Money on the Left

Money as a Constitutional Project w/ Christine Desan

August 06, 2018
Money on the Left
Money as a Constitutional Project w/ Christine Desan
Chapters
Money on the Left
Money as a Constitutional Project w/ Christine Desan
Aug 06, 2018
Money on the Left
We discuss money's constitutional origins with legal scholar Christine Desan.
Show Notes Transcript
We are joined by Christine Desan, Leo Goettlieb professor of law at Harvard Law School to discuss her excellent book, Making Money: Coin, Currency, and the Coming of Capitalism. Desan argues that money is a constitutional project, countering the dubious “commodity” theory common to contemporary economic and legal orthodoxies. Desan develops her constitutional theory of money through rigorous historical examinations of money’s evolution, from medieval Anglo-Saxon communities to early-modern England to the American Revolution and beyond. Link to Desan's book: https://www.amazon.com/Making-Money-Currency-Coming-Capitalism/dp/0198709579

Speaker 1:
0:07
[inaudible].
Speaker 2:
0:09
You are listening to money on the left, the official podcast of the modern money network humanities division or m m n h d for short. I'm Billy sauce along with Scott Ferguson. I'm co-director of mmn h d which is a big tent organization for scholars, social critics and political activists dedicated to recovering and redeeming the cultural and political aspects of modern money past and present. Follow us in social media at at money on the left in catch videos from a recent international conference on our youtube and Vimeo channels and this episode we are joined by Christine Disown Leo, got professor of law at Harvard Law School in addition to teaching courses at Harvard on the International Monetary System, the constitutional law of money in political economy. She also serves as co founder and co-director of Harvard's program on the study of capitalism, which is an interdisciplinary project that brings together classes, resources, research funds and advising aimed at exploring that topic.
Speaker 2:
1:11
Scott, Max and I, we're very glad to have a chance to speak with the son about her excellent book making money coin currency in the coming up capitalism, which was published by Oxford Oxford University press in 2015 in making money dishongh counters the dubious commodity theory common to Contemporary Economic Orthodoxy with her own theory of money as a constitutional project that is as a political and legal system that may be designed in her words, in ways that are democratic or dictatorial, stable or fragile. In stark contrast with the historical nature of Orthodox money theory, the sons' theory is derived through rigorous and expansive examination of monies evolution from medieval Anglo Saxon communities to early modern England. In addition to chatting about the book and related projects, we also talk about the unnerving experience of confronting in spite of one's best efforts at avoiding the critical importance of money theory to the study of political economy. Thanks to Alex Williams for producing the episode and to Hillbilly Motorbike for providing us with the theme music.
Speaker 3:
2:26
Christine design, welcome to money on the left.
Speaker 4:
2:30
Thank you. [inaudible].
Speaker 3:
2:32
It's great to have you here. Can you tell us about your scholarly training and intellectual influences? Do you situate your work within a particular school or tradition within legal studies?
Speaker 4:
2:43
Okay. I think I do situate my work within a particular school. I'm probably in, I'm most closely affiliated with critical legal studies. And for me that, uh, that affiliation when I was in law school and I took a course called death of the law, and definitely law was taught by own fis and Tony Kronman at Yale law school. And it explored the difference between liberal approaches to law and the critiques of liberalism that were developing in the late 1980s. Um, and the seminar was a formative for me because on the one hand, Phis and Kronman were deeply invested in the liberal project that was a right space, defensive, progressive social change. Um, and I was sympathetic to that project at the same time. The critiques that they wanted to understand were more persuasive to me and those critiques were based in, uh, mainly in critical legal studies.
Speaker 4:
3:53
Um, and to a lesser extent in some allied approaches. So for example, the normative, uh, work of Robert Cover. And, um, so the CLS critiques really evoked for me, I guess an older influences influenced which was a social theory and cultural anthropology. And that work I had studied as an undergraduate, um, where, uh, when I majored in religion and sociology of religion. So I would say going way back at the moment when everyone was taking the cultural turn in the earlier 1980s, I was thinking through that work, which was itself critical, um, work about work that taught us the complexity of reason and knowledge, the kind of layered nature of those, um, of those, uh, conclusions, if you will or, or practices the way they depend on different strata of learning and context and assumptions and experience. And when I then later in law school stumbled into this course, it seemed to me that, uh, that critical legal approaches were in some ways developing those earlier insights and applying them in the legal field.
Speaker 4:
5:12
So, so that kind of set of approaches was very influential. Um, later I started doing historical work and when I did historical work, both the institutional, really the early institutional historians of the 20th Century, uh, I found really fascinating. I thought their work was very important. So this was a set of historians whose work in many ways had been set aside in the late 20th century. Um, as people were more interested, actually were following themselves, the cultural term we're doing cultural history and social history. I was finding the earlier progressive's people like beard and later people like, um, uh, Jackson, Turner Mane and Jack Green who were fascinated by the importance of institutions and the way practices within institutions changed. I found those that work to, to eliminate power structures in a way that I wanted to understand. So earlier, so this sort of institutional histories of the 20th century became a place for me to learn and explore power structures and that somehow combined with the, um, you know, people were also in the eighties and nineties doing a lot of interesting work about ideological history. So for me, the practice of human, um, the practice of authority, I guess I would say within governance structures became a focal point. And it was, and I was, and I wanted to be able to use both institutional and ideological histories to understand,
Speaker 5:
6:58
yeah.
Speaker 4:
6:59
Um, to understand, uh, this sort of practice of authority.
Speaker 2:
7:04
Thank you. And I, I wanted to ask you, you know, given your narrative of your intellectual history and in the fact that you sort of arrive, um, at an interest in authority structures and, and the role of institutions in those, it, it seems like it's not so surprising that you end up at money. Um, but it probably is a little bit surprising. I'm, I'm, I'm, I'm guessing or was it a straight line from that kind of interest in institutions to money or what brought you to the question of money?
