Funny Money

Ep. 2 Pt. 1 - Money & Law with Rohan Grey

• Funny Money • Season 1 • Episode 2

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Funny Money is a show about the economy, how it works, and how it can work better. In Part 1 of this 3-part episode, Ka and Andrés are joined by Prof. Rohan Grey to discuss the intersection of money & law including the history of money, and why every major economy on earth has moved away from the gold standard.

Guest Bio: Rohan Grey is an assistant professor at Willamette University College of Law, where his research focuses on the legal design and regulation of money and finance, including digital fiat currency, as well as broader issues of law and political economy. He is the president of the Modern Money Network, a director of Public Money Action. Rohan has advised multiple members of The Squad in Congress on bills including Rep. Rashida Tlaib’s ABC and STABLE Acts, as well as Rep. Ayanna Pressley’s Public Banking Act of 2020.  You may have seen Rohan on Jon Stewart’s show The Problem with Funny Money’s first guest Stephanie Kelton. 

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Hosts: Jessica "Ka" Burbank & Andrés Bernal
Producer: Mike Lewis
Sound Mixed By: Curtis Clogston

#FunnyMoney #MMT #Money #Economics #Politics #News #Law

So to get things started off and introduce our guest, the general theme that we're going to be touching on is on law and legal studies. And as we mentioned in our first kind of introductory episode, we really take on an interdisciplinary approach and look to bring in perspectives from other disciplines other than economics, to understand what the economy is and what economics is. And so our guest today is Rohan Grey, and he is an assistant professor at Williamette University College of Law, where his research focuses on the legal design and regulation of money and finance, including digital fiat currency, as well as broader issues of law and political economy. He's also the president of the Modern Money Network and director of Public Money Action. So Rohan has advised multiple members of The Squad in Congress on bills, including Rep. Rashida Tlaib, her ABC and STABLE acts, as well as Representative Ayanna Pressley on her Public Banking Act of 2020. You may have seen Rohan on Jon Stewart's show The Problem alongside Funny Money's first guest, Stephanie Kelton. So we're really excited for our guests. Rohan, thank you for being here. Thank you so much for having me. It's a pleasure. All right. So Rohan, you have an approach known as Legal Realism. Can you kind of started off here? Can you tell us what Legal Realism is and how does that help us think about the economy and understand it better? Yeah. So just like in economics, there is a sort of ongoing divide between orthodoxy and heterodox and different intellectual traditions that have been excluded from mainstream journals, universities, discourse, not allowed to, be considered part of what is conventional economics. In law, there have been similar ideological disagreements or divides. But because the law is always sort of politically contested and it's a place where even now you have kind of very far right, very far left or to a degree left people in the legal academy. You don't have the same hegemony that you have in economics, but you do have these different schools of thought of different ideas and the Legal Realist one is actually quite old. So when I say I'm a Legal Realist, it's sort of harkening back to an intellectual tradition that really originates in the late 19th, early 20th century. People like Oliver Wendell Holmes are considered one of the kind of proto Realists, but it was really in the 20’s and 30’s with people that would eventually become part of FDR’s brain trust and others that what becomes known today as Legal Realism kicked off. And it has had a number of successive movements or children, things like Critical Legal Studies, Critical Race Studies, Critical Gender Studies, those kinds of things, and their relationship to the law. But the original Realists were really concerned with an attack or a dispelling of what was the kind of then dominant approach to law, which was Legal Formalism. And so the idea of Legal Formalism was that you can look at the rules, you can look at the words in the text, you can look at previous cases and the sort of opinions the judges write. And from that you can define the law, you can find the answers. You know, the answer to the next legal question is somewhere in the text. If you kind of study it hard enough, that kind of thing, you can come up with the answers to the next legal question. And what the Realists were really pushing back on at that point was this idea that law is therefore kind of apolitical. It's almost a grammar debate, it's almost a philosophy debate. And they were saying no law is, of course, political. Law is about power. Law is about who is in charge. You know, famously law is what judges do, right? Not just judges, but also policymakers and legislators and things like that. Nowadays, it would be administrators and regulators. People who manage agencies are making law every day. So if you want to kind of get a sense of what Legal Realism isn't, I think probably the best articulation is Chief Justice John Roberts, when he was getting nominated saying that he just wanted to be an umpire, calling the balls and strikes like he sees them. Right. Famously nonpolitical. Right. Just trying to work out what the truth is. I think anybody who's been watching the court at all over the last decade has to know that that's a complete joke. But the Realist idea is recognizing that power and law are inseparable. And while it isn't reducible