1000 Castaways, MMT & Ecological Economics: A Review by Prof. Phil Lawn

[This post was written by Associate Professor Philip Lawn, currently a research officer with the Southgate Institute for Health, Society and Equity at Flinders University and visiting lecturer in economics at the University of Adelaide. This is an informal review of 1000 Castaways: Fundamentals of Economics that he kindly agreed to share.]
Some comments, starting with me wearing an MMT hat. I very much liked the way you described the monetary side of the economy and the storyline you have used to explain the development of a monetary system and the building up of an economy’s productive capacity. The System One (horizontal money) and System Two (vertical money) dichotomy is especially useful.
Now, wearing my Ecological Economics hat. Without wanting to sound too critical, I had two problems with what you said regarding ‘real’ resources and their full utilisation. I had a problem with you lumping all real productive inputs together as if they are homogenous and substitutable (your box illustration), although I do realise that you may have been trying to keep things simple in order to focus on the MMT principles.
Ecological Economists consider natural resources to be very distinct from capital and labour. Capital and labour are the resource-transforming agents of the production process. Natural resources constitute the stuff we transform via production into useful goods and services (including new capital!) We tend to use capital, labour, and natural resources (K, L, and R) in relatively fixed proportions, which only gradually changes over time with new technology.
In the short-run, if we want to produce more output, we use more K, L, and R in relatively fixed proportions (a vector of inputs). The limit to what we can produce (maximum productive capacity) is determined by the most limiting of these three production factors (Keynes recognised this in his “How to Pay for the War”, pages 18-19). If we run out of natural resources to transform into new goods and services, then the remaining K and L go unutilised. Labour tends to be the limiting factor of production (LFP) for most countries—although, sadly, these countries leave a lot of labour underutilised—only because most countries extract natural resources from the environment at a greater rate than the ecosphere can regenerate them. Most countries have an Ecological Footprint (EF) (resource use rate or resource demand) greater than their Biocapacity (BC) (sustainable resource supply). At the global level, the global Ecological Footprint (EF) is 70% greater than global Biocapacity (BC). Hence the global economy is operating at ecologically unsustainable levels. If ecological deficit countries  were to confine their rate of natural resource use (EF) to their Biocapacity, many would find that natural resources would be the limiting factor of production (LFP), not labour.
Regardless of what the limiting factor of production LFP is, it is unlikely that all available factors of production will be completely used (i.e., we wouldn’t use up everything inside the box you talk about in your book). It doesn’t matter too much if what goes unused is a log or a hammer. It matters a lot if what goes unused is a human being (labour). The aim must therefore be to ensure: (i) that labour is the LFP; and (ii) that spending levels are sufficient to ensure all labour is employed.
I believe (although some MMT people don’t like me talking in these terms) that the Job Guarantee can serve a dual function. Firstly, where a country is operating well within its ecological limits, and thus where an increase in its real output (GDP) will be ecologically sustainable, the JG can achieve full employment of labour by automatically increasing govt spending to the level required to achieve and maintain f/e. This is the standard position of JG advocates.
In the second case, where a country has to reduce its rate of natural resource use (and therefore reduce its GDP – referred to by some people as degrowth) to bring its Ecological Footprint into line with its Biocapacity, the JG can ration the restricted GDP through paid work and thus bring the full employment level of GDP into line with an ecologically sustainable level of GDP.”
[Professor Lawn continues…]
“In the first, more conventional view of the JG, the JG increases GDP up to the full employment level of GDP, thereby closing the unemployment gap. In the second instance, the JG closes the unemployment gap by shifting the full employment level of GDP back to an ecologically sustainable level of GDP. Either way, the beauty of the JG is that ensures labour is always the LFP, which is necessary to achieve the full employment of labour. We end up using all the labour in your box but not necessarily all capital and available natural resources.
The second issue relates to whether we in fact want to, or should operate at the ecologically sustainable level of GDP. The JG ensures that whatever level of GDP we operate at, there is full employment. Hence, we can put the full employment issue aside knowing that is automatically resolved. There are benefits and costs associated with producing a given level of GDP. The Genuine Progress Indicator (GPI) that I presented at the conference seeks to measure these benefits and costs at the macroeconomic level. It may well be, and in fact probably would the case, that the level of GDP that maximises the GPI is something considerably less than the maximum sustainable rate (sometimes referred to as the ‘optimal macroeconomic scale’). If so, even fewer natural resources and capital will be needed, although all labour would be used, assuming there is a JG in place. Hence, even less of what would be inside your box would be used. May I say, in the case of capital, if a lot less is required than we currently have at our disposal, then it is likely we wouldn’t accumulate so much to begin with. There’s no point accumulating far more capital than is required, which would be a significant cost in itself.
I feel like I’ve been a bit harsh on you [Note: He hasn’t been harsh at all 🙂 ]. I am equally if not more critical of almost all MMT-based books. I guess my overall point is that there is some irony about MMT and many of its advocates. MMT is in many ways about highlighting that the constraint a nation faces is not financial (so long as its central government is a monetary sovereign). The constraint a nation faces is its limited productive capacity. Yet I’m not sure many MMT people understand what the limited (sustainable) productive capacity is. They tend to overestimate it. I believe it is a lot less than many believe, which makes it even more difficult to deal with unemployment by conventional means (i.e., via GDP growth), thus increasing the need for a JG. Many of our problems, especially environmental problems, are due to the fact that there are too many people on this Earth and we are collectively producing and consuming far more than the planet can sustain.
Putting aside my Ecological Economics based criticisms, If I had to direct someone to a book in order to learn some MMT principles, I could choose any one of a very small number of books. Having read your book, I would include it in that short list of books. If your book is read by a lot of people, it will do a great service.”
[This post was written by Associate Professor Philip Lawn, currently a research officer with the Southgate Institute for Health, Society and Equity at Flinders University and visiting lecturer in economics at the University of Adelaide. This was an informal review of 1000 Castaways: Fundamentals of Economics that he kindly agreed to share.]