Speaker 4:
7:39
So it was not at all a straight line. I think I spent a lot of my life avoiding money. That is to say, I spent a lot of my life and I think I'm not alone in this and I'm in very good company. Um, yes. Avoiding the economy, uh, as someone who really thought that the economy and matters commercial were not as important as other, uh, human drivers have experience in existence. I was more interested in other aspects and, and was kind of emphatically, um, avoiding matters, economic and monetary matters. Um, in some ways I think this is a disciplinary instinct. So many of us went to law school or went to history Grad school in order to avoid going to economics or going into some other field that was, you know, that, uh, that focused on commerce or on trade or on finance. Um, and in the early work that I did, I remember skipping the references to money. So I was doing historical, I was doing historical work on early colonial legislatures and there, you know, the, I kept tripping over these references to money and like many historians and legal scholars, I kept skipping them cause I really, you know, I didn't want to, you know, it seems like a technical, um, detour and one that I didn't really understand and I didn't completely appreciate that they were spending so much time arguing over this technical detour. So I kept skipping it. Um, and uh, so I was [inaudible]
Speaker 5:
9:09
cool.
Speaker 4:
9:10
I would say I was very belatedly at, belatedly, I came to the recognition that that legislators and commentators and lay people who are arguing over power and authority and making claims, all of the things I talked about when we tried to understand how law works, that they were always talking about money, that money was all over the records that I was looking at and that I had to confront it and face it. And that in fact it would be the way in for me to the market. So when I spoke about property and how critical scholars want to understand property, not as a kind of on-off concept that either you have control or you don't, but as some kind of complicated, negotiated phenomenon, um, I wanted to do the same thing with the market as a whole instead of assuming that it was just a natural entity or something that was, um, that was somehow clear and universal and rational. I wanted to understand it. And as I, after having avoided money for several years, I realized that money was actually the way into the market. That if I could understand the way money worked, then I would have a handle. You know, I would basically be understanding the medium for the market. So that didn't, you know, and that maybe that was the way that money was the institution that would allow me to understand the market more the market as a legal project, as the kind of critical note take a critical approach to the market itself.
Speaker 2:
10:52
Was there one moment or text or set of ideas you encountered that, that really made it most clear to you? Or was it more of a gradual?
Speaker 4:
11:04
Yeah, there was a moment, there was an arresting moment, which is, um, I saw, I did all this work about early America avoiding money, but immersing myself in the discourse the way people were speaking about, about governance. And then, uh, about a year later I started looking at the late 18th century and the debates, these famous debates between Hamilton and Madison. And I realized that the whole discourse of governance had changed or was changing and was, uh, anomalous, was very different, dramatically different from the way that people had been talking a hundred years later. And the grounds of their debate, the grounds of the change was monetary. Uh, and w they were, the way that people were talking about the market was dramatically different. And that was the moment where I thought, um, where it struck me that both I had to understand what money was as an institution and then I really wanted, I desperately wanted to understand what had changed, why they, why the debate was so different between the early 18th century in the late 18th century.
Speaker 4:
12:16
And, um, and it turned out just to get to the punchline, it turned out that, you know, they were basically debating, in my view, the transition to capitalism between, you know, that, that Madison, Hamilton and Madison were right on the cusp of new, a new approach to, to money and to the monetary as a mode of governing. And, uh, by contrast, their peers in the early part of the century had been talking about money a completely different way and they'd been working towards a different form of governance around money. That money as this medium was creating for them, a different kind of governance experience than it would be for Madison and Hamilton. So it was really that it was very arresting, seeing the difference in the debate over the sort of, in the character of their discussion about money.
Speaker 2:
13:10
So it was arresting, was it, how did it feel given the, I think, common experience, uh, of a lot of people having studiously avoided money for so long and coming to that realization that, oh no, this might be the key to what I want to do. Um, how did that feel and were there any next, what was the next step that got you doing what you want it to be doing? It's
Speaker 4:
13:36
such a great question. It felt like falling into a black hole. It felt, it felt really scary. I mean, it was frightening because I didn't, I really did not understand their debate and I understood that I didn't understand. Um, their debate and, um, and it has been a series of black holes ever since. So I spent, I spent, uh, probably four or five years trying to understand the early American transformation. And after that time I thought, I really can't understand what money is. And so it was the another cliff that I fell off and t and went even further back to try to understand what money was in the English experience. I mean, I really felt like I couldn't understand what the colonists were actually doing or I wanted to understand where they got their ideas from. I had figured out some things about money.
Speaker 4:
14:29
I kind of had more reference points. I had a compass by then, which was a little bit of a comfort, but, um, but you know, the comfort the compass was leading me, taking me further back. So yeah, it felt like a series of cliffs that I fell off. But on the other hand, I was so fascinated. I mean, I became more and more convinced that there really, these were extremely important debates and that people like me had been ignoring them for four years. Um, wow. At the same time, other people who I wanted to, to understand like Madison and Hamilton and their predecessors had not been avoiding them. Right? That they'd actually been focusing on monetary matters and you know, just to lead forward. I think that's also part of a historical transition. So I think we've learned to ignore money, uh, and that that's an important part of, um, of our current modernity.
Speaker 4:
15:28
We've learned to ignore how it actually operates. We don't ignore it. We worry about it. We obsess over it as a thing, but we don't try to get inside of it and understand it. Whereas in earlier generations, people did actually, um, try to manage and understand and recreate and re-imagined money more than we do. So, um, so they were kind of an invitation. That is all those people who had, who had been immersing themselves in money and in money creation. And in trying to understand money, we're kind of, you know, they were at least an inspiration that I should try to try to retrace their steps and figure out what was, you know, what they were arguing about.
Speaker 6:
16:14
So let's, uh, let's dig into it. Um, in your book, is it making money? You, you do just that. And, and you argue that, um, the 17th century sees a revolution in moneys design that, uh, obscures its underlying social structures or institutional and constitutional power. And I was wondering if you could sketch that history for our listeners and explain why it's so important to discern.
Speaker 4:
16:39
[inaudible]. Yeah, so the book really does, um, tell the, trying to tell the story of this great transformation and um, it argues basically that money can be designed in different ways that communities have designed it in different ways and that the world
Speaker 5:
16:57
that [inaudible]
Speaker 4:
16:58
politics and social life changes with those changes in design. Um, and in a nutshell, at the end of the 17th century and in the 18th century, uh, the British took a series of, they improvise really a series of changes in the way their money worked that put private investors in charge. And that in charge of my, uh, money design and that change had huge ramifications. It PR on the one hand broke through old constraints on the amount of money in circulation. At the same time, it elevated the rights of creditors in new ways and um, uh, and that really, um, restructured governance and the economy. So just to dive in, to dive in and to, to clarify why we could understand this. As lawyers and as historians money, it turns out really is a contract. It's a contract, a kind of credit contract and contracts for credit for things owed can be made in different ways.