to pure naked violence, there is a difference between doing something with your fist and doing something with a pen in a courtroom. There is still a political contestation going on in the way that we manifest and debate law. And nowadays, I would say, you know, the kind of larger, more popular movement that has grown is the Law and Political Economy (LPE) movement. And I would say they're also very influenced by Realists. And to your opening credit point, it's also very interdisciplinary. So some of the earliest Realists that a lot of us sort of draw inspiration from people like Robert Hale and John Cummins and things were also economists or maybe even economists in the first instance, and they brought a lot of economic ideas to law and a lot of the analysis was around political economy and the way the economy is structured and the way that money and finance drives the law itself. Wait, so the thing that came to my head. Like sometimes judges, like Supreme Court judges aren't just totally neutral and they can take bribes from billionaires? I know. It's crazy stuff, right? I mean, you have everything from looking at the psychology of judges, where their parents came from, how their upbringing was, whether they've had enough glucose before lunch, everything from that theory to the way that the Federalist Society has been planting judges as part of a right wing takeover of the judiciary. But most importantly, I think it's this idea that there is no neutral law. And as it's always contestable, there's always power in politics underneath it, even if it's not reducible to pure politics, or at least law as a mode of political action is different from other modes of political action. I think, Rohan, something you bring that is unique about your perspective is the way you look at money. And a lot of people get their definition of money wrong. We want to play a short video for our viewers and listeners of just a summary of that, maybe silly or mainstream definition of money. Let's watch that. Well, the truth is that money has always been sort of imaginary from people agreeing to agree that two lumps of silver are definitely worth a goat or some scribbling that totally means you're rich to today's crypto stacks. Can you just briefly tell us how your definition of money is a little bit different than something like this? Yeah. So I found myself as a contracts professor nowadays. I don't know how I did that. My five year old self would be pretty shocked, I think. But whenever I hear these early stories of money that are grounded in this idea of barter, you know, what are we actually talking about? We're talking about two people agreeing to agree, whatever the hell that means, right? You can imagine two people standing on two Robinson Crusoe Islands, like those kind of cartoons separated by a bit of water. And they're going, how about I throw something over? And the other one is saying how about I throw something over? But eventually they agree and they throw things over and voila, you have an economy. Whereas of course, in reality, the way that people actually are born and grow is into families, right? They're small and there are bigger people around them and eventually they maybe hand over the power or maybe they don't. And Oedipus comes into the mix or whatever else. You have entire communities, whether that's tribes or kinship based networks or eventually large societies where the relationship between people can't be reduced to who you know, Right? If you're in a small village, you know everybody, you know all their business. You don't even need to worry about last names. Whereas if you're in a large, even a temple society 5000 years ago in a ziggurat in Ur or something, you might not know 50,000 people personally. So you need to build institutions, systems that can govern relationships between strangers. And so at that point, you are going beyond the kind of in-person or socially embedded relationships to something more institutionalized. And so when I think about the law, I am thinking about institutions, whether that's courts or legislatures or executive branch or warlords or armies and generals or whatever else, everything down to a family or the university or a corporation. Right? All of these are institutions that are legally constructed. And it doesn't mean that you can get everything from looking at the legal dimension right? There's culture, there's, you know, religion, there's all these other kinds of things that intersect. But when we are thinking about sort of predictable rules, we are thinking about systems that not only exert power, but try to legitimize that power with regards to notions of fairness, notions of consistency. Right. If somebody says...I had a friend when I was growing up whose parent would always say,“why can’t I do X?” He said, “Because I'm in charge. And I mean, that's why.” That's not really law in the sense of trying to build, rules and institutions. It's just sort of naked, despotic power. But nowadays, of course, we have a whole range of institutions and systems where no one person can manipulate every lever. No one person can move every piece of it, no matter how powerful you are. And so whether we like it or not, we do live in a legally constructed system. And that system isn't built around consensual agreements. In fact, even contracts themselves. When you come to an agreement and something goes wrong, what happens? You sue, you go to court and some third party then interprets what you thought you agreed to. Or maybe you didn't even agree to it. And the court says you should have agreed to it, or maybe you don't go to a court, but you end up coming to some agreement between the two of you, a