AUSTERITY IN A TIME OF PLENTY: The “domestic default” bogeyman = More bad statistics from Reinhart & Rogoff




Reinhart and Rogoff’s discredited pro-austerity argument that domestic debt has a negative effect on growth is well known. Less well known—although perhaps an even clearer case of fear-mongering—is their implication that domestic debt puts countries at risk of domestic default if austerity is not imposed (“The Forgotten History of Domestic Debt”; e.g., RR state that their “domestic default” data is needed to “know the danger zone for [domestic] debt levels” (p. 4).

According to Reinhart and Rogoff the danger is both outright (de jure default) and de facto default from inflation and financial repression. However, like their discredited “growth” paper, the “default” argument is also based on the improper use of statistics.

The point of noting spatial-autocorrelation is that it suggests that cases may not be statistically-independent cases and cannot be used in standard inferential or econometric methods. What might be called “event correlation” is more specific, i.e., knowing specifically that cases are not independent. Example: If an alien looked at a world map of social indicators from 1945, it might guess from spatial-autocorrelation that a single event happened in Europe that affected most European countries profoundly even if they knew nothing of Earth history. However, knowing the actual history of Earth events, we know that, for example, Japan should be included in that list of non-independent cases, something someone only looking for spatial-autocorrelation might miss. Knowing the true level of interconnectedness of events is more powerful than simple spatial correlation. Serial correlation is the non-independence of events across time. E.g., it is hard to consider the series of economic crises in Argentina as truly independent. There is likely some set of factors (political, historical, institutional, intellectual/educational/academic, structural) that come together to cause the repeated similar crises in Argentina or Brazil.

Problems with their de jure list: Pre-1971 monetary systems are fundamentally different from post-1971 systems and cannot be included in a dataset analyzing the latter. Using only relevant post-1971 cases reduces the de jure dataset from 68 to 43 cases. Six of the cases are for currency users, which are irrelevant for a dataset meant to understand modern currency issuers. This reduces the de jure dataset from 43 to 37 cases. Six more are for foreign-currency-denominated debt, making those countries de facto currency users and again not relevant to a study of domestic default, reducing the list from 37 to 31. For the entire list there is a high degree of unaccounted-for serial and spatial/event* correlation and non-independence of cases. Accounting for the non-independence of cases leaves a small number of cases such as Myanmar, Venezuela, and Zimbabwe. It is doubtful they are lessons of “debt” rather than of governance. The reader can be the judge of what lessons these cases offer to the rest of the world.