Speaker 4:
18:12
So the reason money can be designed in different ways is that you can make an agreement to pay in different ways and um, with different conditions and different, um, characteristics. And, and changing that kind of monetary contract is what communities do when they're redesigning money. So to get really specific, um, and what the book does is take a trip back in time to understand early kinds of money as a contract and then compare them to the new modern design. So the early design, the design that's kind of iconic and that we all think we understand is, um, commodity money. So the silver penny, I re thought, I really need to understand what the silver penny is. Because according to economists, it's a, it's just a thing. It's like a slug of metal and it has value because it's silver. And that seems intuitively so appealing that we've not asked whether that's really what, um, what, you know, what a coin was.
Speaker 4:
19:16
Um, in fact, when I dove into it, it turns out it's not the way coin worked. That the fact that it contains silver was only one of its characteristics and not the one that made it operate as money, particularly. So. So maybe I should just tell a story about how silver penny's got going and the s and the story I hope will make it clear, um, make it clear how money operates and then we can play with the story and make it modern. So the old story, um, goes something like this. You know, there, there are communities that, uh, in which everyone's contributing, uh, that's how they survive as communities. We have labor that everyone contributes to the center. And, um, let's say everyone gives a day of labor every month. All the adults, uh, at a certain point, the community, uh, faces some kind of emergency where they can't just rely on the routine contributions of, you know, let's say the 10 people who happened to be on call that day.
Speaker 4:
20:17
But instead they have to enlist, um, more people to work that day to, you know, repair a damn that breaks or um, or repel enemy invaders. And they enlist all those people. Uh, when the enemy, when the enemies ripples through the emergencies over the stakeholders for the community, give those people who worked early before their, their time of contribution contributing their labor was actually do give them a token. That's like an IOU that says, um, we recognize that next time we come around to asking for your contribution, you've actually contributed early and, um, you can just give back this token. It will represent your contribution. Uh, and we will accept it as such. That's, uh, that kind of IOU has, is now, um, a unit that holds value that everyone recognizes, which is the value of the tax contribution given early. And, uh, one more twist makes it money, which is if those people, if the stakeholder will accept that token back from anyone, um, then, um, then those people, the people who contributed labor early can use it with each other, can use it in trade with each other.
Speaker 4:
21:31
It represents a certain amount of value, which is the tax contribution. Everyone is willing to take it because they can use it themselves to pay off their taxes. So that story which I've told before for those, um, for people who've read the book, they'll recognize it as the stake holder story, um, explains money as, um, uh, uh, an IOU given from the center to people who have contributed their own labor early. Uh, and, and, um, they'll also see that if you have these kinds of tokens and you allow them to do travel between individuals, um, then people can use the token as a medium of exchange. The Medieval World Penny's, uh, functioned in that way. And the question then becomes, why would you make this token, make this IOU out of silver? And, uh, it turns out there were many reasons in, uh, in a primitive and sort of, um, uh, a rough worlds where there's not a lot of administrative capacity to make money out of silver.
Speaker 4:
22:39
It's durable. You don't have to worry about, um, about it falling apart while people are holding it. Uh, something that would make the people who had contributed early, very unhappy. If you gave them a token that then fell apart, say a token made out of wood. Um, it was also a hard to counterfeit, so you couldn't, so people who had the silver, uh, it wasn't easy to refine or to mint and only the, um, you know, authorities at the center who could control the mince might have that capacity so you could control the number of tokens out there. Uh, and finally you could, you actually had created a token that contained collateral. So people had something with value, um, that they would, could trust therefore more than they might if you just gave them a written promise. So when we actually think about how money came about or the incentives for a public to make money and the incentives for people to hold and pass around money, we can see we sort of flipped the story of the penny.
Speaker 4:
23:45
So, um, instead of the penny existing, because there silver, we have silver, um, acting as collateral for a money. Um, that actually comes about first for kind of credit agreement with people that comes about first. If you think about that, um, kind of money design, it makes sense of many things like the control of medieval sovereigns of the mint, um, their claim, uh, over money. And um, uh, it also makes sense of conditions of the market, uh, which the market was, um, uh, difficult, not very liquid place in which money was hard to come by because silver was hard to come by. Uh, we can also understand other things. So for example, mince this, the book tells a story, um, at more length, but mince had this very interesting capacity, um, in which they'd actually, um, charge people for money. So you could set up a system, this, the, the king could, the sovereigns could set up a system in which there, um, actually taking silver for people and creating coin for them.
Speaker 4:
24:58
You could, in other words, by money at the mint for all the kinds of exchange you wanted for private. You could buy coin for private purposes as well as, um, as by the kind of coin you needed to pay your tax obligation because increasingly kings were going to tax in coin, not in kind or in labor. So we could talk more if you're interested about this old world kind of money. But the point is that it was, um, a very carefully structured system of political obligation in which sovereigns had converted in kind political obligation into tokens that were made in a material that was durable and hard to counterfeit and provided people collateral and even allowed them to buy money, uh, by more money at the mint for their own private use. So it was a very interesting, sophisticated system. Uh, and I'll add one other thing.
Speaker 4:
25:57
It also sovereigns also supported this system by demanding that people use money for or by, I'll put it the other way, by enforcing deals made in money in so far as they agreed with those deals. So the law, the common law, law of contract and property and torts were, were forms of um, public in enforcement made in money. So contracts, the early English common law only enforced contracts that were monetary, the early Roman law enforced contracts that were monetary so you could pay off a debt only in coin, not even in silver. And uh, the way to think, I mean the, the, the interest in an interesting part of that is that um, sovereigns are actually writing their own systems for law and order into their agreement to enforce obligations for people. So, um, I could go on about that, but it's just an, uh, worth noting that the, the, the law that we think of as kind of existing, um, I in its own terms is actually written in money and in the enforcement of money. So the, so as money penetrate society, that's the th that is the channel that sovereigns are using to write the, you know, to determine which things they're going to enforce and therefore write their own system of order into, um, into the social world.