settlement that is based on what it would be like if you did go to court. So even when you think you're being kind of consensual, you're doing so against the backdrop of a system of institutionalized laws and legal enforced. And so that's what I think of when I think of laws is not sort of two people horizontally coming together. I think of social systems and the institutions and rules that govern those systems and the ways that they are talked about and legitimized and so everything from a table manners, customs like that, very soft customs through to very hard laws. And in the middle you might have something like speeding laws where not everybody is doing it because there's a cop there. You're doing it because you believe in it, or tax payments where people mostly voluntarily comply. So there's a bit of a kind of Gramscian hegemony element there. Not every law has a guy with a gun behind you. Sometimes people just do it because of the way that we've been trained and incorporated. But it's about hierarchy, it's about power, it's about history, it's about where those laws came from and the institutions that are evolving and being contested. And most of that stuff is not resolvable or reducible to barter or to voluntary consensual relations. That's the kind of stuff you say when you're in power and trying to hide the power that you get to exert. Yeah. So when we take that perspective and we apply it to the economy and to money, one of the big takeaways from our last conversation with Stephanie Kelton was that governments don't operate like households and in terms of their budget that they actually spend before they tax back, right. How does that get applied to the history and kind of origins of money as a legal and debt relation? Yeah, I mean, there are different communities, there are different societies that have created different kinds of money. And of course, the major ones nowadays that matter to us. The reason we usually have the word modern in front of modern money are the ones that are based around large, hierarchical, non face to face societies. We're not talking about 200 person tribes or, you know, voluntary utopian communities or kibbutzim. We're talking about empires, we're talking about civilizations, we're talking about Rome and Greece and China and the nation states and all those kinds of things. And what we see is that, generally speaking, some sort of authority, whether it's a warlord, it can be an electorate, it can be a Demos like Athens. Maybe they have slaves, maybe it's only white men, maybe it's only men over 40. And for some reason, it seems to be mostly only men if it's going to be restricted. Certainly it's usually people who are only from one area, not, immigrants or foreigners. They get to impose the tax on another group of people. Often it's conquered people. Often it's the larger, poorer community. And in doing so, that community now needs to earn dollars, earn the currency, whatever it is they might not have needed to earn it beforehand. They might have been able to live in subsistence living. They might have been able to live off the land, the commons might have been available or open. And so in for example, in England, Marx talks about the enclosure of the commons, people who are forced off the land and forced into the cities where they have to sell their labor power to survive. Right. All of those are examples where you go from not needing money to needing money. All right. Whether it's an explicit tax or it's a tariff or it's a customs duty or for me as a lawyer, the stuff that I'm increasingly most interested in is the stuff that's a little more subtle. And when you've got a gun and you say you have to pay me $100, it's pretty obvious how much you owe. But in a world like today, you live in a fog of legal liability risk. Every time you walk down the street, there's a chance you might accidentally knock into somebody and trip them over. And the next thing you know, there's a lawsuit. You might be driving down the road and miss a red light, and the next thing you know, you're getting sued, right? You might think you bought something at a store and you might use the wrong note. The next thing you know, you're being arrested and you have to pay legal fees to get out on bail. Right. The amount of money that we need on a daily basis is always above zero, even when we have nothing to buy, even when we have no taxes to pay. Because there's always a risk that something that we can't predict is going to happen and make us pay money. I've just been dealing the last two days with a sewer pipe breaking in our backyard. I could say, Well, I pay my tax bill. I'm good for the year. Well, no. Funnily enough, the plumber wasn't willing to take music lessons in payment or legal advice about the history of money as payment for my plumbing. Right. So I need money not only to buy stuff, but also to deal with the risk of an uncertain world where everybody interacts with a system where if something goes wrong, you sue for money, right? When you do legal analysis in your first year at law school, whether it's contract law, property law, tort law, the damages that you pay are denominated in money. So these are laws about money. And if you have non-zero legal risk, you have a non-zero demand for money. And the minute you need money, then you need to have it issued by somebody. So it's the need to acquire it that comes first. And from there you have the person that issues it. It's sort of like someone saying, Hey, would you would you like this special item? And you say, No, I don't need it. And then you have to go to the next level of the game. And in order to pass the special doorway, you need that item or something.