What appears to be their de facto listdouble cross is also marked by serial correlation and non-independence of cases.

double cross In reviewing their de jure data I noticed (on the website that includes the data for This Time Is Different) that within the excel sheets there is a worksheet that opens to the title “DOMESTIC DEBT: DEFAULT AND RESTRUCTURING, 1800-2012” (it appears on Table 7.2, 7.3, 7.4, as the fourth worksheet of each, link to excel file). It is somewhat different from their de jure list mentioned above; at first I thought it must be a list of the de facto cases they mention. However, there is some overlap with the de jure cases on the list and no explanation of what the list is that I can find (I emailed the authors but have yet to receive a response). But it does seem to list many (non-de jure) “hyperinflationary” episodes and episodes they define as “financial repression” as well as listing a number of cases qualified as “Not counted as a sovereign default,” all of which make me think it is a list of their “de facto” category. I include it here alongside the de jure cases as it seems to capture many of the de facto cases RR reference and is presumably what they base their inflation/financial repression arguments on. It lists 58 cases from 30 countries.

 Accounting for this reduces that list from 58 to a handful of cases. Like the de jure list, the remaining cases have unique and severe internal problems, and many indeed are the same as from the de jure list. And again, the reader can be the judge of what lessons these remaining cases offer to the rest of the world. It is also doubtful they are lessons of “debt” rather than of governance.

Note: [bracketed] notes on all lists are mine; all “de facto” examples are in dark blue.

Also: Nersisyan and Wray 2010 and Bill Mitchell’s 2010 post already offer comprehensive critiques of Reinhart & Rogoff (and well before the 2013 paper demonstrating that RR’s “Growth in a Time of Debt” stats were bad). However, the continued influence of Reinhart and Rogoff’s defective research continues to be sufficiently widespread that highlighting further flaws in their work is merited.

Austerity in a Time of Plenty

“The forgotten history of domestic debt has important lessons for the present.”

Reinhart and Rogoff, 2014

“it remains to be seen whether all advanced countries have permanently ‘graduated’ from outright debt default”

Reinhart, Reinhart, and Rogoff, 2015

“it would be folly to assume that current favorable conditions will last forever, or to ignore the real risks faced by countries with high and rising [domestic] debt.”

Kenneth Rogoff, 2019

RR snip
The above claim has been shown to be false. R&R also prominently insist that default and hyperinflation are dangers to modern economies if austerity is not imposed.

It is well known that the claim that public “debt” ratios impact growth—a claim told in an attempt to impose austerity in a time of plenty—is false. For currency-issuing countries there is no logical reason why the stock of savings in one’s currency (under the misnomer “debt”) should relate to yearly levels of economic activity in one’s country, and empirical data shows that indeed it does not.

Promulgators of the discredited debt-to-GDP ratio view (notably Carmen Reinhardt and Kenneth Rogoff) also influentially promote a related view, and for the same reason: That the stock of savings in a currency somehow puts a country at risk of “default,” high future taxation, financial repression, and inflation/hyperinflation. So we must fear domestic “debt” not only because of effects on growth, but also because “default” or “hyperinflation”—even in “advanced” countries—is looming if austerity is not imposed. They widely spread this implication in interviews and presentations (constantly mentioning default, “inflation trauma,” “painful restructuring” etc.).

In “The Forgotten History of Domestic Debt” (NBER 2008, revised 2010, published version 2011) they include a dataset of “68 cases” of de jure “domestic default.” (The updated 2010 NBER data is used here; the exact number of cases depends on how date ranges, serial “cases,” the “voluntary” cases of the UK and several other factors are counted).

RR count as “de jure”:

“1. A failure to meet a principal or interest payment on the due date (or within the specified grace period). (These episodes also include instances where rescheduled debt is ultimately extinguished on less favorable terms.) 2. The freezing of bank deposits and or forcible conversions of such deposits from dollars to local currency. 3. The abrogation of indexation clauses, as the United States did in the 1930s and as Argentina is doing at the time of this writing in 2008.” (2010, Appendix III, p. 42)

In the main text “de jure default” is defined as “ranging from forcible conversions, to lower coupon rates, to unilateral reduction of principal (sometimes in conjunction with a currency conversion), to suspensions of payments.” (2010, p. 12)

Reinhart and Rogoff also repeatedly suggest that there are many more cases of de facto default (these cases will be colored dark blue throughout), mostly defined as “choosing” (2010, p.2) inflation/hyperinflation and/or “imposing” “financial repression.” (pp. 13-14).