Speaker 7:
27:35
[inaudible]
Speaker 8:
27:52
[inaudible] [inaudible] [inaudible] [inaudible] [inaudible] [inaudible]
Speaker 6:
28:36
it's such an interesting story because then you, in your book, you, you tell the story of how that, the kind of institutional, the public institutional construction of money, um, gets reinvented in a way that is skews its public origins towards kind of private, private, um, towards private commerce or private origins. And I was wondering if you could talk about the specific moment in which, um, that reinvention happens and how it skews, uh, production in, in, in favor of the profit motive as opposed to a broader public social processes.
Speaker 4:
29:16
[inaudible] so this is the, this is the critical moment, uh, in fact. And now that we think, now that we have the, an example of the way money works as a contract, we can see that it could be made of anything we've understood. We've talked about why one, you know, societies in early worlds might make it out of silver, but in fact, there is no reason that money would to be made out of silver. So the English kind of stumble, many, many different communities have made money out of many different materials as you know, and they're in, um, shells and, um, paper and in fact wooden sticks and Shell, uh, all sorts of things. Right. Um, but, uh, what the English do as one of the series of experiments is, um, is that they decide to make money out of the promises of investors. So, so the catalyst for this new monetary adventure is war in the 1690s.
Speaker 4:
30:21
The British are fighting against the French as they often were in those days. And, uh, and the government is very short on funds and the, and silver. So the silver currency was going through one of its usual, um, sort of periods of, uh, disarray. Often silver coin, which seems so stable to us is actually a really hard medium to keep in circulation because it wears down and people begin to hoard silver at times or people exports silver and uh, and the British were experiencing all these problems in the, in their silver money supply in the end of the 17th century for various reasons. So the British government experiments, it, um, it agrees with a set of wealthy investors to take their promises, invites them to lend to the government 1.5 million pounds and it, uh, and it will pay it back over a long period of time.
Speaker 4:
31:23
The catch is that, or the kicker, the innovation is that the government agrees to take the 1.5 million pounds from the investors in written promises to pay in bank notes. And those bank notes, uh, promised the bearers silver. So instead of the government having to have silver, the wealthy investors would have the silver. Um, they make the contract, the bankers hand over the 1.5 million pounds, mostly in bank notes. The government spends the bank notes and then at some point in the next years it starts taking back the bank notes in taxes. If you think about it, the government really has to take back the bank notes because it spent them, it has to stand behind them and recognize them as valuable just as it paid people. It will accept the written promises of the bank back in taxes. But once the government does that, it has set up the same kind of credit issue and credit, um, redemption that it set up with the very first tokens and intern with coin that is, it's set up a kind of loop of credit in which is issuing a unit de facto and taking back a unit.
Speaker 4:
32:39
So it's created money without using silver or gold. And the striking thing here is it's not clear the British understood exactly what they were doing. They had people had theorized different bits and pieces of it. But what they didn't realize is that or what's not clear, it's not clear that they realized that if they set up such a system, nobody really needed to cash the bank notes because the bank notes held as much Mo, as much value as the government would give for them. As long as the government was taxing and was, you know, was a serious viable government and people had to pay their taxes and something, they might as well pay it in paper as in silver. There was no need to go to the bank to cash the money. So, uh, it's an amazing moment where we see the, um, we see this innovation, which is defacto the government creating credit money out of paper through the intermediary of a group of investors, um, in a way that will liberate the government to spend much more paper into circulation than the amount of silver coin that is in existence.
Speaker 4:
33:57
The other thing that's striking about this moment is that there's no reason you actually need the investors in the middle of the relationship between the government and its taxpayers and its citizens. And in fact, at the same time that the government is borrowing from the Bank of England, it's also experimenting with just direct issue bills where it spends English money into circulation and taxes it back. And both of these things, whether you spend the government, the government's promises into circulation and tax them back, or you spend the banks promises into circulation and tax them back, the government's basically supporting and creating money, um, through, you know, the depends on its own credit loop, but, um, but the, the system that takes off, uh, for many different reasons is the bank structured system, uh, perhaps in part because the government finds it useful to assimilate, to kind of, um, channel the legitimacy of the investors who nevertheless are holding a silver reserve.
Speaker 4:
35:06
Um, and perhaps because the investors are politically powerful, uh, politically powerful group who find this to be a really, um, a lucrative profit making, uh, Opportunity. So, um, as the, so the English basically over the 18th century, start developing this relationship with this group of investors who become, who are the Bank of England and the Bank of England is the first really, um, robust national, a national bank that issues what becomes the everyday currency. It takes a long time there first there only large dump denomination bills, but over time the Bank of England will be, um, will be issuing the money that becomes the, um, the English paper sterling. Uh, and, and there are all these, uh, there are many governance changes we could talk about that are wrapped up in this, um, in this innovation. So the government for example, for the first time is delegating. It's, you know, public power. It's sovereign monopoly over money creation to investors who will make decisions about when to issue money.
Speaker 4:
36:22
Those investors will also have the incentive to police taxation. So they'll be, um, pressing the government to, um, to, to, um, tax in a disciplined way, ways in order to get repaid. It's the bank investors now who will profit from, um, from this funding technique that allows them to issue many paper promises on a much smaller silver reserve. Uh, anyway, so it's a, it that what we've done is see that the government has, that the government working with wealthy investors have created an intermediary, a set of creditors who now will inter mediate the relationship between the government and tax payers.
Speaker 3:
37:06
In your book, You triangulate this uh, revolution and monies designed this story of a political economy between on the one hand, uh, an emerging liberal philosophy, um, by the likes of John Locke and probably Newton and others. Um, and on the other hand with, uh, a specific legal story, um, centered around this case of mixed money. And I was wondering if you could talk about those two, those two poles of this story.
Speaker 4:
37:43
John Locke's intervention into this moment of experimentation exposes in a really valuable way, the changing
Speaker 9:
37:53
okay.