You go:

Oh, no, I should have gone and got that item. Alright. Whether you thought, you need money or not. You're going to come across a point in your life where you need it, and that's when the demand is going to come in. Now, a lot of people that we all encounter on the great app of Twitter will fight with us and say, Oh, well, this perspective fails to consider that if we add more money to the economy, it's going to throw off balance the gold we have backing our dollars in Fort Knox. Many people still think we have a gold standard in the United States. And we have to remind people, you know, the Gold Reserve Act of 1934 and then in the 70’s, when foreign countries couldn't exchange dollars for gold. This general history, I think, is important to cover and the impact on fiscal capacity when we move from a gold standard to a fiat currency. And I want to show to frame this a tweet from Joe Weisenthal about gold standards coming to an end. He said, “I've said it before, but one fact that never ceases to astound me is that 100% of all currency regimes that have survived has been fiat currencies, and 100% of all gold based currencies have come to an end.” Can you walk us through a little bit of the history of the gold standard, the impact on our fiscal capacity, and why maybe you think the only surviving regimes are those with fiat currencies? Yeah, Joe is a top level troll. I love it. I mean, so for a lot of history, there have been different kinds of money. You've got money that functions as essentially credit, right? So you and I create an IOU or you accept my IOU. And if other people accept that, that will circulate and have some degree of moneyness, it's sort of like a property. You can have more or less of it, right? So we can have more or less shine something more on the sweetness, if your cooking, right? Moneyness is not a binary, it's a spectrum like most things in 2023. So we have this world where you can give money to different instruments. And within a community, credit instruments are often quite good as money because even if you don't know that person, that person is not kind of going anywhere. They're part of the same community. And you have rules that standardize your credit, that they take your personal debt and turn it into a kind of homogenized product. It's sort of like the way that you would have all sorts of shipping containers. And now we just have one called the box. And it's the way that every kind of shipping company works. So nowadays, you know, you don't have 25 different kinds of personal credit. You just have the credit card, the mortgage, the personal IOU, promissory note. But you also have sort of what you consider to be money that is designed to operate across jurisdictions, across regions, places where you are talking to people that might not agree with you about your laws. And in a world like today, what is the money that works across most international borders? It's the US dollar. Why is that the case? Because we live in a unipolar world where the United States is the imperial hegemon. I come from Australia, all right? You try to do things that are too out there in Australia. You get a phone call from the United States saying, stop doing that. And we stop doing that because we're also English speaking white European country that likes to keep on good terms with America, but other countries that don't listen too well, maybe find their leaders replaced or killed or assassinated or whatever else. And of course there are 200 military bases around the world and nuclear weapons and, you know, aircraft carriers, etc.. That's before you get to most of the major post-World War two institutions run by the United States, whether it's the WTO or the Security Council or whatever else. So the United States serves the role of being the kind of international glue today. But in a world where there isn't a single imperial hegemon or a network of a gang of elites, not just one country, but a group like Europe, England, Japan, Canada, Australia, that all kind of align enough on interest, whether it's NATO plus a few others or something else. Then you need something else. You need some other way of countries basically agreeing with each other that their money can exchange. And the way that gold works as well as silver was that it had value that individual countries or public legal authorities, whether it was a monarch or a republic or democracy or whatever else would give to it, and that would be the number on the coin. And then we have the metal value. And so what you had was a sort of two tier system where you were trading the value on the face of the coin. But if something went wrong, if something went wrong with the government, if the government collapsed, if the monarch lost their head, if they went to rogue with their policies, if it turns out they were a little too Catholic for a Protestant country or whatever else, then you could simply melt down the coins and either recast them to another public legal authority. And then you have a kind of transition of the infrastructure. It's almost like going into the government and taking off the Republican of the wall and putting a Democrat on the wall in the building. Or you could simply send that gold to another country. So the gold