Irrelevance of pre-1971 cases in the “de jure” dataset

It wasn’t until 1971 that the centuries-long evolution of monetary systems of countries that had either previously borrowed external currencies, used currencies convertible to gold or silver, and/or pegs to foreign currencies finally moved to the standard for modern monetary systems: Self-issuing of currencies not tied to any commodity, pegged to any other currency, and with floating exchange rates.

††  This practice and the interest payment are purely vestigial practices in fully modern monetary systems, which can easily be left at nominal zero permanently; currency issuers have absolutely no need for bond sales for “funds,” nor do bonds have any useful effect on inflation (because 1. purchasers are eager savers by definition 2. bonds are highly liquid 3. interest on bonds relentlessly pumps high powered money into economies and 4. businesses price-in rate increases). When a bond is purchased, the saver has reserves held at the Central Bank account (by a bank) switched to what amounts to a savings account at the same Central Bank. When the bond is paid off, this process is simply reversed. It can always be reversed instantly and for any quantity, and this reserve/bond swap could be done away with permanently with no effects on inflation nor the spending capacity of a currency issuer.

In such a system it is not possible for a currency issuer to be illiquid or insolvent in their own currency. What is called “public debt” (regardless of whether the holders are foreign or domestic) in this system is merely the savings of currency units that are voluntarily converted to “bonds” (bonds/ bills/ notes/ gilts/ treasuries etc.) by savers simply because the country pays (also voluntarily) interest on “bonds.” This is a purely vestigial practice. The sale of bonds from currency-issuers merely transforms one already existing government token (reserves) into another government token (the bond).††

Pre-1971 pegged and convertible currencies can tell us nothing about the liquidity/solvency of countries with modern free-floating, non-convertible currency systems.

Of Reinhart and Rogoff’s ~68 “de jure domestic default” cases, only ~43 (as RR sometimes use wide date ranges as one case, e.g., Dominican Republic 1975–2001, and sometimes count a few years as multiple cases, e.g., Argentina 1982, 1989–90, 2002–2005, it makes exact counts difficult) are after 1971 and can possibly be of any relevance to modern countries.

However, let’s consider all 68 “de jure” cases for a moment.

Irrelevance of Currency Users (As Opposed to Currency Issuers)

Eight of Reinhart and Rogoff’s 68 cases are not for currency issuers at all but rather currency users (a ninth “case” is hard to classify: “United States (9 states) 1841–1842” which is in the “free banking” era, with a complex relationship between US-State banks, US-State bonds, the US dollar unit, and gold/silver). These eight cases have no place in a dataset purporting to show a danger of default for currency issuers.

The eight currency-user cases (plus one “US States” “case”):

CFA Franc Countries:
  • Cameroon 2004
  • Gabon 1999–2005
Eastern Caribbean Currency Union:
  • Antigua and Barbuda 1998–2005
  • Grenada 2004–2005
  • Dominica 2003–2005

US Dollar

  • Panama 1988–1989
  • US States (9) 1841–1842, [in the “Free banking” era 1837-1862; relationship of State-bank issue to the US dollar, gold/silver is complex].
  • United States (“states and many local governments”)   1873–83 or 1884  [after the free banking era, but before the 1913 creation of the Federal Reserve]

One Canadian Dollar User

  • Alberta, Canada April 1935

Taking these eight obviously irrelevant cases out of the dataset reduces the RR cases from 68 to 60 (It reduces the post-1971 list from ~42 to ~36).

Similarly, although a currency issuer with a free floating non-convertible currency can never be illiquid or insolvent in its own currency (no matter who holds the debt), it can with debt denominated in a foreign currency. It is necessary to separate foreign-denominated debts from domestic-currency-“debt” cases. Yet RR include six cases of dollar-denominated debt as “domestic defaults.” The cases are:

  • Argentina 1982, 1989–90, 2002–2005
  • Bolivia 1982
  • Mexico 1982
  • Peru 1985
These cases also are of no relevance to discussion of domestic currency “debt.” This reduces the 60 remaining RR cases further, to 54 cases (post-1971 from ~36 to ~30).