Speaker 4:
37:55
Philosophic bases of,
Speaker 9:
37:58
um, of
Speaker 4:
38:00
money and the market and the economy. That is to say he shows us how the old way of making money and the new way way of making money are based on and you know, sort of perpetuate very different ways of thinking about the market and the economy. So, um, so to leap to John Locke in particular, what he articulated and captures about the new method is that it's based on, um, the notion that individuals determining their own profit will be in his view, the best, um, the best agents, uh, for the economy and are the way to understand the economy that we should understand the economy as an aggregation of individuals acting for their own profit. And the reason that he, um, comes to encapsulate this is that he understands money. When you, when you go back and look at his work, he writes about money as something that people all converge upon for their own interests.
Speaker 4:
39:06
Let me just connect that to the new monetary form and then we could talk more about loc if we wanted to. The specifics about the way he tells the story. But if you think about the new institutions, the, the kind of device that is supposed to run this new moneymaking machine is individual incentive to profit. So in particular, the investors have the incentive to lend to the government for their own profit and by calculating their own. Um, but by calculating the amount that they'll benefit, they'll determine how much to lend to the government. So instead of thinking about money as something that is a public medium, which the sovereign is controlling, we're now thinking about money as a medium in which the caliber, you know, the device that's calibrating supply will be the incentive of investors to create money when it's beneficial to them. To give another example, just to drive, and this is a really, this is a very unusual way of thinking about money or thinking about individual profit.
Speaker 4:
40:13
Because as you know, as is, you know, we all remember in the Medieval world, you, sorry, or making money for profit or making profit on money. Uh, was advice considered a sin. Greed was a sin. Um, these things were, uh, you know, it was the, it was, um, the office of the Church to try to suppress human motivation, um, for greed and for self-serving profit by contrast with the British are doing and what seems to be so important in terms of understanding the governance aspects of this is what the British are doing is they're institutionalizing the motive for profit and individual self interest at the heart of a public project, which is moneymaking and their understanding that incentive as therefore beneficence. So they're identifying instead of identifying self interest in the drive to self interest as a sin, as a problem, they're identifying it as a benefit.
Speaker 4:
41:16
And you can see this in the era more generally. So an a monitor, another kind of monitoring move that they make that's very closely related to this is um, they're creating circulating public debt. They're convincing people to lend to the government, uh, for their own profit. So they begin to issue public bonds. And the way public bonds work is that anyone who lends to the government will be creating public good because they're lending to the government. But they'll also be doing that for their own profit because they'll get interest on the public bond. So that's before sovereigns had borrowed, you know, from big financier's but they hadn't popularized, they hadn't tried to popularize the incentive to act for your own interest and they hadn't identified that as something that would actually be beneficial to um, to the public. So they're kind of identifying public good and self-interest.
Speaker 4:
42:15
This is all to get back to lock, which is to say he understands self-interest and the drive to individual profit as something that can be beneficence and can act as, um, as a driver in the aggregate of good things. That's how he understands, um, money in the economy. It's a way of thinking about the market as, as private decision making that when, when practiced collectively will lead to good outcomes. And part of what's fascinating to me is that that new theory about the way market works, the way the market works is really, really emanates from these institutional experiments. Um, you know, as well as other influences that allowed us to get to the institutional experiments in the, in the first place. But the institutions, if you see what I'm saying, are actually creating practices that PR that, um, that invite theories that really change the way we think about profit or the change the way that, uh, early modern thinkers, um, considered profit and greed.
Speaker 4:
43:20
It, you know, rehabilitates them if you will, or habilitate them for the first time by contrast. So you asked about what the contrast with the baseline was really why that's a new way of thinking. Uh, in the earlier worlds where we had commodity money circulating. Um, there's no group of private individuals who are, um, benefiting from the production somehow who are controlling, who have a controlling interest. Um, and whose interests following, you know, whose interests are themselves driving the system. Instead, we have the sovereign and public public officials, uh, tasked with making determinations that are for the, um, for the good of the whole. I don't want to idealize or romanticize the Medieval world there, you know, it's, it um, is not a democratic populist order by any means, but the, but the way people are understanding the sovereigns rule is that the sovereign should act for, um, maybe for religious reasons, right?
Speaker 4:
44:30
In terms of right is tat the sovereign is supposed to be acting for the good of, um, of his realm and the people in it. And that produces a different way of thinking about money in a different way of thinking about the market. So you asked about the case of mixed money. That's a case in which, um, the court faith, the, the decision makers in the court, uh, faced and articulated this different kind of theory and in particular what had happened, what happens in coin, in worlds with coin is that sometimes you have to expand the money supply to take care of, um, you know, either, either because I'm either because money has worn out and it needs to be remitted or because there is some kind of, in this case, military demand and sovereigns want to greatly expand the money supply. My point is that what, what the way that you recalibrated a money supply that was metal was by changing the amount of metal in the coin.
Speaker 4:
45:35
And often that meant usually that meant debasing it diminishing the amount of silver in the coin either to get it to get all coins, to be back in whack with this, you know, with a certain amount of silver in them or because you wanted to debase the money supply to create more coin to pay for military expenses. And, um, while we might not think military expenses are in the public interest, uh, and certainly some of them aren't. Um, any of them aren't in the, in these, uh, centuries. Um, in the Medieval world, the question was, uh, the often arose, could a sovereign expand the money supply, change the amount of money in coin for what they considered the public good, the defense of the kingdom. And, uh, and Queen Elizabeth had done that, had to base the money supply to put down a rebellion in Ireland.
Speaker 4:
46:26
Uh, uh, this is part of the oppression by the English of the Irish. And they, and the question came up to the English court, the British court was that part of the, with that exercise by the sovereign, that refiguring of the money supply, something within the, the power of the sovereign. And despite the, in some ways, um, despite the harmful ands of military action, the, the court sees, uh, confronts the issue of public power over the money supply and confirms it, uh, by emphasizing the need for the sovereign to protect the realm and the need for the sovereign to protect the money supply and to be able to manage the money supply and create additional money when it was necessary to defend the people. So there's a, um, what the court does in the case of mixed money is elaborate a theory of money that, um, understands money as a contract between the people on sovereign for the public good that has to be managed, um, in the public's interest.