served as a kind of real collateral underlying the coins themselves. Now, as I said, coins are only one kind of money. A lot of it was based around credit in the United States. For example, before 1788, a number of colonies use paper money. Massachusetts and others used paper money that were based on their own IOUs, a lot of them based around land. So they would create a kind of almost like a mortgage or a claim on land, and they would issue notes backed by the land. When the United States was formed, they switched kind of formally to a gold standard across the country. But almost immediately, this was under challenge, right? Individual states who kind of didn't really want to hand over the money power to the federal government. But Article one, Section Ten of the Constitution said “no state can accept can create their own money in payment of taxes except gold and silver coins issued by the United States” immediately started chartering banks, issued banknotes, and those bank notes in theory, had a relationship to gold for a while. But by the time you get to Lincoln in the Civil War, there is a whole political party called the Greenback Party that is fighting for pure paper money. These are people whose grandparents remember what it was like to use paper money. And also they know that gold was historically undersupplied. Silver was undersupplied in America. There wasn't enough of it. It was being shipped back to London for the Europeans to play their games internationally, within the Americas. What they needed was credit to keep the country alive. And so the Greenback Party said, We can do it. We don't need a precious metals. By the time you get to the populists in the late 19th century, they're talking about not only paper money but also a bi-metal standard. So they saying we don't need just gold. Let’s flood it with silver as well. We can do the same thing with silver as we do with gold. And then we essentially have twice as much available. So what we had was a systematic under provisioning of money relative to what the economy needed. By the time we get to FDR, who of course had the confidence to do what needed to be done, he just says we're off the gold standard. And so we have a second round of Supreme Court cases. The first round was in the Lincoln era called the Legal Tender Cases. And by the time you get to FDR, we have the Gold Clause Cases. And in both situations, the Supreme Court says it doesn't really matter how we started back in 1788, the power to shape money and reshape money is a core governmental power. If we want to say it's got gold in it, fine. It's going to say it doesn't have gold in it. Fine. If we want to say it's purely paper, it's purely nominal. Fine. And by the time we get to the 1970s, the international regime has completely shifted to the United States. Right after World War Two with Bretton Woods. The idea was every country goes to the United States. The United States goes to gold. That was the kind of vision. But of course, once everybody was dependent on the United States as its central point of settlement, central connection, you don't really need the gold anymore. That was always just a kind of gimmick for everybody to get on board with the United States centric regime. So the gold standard is something that people who like what they call “hard money” they like money that is issued less. It benefits creditors because creditors have the money already. So people need to go into debt. They like the gold standard, people who don't trust government. They don't believe in collective government. They like the gold standard because they think, incorrectly, that it imposes a restraint on governments when in fact what actually happens is governments just change the value of gold. But largely what the gold standard represents and nowadays we see it with Bitcoin as well, is an opposition to democratizing money just like we might want to democratize the economy in general. If we made it around gold, then it would be apolitical. Then nobody would be able to mess with me and my money. That's the general thought. And, you know, it's to me, it's the political equivalent of the Trunchbull from Matilda saying they want a school with no children. And it's a very simplistic narrative for people that are fundamentally misanthropic. That's really interesting. I mean, from a philosophical perspective. Right. One of the confusions out there in debates is that, as you were alluding to right, there is this belief that there's something about the metal itself. Right. And this is connected to this long tradition of Metallism as the explanation for money that's valuable or that can save us from what you described as these military and political regiments. Right. But from this kind of broader perspective. Right. Why should we then pursue fiat or public money if you know, so much of history has been defined by political and military aggression. Right. What where's the hope in that view of public money as something better than the banal, the finitude of gold or a metal? Yeah, If you think of gold as the thing that emerges in the absence of society, in the absence of social provisioning, It's the thing in between communities. It's the thing when you don't trust people. It's the thing when you