Irvine philosophy
prof Aaron James entitled, Money from Nothing:  Or, Why We Should StopWorrying about Debt and Learn to Love the Federal Reserve.

The two parts of the book's subtitle accurately describe its thrusts.  Let's
take each in turn.

Why We Should Stop Worrying About Debt

This part will be familiar to MMT advocates.  Money is ultimately a way of
keeping track of promises which human beings make to one another -- promises
that come with obligations and debts.  "Once enough people adopt [some]
convenient arrangement, settling a wide range of debts and obligations in
their daily business, they've got money." (27)

"This is why almost anything can be money -- tokens, scrip, coins, paper,
checks, or, these days, bank credits.  What a community is doing is
representing its IOUs -- whether in clay tablets, screawled-on napkins
marked "IOU," or electronic marks on bank computers. ... [M]oney is "that
which pays" -- that which is counted as paying or settling debts, so as to
facilitate a community's bookkeeping." (27)

More formally, "basic money" is "[a] transferrable promissory claim or IOU that
a large portion of a community will accept as settling accounts in fulfillment
of a large share of market obligations, debts, or other liabilities.

"A money thus has these four features:

"1. It's a promissory claim (e.g., an IOU; a promissory note -- or what the
note stands for).

"2. It's transferable (e.g., as with an endorsed bank check; a dollar or euro
bill or other unit of currency; or what lawyers call a "negotiable promissory
note").

"3. It's widely accepted in the community for settling accounts.

"4. It fulfills a large share of market obligations, debts, or other
liabilities." (27-28)

"Money, in short, is a promise you 'can pay for stuff with.'" (28)

As distinct from "basic money," "modern money" is state money:  money created
by governments in the act of spending into the economy.  Taxes withdraw this
money from circulation, in effect destroying it.

Hockett and James take on the usual suspects.  Social Security cannot go
bankrupt.  The real question (quoting Alan Greenspan) is whether the economy
can produce the goods and services which Social Security recipients and others
want to spend their benefits on.  The household budget analogy is bunk.  The
public debt is private wealth.  Private banks created money via lending as
authorized by their charters:  a public-private franchise arrangement with the
government.

The authors argue that money cannot be "printed"; only representations of
money can be printed.  "To fixate on gold or green paper or any other material
representation of money is to confuse the thing with its *representation*.
It's an error akin to a fetish or idolatry.  The icon is not the saint, but
merely the saint's representation." (115)

Why We Should Learn to Love the Federal Reserve

Hockett and James argue that we should expand the scope of the Federal
Reserve's mission. They call for the creation of "Citizen Accounts" for all
Americans at the Federal Reserve.  They argue that such accounts will enable
us to cut out the "middleman" role which private banks play in several ways.

First, they can serve as the locus of all financial transactions individuals
have with the federal government, both real and yet-to-be-implemented.  Tax
payments and refunds; stimulus checks; guaranteed annual income; and so forth.

Second, such Citizen Accounts can address the problem of the quarter of the
population that is "unbanked" or "underbanked."

Third -- and perhaps most intriguing -- Citizen Accounts can be vehicles for
the direct implementation of monetary and fiscal policy.  A sudden economic
crisis which calls for the federal government to distribute "helicopter
money"?  Simply apply keystrokes to Citizen Accounts; no need for checks with
Donald Trump's signature on them.  Need to discourage consumer spending when
inflationary pressures loom?  Raise the rate of interest paid on these Citizen
Accounts to encourage saving.  Paying interest on Citizen Accounts would
remedy the unfairness that results from commercial banks failing to pass on to
their depositors the interest that the Fed pays the banks on reserves.

Fourth, Hockett and James note that if the Fed creates Citizen Accounts on the
liabilities side of its balance sheet, it will need to look for corresponding
entries on the asset side.  This can be the way through which the Fed can
engage in "portfolio shaping" by lending for productivity enhancing
investments, especially including a Green New Deal.

In addition to Citizen Accounts at the Fed, Hockett and James call for the
federal government to play a stronger role in the direction of
productivity-enhancing investments:  a National Infrastructure Council.