Speaker 4:
47:51
And there's nothing, if you think about, you might disagree with the ends here of the use of money, but there's nothing in the decision about individual profit or there's nothing that understands the market as an aggregate of people acting in their own, um, self interest. It's instead of very, um, it's an a decision that understands the market, the economy, the use of money as completely for public ends and within the control of the public. In this case, the sovereign not um, not the control of private individuals or of creditors. So it's a really, um, so the contrast between that way of thinking about money and a hundred years later lock's way of thinking about money is really dramatic.
Speaker 2:
48:37
Now a critical listener might hear the story about monies revolution in terms of these experiments in this improvisation then locks intervention in here, the words, you know, profit, [inaudible] self-interest and sort of understand, come to understand them as, as baked into the cake of the modern money form. I mean, and then maybe conclude that that yes, modern money is critical to capitalism and then maybe somehow not redeemable for, we can't go back to that moment where it's serving the public. Um, t to what extent do you think that self-interest remains sort of at the center of the story? And do you think that there are other encouraging ways to think about what modern money is and how it works, not just based in self-interest?
Speaker 4:
49:35
I think that, uh, self-interest remains baked into the cake in important ways. And that is not the same thing as saying we need to leave the cake that way. So, so to play with that metaphor, so let me give one example of the way it's baked into the cake and then, and then maybe we can, you know, just figure out if we would want to Redo the recipe. Rethink the red. They think the rest of you. Right. Um, but what one thing we haven't talked about that seems important to add here is, is that every community I've looked at that makes money. You know, they're all different. Um, each time that I see money, what I see our communities creating different ways to issue credit and take it back in sometimes through these investors and sometimes other ways. Um, and, and in each case, the, the does that, the people in that people who are engaging in everyday exchange want more money than, than the government makes for its own purposes.
Speaker 4:
50:38
So one thing to take away from understanding the stake holder story is that the public is working, is doing this for its own reasons to mobilize an army in the case of Elizabeth or you know, to build a road in a more benefits in world or um, or to create a welfare system in another world. The government's working to create a medium for reasons that are public oriented. But in each of these worlds, people want to do, make their own. Do you want to do exchange with each other? And there's not always a correlation between the amount of money that should be in circulation from the government and the amount that people want for their own uses. So in each of these communities, people are looking for and, and are working with public authorities to amplify the money supply. In the old world, we already talked about the way the amplify the money supply, which is the labor, the mint would sell people more coin than was needed to pay your taxes, would sell.
Speaker 4:
51:36
People coined for silver just so people could and people would go buy it at the men in order to be able to make exchange with pennies in the new world. The reason I mentioned this is to get to the baked into the cake point, um, uh, in the new world. And that is to say once we had the Bank of England creating a money supply at the center for the government, um, a whole set of other banks of modern banks, we vote we've had, there were banks in the Medieval world that were banks run by and in response to merchants that facilitated merchant trade and cleared accounts between merchants, monitored banks don't act that way. Modern banks came along sometime after the Bank of England in the 18th and 19th centuries. Joint stock banks and country banks. Um, set up shop using a model that was very like the Bank of England's model. In some ways.
Speaker 4:
52:33
They're, they're echoing the logic of the Bank of England and they would, they do today, take a promise. Just as the Bank of England took a promise from the government and issued promises. These banks took promises from individuals and issued, um, took longterm promises from individuals and then issued notes against them, sort of atomizing the Abo, you know, the agreement by individuals to pay back. Eventually they'd give, you know, if that's a longterm prop promised by a person, then these commercial banks would issue little notes, give little notes to the people, um, who were borrowers, um, allowing them to use those bank notes to go off and do their projects, um, and pay back the bank eventually. And um, what I'm saying is that these commercial banks are amplifying the high powered money of the Bank of England. And the Bank of England began to support these little banks by, um, by, um, in, uh, various ways, uh, helping them clear their accounts against each other. We won't go into the technicalities. The point is that this kind of supplemental money that goes into circulation has become enormously important. Today. It's probably 90% of the everyday money supply is money issued by commercial banks. Now in the form of deposits, not in the form of bank notes, but deposits and bank notes are the same thing. And if we think about that form of money, it's also built on the self interest of commercial bankers. So we've, we've, um, institutionalized self interest into the retail money supply in a way that penetrates everyday life.
Speaker 4:
54:19
And the government has the government today, governments, both the Bank of England and the Federal Reserve support that structure. We could think of the banks as delegates. Um, some scholars call the banks Franchisee Cha franchises of the government that are the commercial banks because they're making money. They're, you know, basically franchises that produce private money, um, authorized by the government, right? Representations of the dollar. So, this is just to say your question really goes to the core of a capitalist world in which the money supply is made through banks, through both central banks and then, um, through a network of Commercial Bank supported by, uh, the central bank.
Speaker 4:
55:13
Now having said all that, do we, uh, are we stuck with this recipe? I don't see any reason that we're stuck with this recipe. There are advantages to the recipe if we think about, if we think about it, I don't want to romanticize the medieval world. So let me just point out that what, um, central banks and commercial banks do is make liquidity available, make, um, the ability to exchange with one another through money available in new ways that have facilitated all sorts of productive enterprise. So, uh, in the Medieval world, you had to have silver before you could get money. In other words, you had to have capital before you could go out and do a project. In the new world, you come with a promise that you're going to be productive and you get bank notes or you get bank deposits. And so the new world is much more, this new monetary system facilitates exchange and, and, and projects that are supposed to be productive in ways that have, um, broken through old strictures and old ceilings on production.
Speaker 4:
56:19
And, uh, and I think we need to recognize that and respect that. Um, understand that there are great advantages that come with, uh, understanding that money's credit and moving beyond a world in which it was restricted by some arbitrary ceiling, like the amount of silver that people had. Even as I say, even as I tried to abstract the logic, thinking about this credit money that's now, um, that we can think that is independent of the silver collateral, the, the, the requirement of collateral, uh, that attached in the old world. Even as we see that logic, we can see that it doesn't need to be limited or attached to commercial bank calculations of profit. So there are many ways to create credit and to circulate traumatizes and we don't need to, to, um, have a world in which the only recipe for money production are the lending decisions of commercial banks.