don't have a system of accountable laws to a population. Now, most of human history, we didn't give women equal rights to men. We had huge forms of caste systems. We had, you know, imperial systems that were constantly waging war on the rest of the world. There were a lot of people that didn't want that to happen anymore right? Their entire populations where we stopped going to war with each other. Europe is trying to work out how to do that internally right now. So the question I think is, do you want to assume that we are going to have a nasty, brutish world where people cannot fundamentally trust each other? Or do we want to try to build trust? And when you go to places where there are extremely high standards of living like Scandinavians, Australia, New Zealand, Canada, what you have is trust. You have people that trust each other, you have people who can trust that the roads work, that they can go in and get health care, all those kinds of things. That is a world when people get it, they like it, right? It's like saying, hey, you know, it's kind of rough when parents abuse their kids, right? That can always happen. But do we want to build a society where the presumption is every kid's going to be abused by their parents, or do we want to try to build a society where the presumption is every kid will can have a loving home? We want those things because when we've experienced and we said that's way better than the alternative. So the history of public fiat currencies is the history of taking more and more responsibility for the economic well-being and governance of our economy, to say, Hey, we can make it different if we want to build roads, we can if we want to build health care, we can If we want to build better schools, we can. For most of human history, the vast majority of children who weren't rich could not learn to read. We made a decision to do that and we did it. That decision requires public money, and I think those are the kinds of things that a collective governance system of the economy is trying to achieve. It doesn't always achieve it. Of course not. Are there huge examples of failures? Absolutely. Does that mean it's edgy or mature or sophisticated or adult to give up on that stuff? No, it's just nihilism. It's teen boy libertarians thinking that because they never have to raise kids, that they are somehow more adult than the people who do the messy job of actually building community. That's so powerful. I mean, so for our viewers and our listeners, right, we've heard these two frames and narratives about what money is and where it comes from. On one hand, we have Metallism and this almost pre or anti-political view that it's in this thing itself that's valuable. But what Rohan's kind of described here is sometimes referred to as Chartalism or this view that it's politics and the construction of the public itself that gives value to these economic instruments, these financial instruments. And so from what I'm hearing from you, Rohan, is really that it's the challenge of politics and governance to implement justice, to re-imagine society in different ways that gives us the possibility to move beyond the limits of what states and societies have been up to now. Am I kind of getting that right? Yeah. And I think the other thing worth noting is that most of the theories or most of the groups that really, really strongly defend the gold standard also really strongly defend property rights, that is to say violent, aggressive enforcement of certain people's right to own resources and to exclude everybody else from resources. So they say, oh, how could you trust the state? And then they draw a big square around 500,000 acres and say, That's all mine, and I will have police and federal troops to protect it if you try to come and sit on it. Right. So that's the kind of world in which we are talking about it's not anti state, it's not anti governance, it's just governance for a small group of people who nobody else gets to hold accountable. But imagine you can get taxed on your land and somebody else can earn the money. Now you maybe have to give up some of those acres to somebody else. Now, maybe that person who's owned a plantation in Louisiana doesn't get to own that for the rest of time. Maybe they owned the people on the plantation. So in one respect, I think the gold standard hard money debate is a cousin, if not a subset of the property rights above all debate. Taxation is the way that we set a system of property that is not absolute, that we are accountable to the collective. If you want the right to have your plot of land, you have to be accountable to a system to make sure everybody

has enough versus:

Fuck you, it's mine. That’s the alternative. Yeah, it certainly rings true with that kind of misanthropic, hyper competitive view of just like “I get mine.” Build a big wall, hire some private security guards, make sure they got a lot of guns, and then wait for global warming to hurt everybody else. Right, right. Alright. Thanks, everybody, for tuning in. It's always a pleasure to talk with Rohan Grey, not only because he's brilliant, but he has a great accent. So make sure you tune in to the rest of the episodes in this three part series and we'll see you at the next episode.