Interest Rates & “Financial Repression” (relevant to the de facto” list)

  This potential exists from whenever a country begins emitting its own currency unit that is valued only because it is the tax-unit (and legal tender for obligations such as fees, fines, and contracts) of that country, and with no limits whatsoever especially after 1971. Currency-issuers have no need for funding-related bonds/bills/notes/gilts and thus zero need to pay interest on bonds to make sure they sell. This is done for purely vestigial reasons. (Until 1971, especially in wartime, conversion of reserves to non-convertible bonds was potentially useful to prevent a “run” on conversion at high wartime spending levels; reserves were still promised to be convertible to gold internationally, whereas bonds were only promised to be converted to reserves. With no convertibility of reserves at all after 1971, bonds do not even serve this purpose anymore).

Before moving on, it is important to point out that post-1971 currency-issuing countries set their base interest rates wherever they want them, and do this by propping the base rate up above zero by either paying interest on bonds or on reserves (pre-1971 could do as well; sovereigns could annul any convertibility promise at will if causing problems with desired interest rates). If a government does not sell bonds with an interest rate above zero, and does not pay interest on reserves, then the rate of return on saved currency will always fall to nominal zero.

The only way savers “earn” any interest whatsoever on savings of a government currency-unitwhether Treasury bonds or reservesis through government intervention, propping rates up above zero. The idea that governments were “keeping rates artificially low” and calling this “financial repression” illustrates a fundamental lack of understanding of how modern monetary systems function.

None of the cases on the RR “de facto list that claim “financial repression” based on interest rates should be there. However, we’ll also proceed with that dataset for a moment.

Non-independence of cases

Losing Wars and Crazy Dictators: Not Recommended

Historically, when countries lose a war, they often have trouble re-establishing political stability/credibility, and the regime’s currency struggles to recover, attain, and/or maintain value (either domestic value or exchange rate value). The same difficulty occurs with civil war and revolution (and crazy dictators, for that matter). Indeed, the political stability of a regime seems to be the most important factor—by far—influencing the degree to which its currency has domestic value (i.e., the price level is stable). (Even more than the usually simultaneous factor of war or corruption destroying the productive capacity of a country; productivity loss can be of a scale to explain high inflation, but seldom of a level high enough to account for the almost total loss of domestic value of a currency).

Imagine you see 30 people flee from a restaurant. You would think, of course, that this constitutes 30 independent cases of “deciding to flee.” But if you discovered there was a large kitchen fire you might think of it as a single case: 1 “restaurant fire,” with all 30 “fleeings” being from that single cause. This captures the way RR fail to deal with the non-independence of their examples.
To extend the analogy:  If you learned that many of the customers, upon seeing there was a kitchen fire, perished because instead of fleeing, they instead rushed into the kitchen and doused a large grease fire with water (a very foolhardy thing to do) making it much worse, you might be confused. But not if you learned that all those who had perished had graduated together from the infamous “Fall T. Óeires School of Firefighting.” Besides the non-independent cases first mentioned, this is what RR do with their later cases: the countries involved all share advisers that might as well have studied at good ole “Faulty Wires U.” That is to say, they have dangerously flawed misconceptions, acquired from Chicago, Harvard, MIT, etc., about how monetary systems function. Their advice is virtually guaranteed to turn a difficult situation (“less developed countries”) into a multiple fatalities situation (RR’s IMF “serial defaulters”).

As political stability is threatened or declines, the value of a currency declines. A new regime after a civil war, revolution, or losing a war has a hard time getting its currency accepted as valuable even by its own citizens, or sees the previous value collapse. This is, absurdly, called “hyperinflation,” as if price rises and “printing” somehow precede (and cause) the loss of value of the currency system. Price increases and “printing” (if the latter occurs) are always a sign of and response to a collapsing currency, which is in turn the result of a collapsed or collapsing government (often coincident with sharp declines in production).

The RR de facto list, defined in part by cases of “hyperinflation,” includes, as an example, these seven cases:

Greece 1941-1944 [occupied by Germany 1941-1944]
Hungary 1945-1946
Italy 1944
Austria 1945-1948
Germany 1948
Japan 1945
Japan 1946-1952

“the Soviet Union bore an incredible brunt of casualties during WWII. An estimated 16,825,000 people died in the war, over 15% of its population. China also lost an astounding 20,000,000 people during the conflict” (source)

This illustrates the association of losing a war and “hyper” loss of value (i.e., collapse) of currency. Other countries on the RR list that were profoundly affected by WWII and economically unstable after it were Russia 1947 and China 1946-1948 (Russia was technically not a loser but probably suffered economic losses greater than any of the other “winners;” China technically was a “winner” but (re)entered into its own civil war, 1945-1949).