Speaker 4:
57:27
Um, and the, and that is right now the only way that we engage money creation in the modern world is through a commercial bank lending to individuals. That's the engine of money production in the modern world. But that engine is attached to commercial bank calculations of profit of profitability. Uh, in fact, we, we know that many projects that are or will not be profitable to a commercial bank lender would be profitable for us as a society. So I think what we need to do is think about, um, think about how we want to innovate and improvise new modes of creating credit and extending credit to people outside of the strictures of commercial bank lending.
Speaker 1:
58:40
[inaudible] [inaudible] [inaudible] [inaudible]
Speaker 10:
59:07
[inaudible]
Speaker 6:
59:11
before we get to the end of this podcast, I actually wanted to touch on a theme that kind of seems to be a bit of a recurring theme on this show, which is the relationship between war and money. And I was particularly taken rereading, uh, the introduction to your book last night of this quote where you have an account of the, from the 12th century in account of the [inaudible]. And in it, uh, you quote this account by saying that money is necessary not only in time of war but also in the time of peace for in the former case, revenue is expanded on the fortification of towns, the payment of wages to soldiers and in many other ways. And when the end to the hostilities arrive, weapons of war are laid aside, churches are built by devout princes, Christ is fed and closed in the persons of the poor in the mammon of this world is distributed in other acts of charity.
Speaker 6:
60:08
And so it kind of what I think you've been alluding to, especially with the question of the cake, um, as we've now called it is, is that the way money is structured is both different now than it was back in the 12th century where it was used not just for war but for the public good in many ways, uh, housing, feeding, infrastructure, employing, etc. But that now those aspects of money remain and, and the potential is there and it remains for the cake to do those things again. And I just, this is not much of a question I guess, but I just wanted to make clear that I think that that what you're saying about the cake now is so vitally important to the question of modern public governance. And your book does a really good job of teasing out the origins of those steaks.
Speaker 4:
61:12
So can I go? So thank you for the question. And, um, I want to just talk about early America for a moment in response to it because it seems to me we are early America in many ways. Still. We could be early America. This was a world in which where I, you know, when I first got sucked into studying money, when I fell into the black hole, it was in a world in which people had no money because the coin they had kept going back to England, the things they bought from England cost more than the things they sold to England. So they never had money stay on the shores, stay in the United States saying what was then America, not the United, the provinces. And they invented these forms of money that were not commercial banks, where they basically just created IOUs first to pay soldiers.
Speaker 4:
62:01
War is often the exigency. That's kind of, it's the existential moment. If you can't defend yourself, you need money for that because you won't be around to, to, to then philosophize about other uses of money. But they, once they realized that, that they could pay the soldiers with IOUs and tax them back, which is how it started, right? Paid the soldiers with [inaudible], they taxed it back. They had made money, they'd made a local currency. Once they realized that they realized that they could make local currencies for their own economic development, that, that, that they could really push out the boundaries of what was possible by, um, they started uninviting farmers to borrow from the legislature to mortgage their land, borrow from the legislature and pay them back. And they created these little pockets in which they're circulating credit. Um, and then the farmers could, uh, borrow in order to improve their land and could make much more exchange with each other and could start their own manufacturers and their own industry.
Speaker 4:
63:02
For that matter. They started understanding that as communities they could plot their economic development and they could think about, and that even in things like how much they lent to each person they could, they were making distributed decisions so they could decide to put it. They put a ceiling in each province on the amount they would lend to each farmer was 200 pounds. So they thought we're going to spread this money widely. They could, they understood they were making distributed decisions when they taxed, they understood that they were basically engineering the way they wanted their local political economy to function and to look and that they were really building a world, um, as they did. So we know the end of the story in many ways that that, um, experience led them to understand their provinces and eventually their entire coast as a different world from the British world.
Speaker 4:
64:00
So that in many ways, this experience of creating a local money and then trying to chart their own courses and create communities of political economic development, split them from the British empire, convinced them that they were their own. They were a different world than different communities. Um, and it just strikes me that it goes to the point you were making about both Warren peace. So they ex, you know, they, they actually innovated and stumbled into these monetary experiments because of war, but they understood quickly that they could use them and that they should use them in times of peace, that peace and economic development, political development where their own kind of exigency and their own kind of public need. And, um, you know, you know, in the best world that that was, that was the, that peace time was, um, the period in which we could concentrate in which we could flourish and concentrate on human, um, human development and, um, and flourishing.
Speaker 4:
65:04
And so, uh, there it's really an inspiring story of one of the possibility of creating, um, communal, um, you know, communal flourishing and communal strength and communal growth and productivity and thinking outside the box. But monetarily, right? This was a monetary adventure, but it was one in which people were acting, um, in, in concert, in collective ways with each other to try to rebuild a district. And in those days to build, um, for the first time, um, uh, world, uh, a prosperous world. They made a lot of mistakes. We know about all their, about their flaws, but we also could learn from the way they're trying to, um, trying to engineer their, their own development, um, and, and to do so in ways that that went beyond, um, uh, the kind of commercial calculation that we have today. So, uh, I see no reason why we couldn't.
Speaker 4:
66:09
Um, you know, we have actually used money in money, in many productive ways to build a state that's stronger, that actually understands that we need to prioritize education, infrastructure, healthcare needs. There's no reason why we can't use money and we can't create money towards those ends. Understanding the way money works and monetary theory helps us enormously. It, once we understand that money is basically this kind of credit loop publicly, a public medium, we can, and that is fraught with all these kinds of, um, but both potential and distributed decisions. We can use it towards all those ends. And we can be creative about the devices. There's no reason, um, that we should be stuck with one, uh, one channel, one device for money delivery. Once we understand the way money works.
Speaker 2:
67:03
So your, your constitutional approach to money, looking at it as a government governance project shares some key assumptions with the charter list approach that's been developed by modern monetary theory. And then t, which is, you know, uh, a theory in movement that a lot of our listeners will be familiar with. Um, how would you say that your work converges and diverges from MMT?
Speaker 4:
67:30
Yeah, so I'm happy to talk about that. I think in many ways, um, my work is, you know, we're fellow travelers, uh, for centuries, some group of people have understood money as a credit, as an issue of credit. Um, so in that sense for centuries there have been what you call charter lists. Um, and uh, and both my work and MMT are within that tradition. Uh, I think that, that, that, that's an important, I mean, to me it's the most persuasive way of understanding money. Um, and it makes a break with the orthodoxy. So both my work and NMT, uh, approaches make a break with orthodoxy in recognizing the critical role of the public. Recognizing money is debt, recognizing money as a public medium and as a ideally used for public welfare. Some areas of divergence I think are areas of emphasis. Uh, I am really interested in how money has been redesigned and has been, it's been redesigned and, and um, it's been improvised, it's been engineered in many different ways in many different communities.