Comments:  In the Fed We Trust?

Nowadays the Federal Reserve System is one of the few parts of the federal
government that can be described as reasonably well-functioning, especially in
comparison to all the cabinet departments and regulatory and scientific
agencies whose missions have been compromised by the Trump administration.  It
employs more economists than any other institution in the country and produces
tons of data and analysis, all in the public domain.

As such, it is a policy wonk's dream -- and Bob Hockett is a policy wonk par
excellence.  As he notes in the book, he was once employed by the Fed to
provide "contrarian thinking."  Can you imagine any Trump cabinet department
hiring a contrarian?

MMTers tend to downplay the "independence" of the Fed and stress the daily
cooperation between the Fed and the Treasury in the conduct of monetary
operations.  However, the fact that the Fed is chartered to report to Congress
does give it a measure of institutional self-control that executive branch
agencies lack.

The Fed has other critics on both the left and the right.  A "vulgar leftist"
take on the Fed would be that it is a mere organ of the capitalist state.  The
American Monetary Institute's take leans more in the direction of the Fed
being controlled by a cabal of big private sector banks.  Go to Amazon and
search for "Federal Reserve conspiracy" or "Federal Reserve tyranny"; you
won't be disappointed.

So any proposal to expand the Fed's mission would be quite controversial.
Perhaps we should also ask:  Would the Fed, as an institution, want to take
on this role?

Hockett and James and MMT

Hockett and James voice disagreements with "MMTers" on a number of issues.
They claim that "many MMT advocates" argue that creating a Job Guarantee means
that we should not also have a basic income grant.  They understand the MMT
argument that the Job Guarantee is non-inflationary and that a basic income
grant is potentially inflationary.  But they have confidence in the Fed to
manage any inflationary pressures that might come from people receiving basic
income without helping to produce output.

It is unfortunate that Hockett and James fail to reference any particular
"MMTers" in making this argument.  They name no names and footnote no articles
by MMTers.  So while their "both/and" position is prima facie plausible,
someone familiar with the JG vs UBI debate wants more.

Hockett and James also note that MMTers (again, no particulars, but they could
be referring to either Bill Mitchell or Randy Wray) argue that we've reached
the limits of what monetary policy can do in terms of countercyclical
macroeconomic policy and that we have to revive fiscal policy.  The problem
they see is that the most powerful tools in fiscal policy, changes in federal
spending and taxation levels, are in the domain of Congress.  They are vary
skeptical of Congress's ability to drive the "economic steering wheel," as Abba
Lerner would have expressed it.  They place more trust in competent
bureaucracies.

Summary

The book has two editorial defects.  First, the footnotes for Chapter 15 don't
start at '1'; they continue the sequence from the previous chapter.  So while
the book has excellent endnotes, you can't find those for that one chapter.

Second, the book lacks an index.  This is a real loss, because many of their
concepts re-occur from chapter to chapter and it would be nice to look up a
given topic in the index and track its evolution through the book.

When writing solo in his Forbes.com columns or his law journal articles,
Hockett's prose style is quite arch, almost as if he had just taken a first in Rhetoric at
Oxford.  Pairing with up a philosopher has, surprisingly, led to a
prose style which is much more breezy and better suited to a general audience.
Perhaps that is because James, the philosopher, has published books brazenly
titled Assholes: A Theory and Assholes: A Theory of Donald Trump.

But overall, this is one of the most interesting examples of MMT-influenced social thought
and advocacy I have come across.  I'll be drawing on it extensively in the
online MMT course I'll be teaching through the Henry George School starting on November 9.

Until I finished the book, I had not bothered to look at its dedication in its
opening pages.  With all of Hockett's and James's proposals for extensions of federal
government activity into macroeconomic management, it is not surprising that
the book's dedication is to "the memory of Alexander Hamilton and his continuing legacy" (v).  So if you are in New York City, perhaps an appropriate way to absorb this book
would be to take it with you on a walk through the graveyard of Trinity Church
on lower Broadway and read it at the grave of the first Secretary of the
Treasury and the father of central banking in the United States.