Speaker 4:
68:48
And I'm fascinated by the diversity in design and I think that monetary design a profoundly affects both governance and knowledge in society. That is, it affects both the way we structure and allocate power and the way we think about, uh, what the market is. So for me, there's a pre capitalism, you know, whether it's, we're talking about medieval coin or we're talking about early American paper money. For me, there are many different kinds of capitalism. They're changing assumptions about human nature and about governance that, that we can, that seem to be intimately connected with the kinds of monetary structure and monetary governance that's going on. Um, and I think that is less of a focus for MMT scholars. Um, so, so for example, when to give a very concrete example, there's a lot of great MMT scholarship about public debt and the role of public debt in absorbing the money supply or in, um, in expanding the money supply is to say the, the management of public debt open market operations are an important lever of policy in, um, in the modern world.
Speaker 4:
70:05
For me, public debt is, I completely understand why, you know, th that emphasis of MMT, for me public debt is, uh, and the advent of circulating public debt is a critical moment in which we change the governance, uh, structure of a community and begin to prioritize creditors and, um, and begin to use investors as an intermediary and you know, and um, attribute. Great and basically delegate great political power to that group. And, you know, and along the way, the public debt, the innovation of public debt underscores and reinforces different ways of thinking about individual self interest in the way the individual connects with the government. So, just as just an example, you can see that we're just in some ways am interested. I'm interested in things that are, um, that may be as you put a constant there, they're more about the kinds of governance decisions that are wrapped up in monetary design.
Speaker 4:
71:17
Um, I would say at a technical level, the MMT scholars have unparalleled expertise in current institutions of modern money and they've, and they are focusing on the prescriptive use of monetary theory. Um, and at a technical level, I've, you know, my own expertise has been trying to understand that has historical change that has led us to a certain repertoire of, um, of money design. And, uh, and I also focus more on the legal attributes of money and why they matter. So the, the character of, of money as a kind of political obligation, the aspects of monetary value that are embedded in the details of what we enforced, right? So what I've called the cash premium. So, um, so I'm focusing in some ways on the elements of the repertoire. And I think an MMT scholarship is in some ways focusing on how to use the repertoire that currently exists in prevails.
Speaker 4:
72:26
Yeah, I think it's been a really productive dialogue actually, um, between the constitutional approach to money and, uh, an MMT. And, you know, the last thing I'd emphasize is that, um, that these approaches to money as a kind of credit that's circulating are ancient as well as modern people have been, uh, understood. There have always been these approaches to money. People have been theorizing money for centuries, and, uh, so we're not the only two kids on the block. There's a lot of really interesting work out there from, you know, ancient and medieval and early modern thinkers who were also understanding money as the, you know, who saw money as a public medium and understood its potential. So it's, this is I guess, an invitation to people to think broadly in, you know, uh, along whatever lines that make sense to them to try to understand and grapple with this public media because it is so, uh, so incredibly importing, so important, something that penetrates our daily life and basically creates material governance. Uh, in our world.
Speaker 4:
73:40
Oh, this has been hugely illuminating. Um, can we close by asking you to talk about what research projects you're working on at the moment? Yeah. So, uh, I guess I have three that I'll mention. One is an a tempt really to take apart to understand the change that occurs in a society when it goes to money. That is to say, when we think back to that sort of, um, the first transformative moment, the moment from going to political contribution that's made in kind to a world in which a community decides that they're going to, uh, convert the political, the in kind contribution into tokens and then use those tokens as a medium. So I guess I'm saying, you know, going from an in kind world to a market based world. So I'm working on one essay that really tries to understand how that changes political capacity, how it changes personal orientation to move from an in kind world in which everyone's contributing equally to a world in which there's actually money circulating.
Speaker 4:
74:50
What the advantages and disadvantages are of that moment. Um, and that essay also thinks about how the law works here, how, how the government is actually, um, projecting its power when it's enforcing monetary decisions and how it's curating the market when it's, when it's making, deciding which, which property in which contract and which tort, you know, which damages, um, to recognize monetarily how it's actually building the market. So that's one project. The second project I'm thinking through is, um, is an essay that looks at the stubbornness of our, um, myths about money being private. So one thing we haven't talked about is that there, except in a glancing way, is that there are many worlds, many that we have strong intuitions that money is private and people will often mention that money comes from barter, just, you know, private exchange produces money or they'll mention old stories about pow is using cigarettes.
Speaker 4:
75:58
A recent occurrence of this kind of idea that money could be private as bitcoin. Maybe it can exist outside the money about outside the government. So I'm interested in trying to understand why we intuit money, so as private and to, and I think that is because of our, um, of our experience with institutions, commercial banks and other institutions that are private and the dominance they have in our society. But I'm interested in trying to interrogate that and understand if that's why we understand exactly, you know, what the form of our intuition is and why we keep thinking of money as private and therefore the market as private. And the last thing that I'm working on, and I'd really like to, um, in some ways, um, resurrect is this old work about early America. So I started this project about early America. I mentioned that I kept falling into another over another cliff and I ended up doing the book about the medieval and early British world.
Speaker 4:
76:54
But I'd really like to go back to that early American world and finish it. There are great stories about, about the adventures that the colonists, that settlers were having, the way they tried to work out, money, the conflicts they had among themselves, the things they did right, the things they did wrong. This, the revolution, the constitution, the, um, the dramatic kind of debates that Americans had over, over what money was and how they should make it. Uh, so that will be, um, what we can learn from that. That'll be my next project Christine does on. Thank you so much for joining us. This has been incredibly great. Thank you so much for having me.
Speaker 8:
77:43
[inaudible] [inaudible]
Speaker 10:
77:47
[inaudible]
Speaker 8:
77:49
uh,
Speaker 10:
77:56
[inaudible]
Speaker 8:
78:09
[inaudible] [inaudible].
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