These “nine cases” are deeply connected by the single underlying event of World War II. It is hard to consider them as meaningfully independent cases.

Similarly, on the de jure list we find:

Austria December 1945
Germany June 20, 1948
Japan March 2, 1946–1952
Russia 1947

Again, these cases are dubiously “independent.” We really have one global underlying cause leading to the almost total undermining of the political legitimacy of World War II losers (and unimaginable economic destruction, especially of the otherwise “winning” Russia).

Reinhardt and Rogoff give the same treatment to World War I and its aftermath (on the “de facto” list), ignoring the high degree of non-independence of the cases:

Argentina 1915 [WWI effect on its immense trade sector]

Poland 1922-1923 [Polish-Soviet War 1919-1921, related to both WWI & the Russian Revolution].
Italy 1920, 1924, and 1926 [post WWI “Red Years;” March On Rome]
Austria 1920-1922
Germany 1922-1923

And even further back:

War, Revolution/Civil War/Regime Change
United States 1790
Denmark 1813
Mexico 1850 [Mexican American war (ended 1848)]
Russia 1917-1918
China 1919-1921 [1919 May Fourth Movement; this was on top of strong destablizing effects from the longer “Warlord Era” 1916–1928]
Spain 1936-1939
Russia 1998-1999

They also list as many “independent” cases nations affected by the Great Depression:

Argentina 1930s
Uruguay 1932-1937
Bolivia 1927-1940
Peru 1931-1945?
Mexico 1930-1945?
Romania 1933-1945?
Greece 1932-1940
China 1932
Australia 1931-1932
New Zealand 1933
United States 1933
Canada 1935

The above examples were from the de facto list. The similar list of countries on the de jure list:

Great Depression:

Australia 1931/1932
China 1932
Greece 1932
Mexico 1930s
New Zealand 1933
Peru 1931
United States 1933
United Kingdom 1932
Uruguay November 1, 1932 February, 1937

War, Revolution/civil war/regime change:

United States January 1790
Mexico November 30, 1850
Confederate States of America 1864-1865
Denmark January 1913
Russia December 1917–October 1918
China March 1921
Spain October 1936–April 1939
Vietnam 1975
Angola 1976, 1992–2002
Mozambique 1980
Liberia 1989–2006
Sudan 1991
Kuwait 1990–1991
Rwanda 1995
Croatia 1993–1996
Sri Lanka 1996
Sierra Leone 1997–1998
Mongolia 1997–2000 [previously a Soviet satellite state]
Russia 1998–1999
Ukraine 1998–2000
Solomon Islands “1995”*–2004 [*default appears to actually be from 1999, IMF Country Report No. 04/258; civil war: 1999-2003]

(This leaves pre-1971 de jure cases of: The United Kingdom 1672 [Stop of the Exchequer], Argentina 1890, United Kingdom 1749, 1822, 1834, 1888–89 (“these restructurings appear to be mostly voluntary”), Peru 1850, Bolivia 1927, Russia 1957).


This leaves nine post-1971 potentially independent de jure cases:

Asia Africa Central/South America
Myanmar 1984, 1987 Congo (Kinshasa) 1979
Madagascar 2002
Zimbabwe 2006
Dominican Republic 1975–2001
Ecuador 1999
El Salvador 1981–1996
Surinam 2001–2002
Venezuela 1995–1997, 1998

It leaves the following de facto cases:

Africa Central/South America
Angola 1993-1996
Zimbabwe 2006-2009
El Salvador
Peru 1985
Peru 1989-1990
Nicaragua 1988-1990
Nicaragua 2003, 2008
Panama 1988-1989
Venezuela 1998
Jamaica 2010
Bolivia 1982
Bolivia 1984-1985
Brazil 1986-1987
Brazil 1989-1994
Brazil 1990
Argentina 1982
Argentina 1989-1990
Argentina 2001-2005
Argentina 2002-2005

When we look at all of the Reinhart/Rogoff data taking into consideration the real events driving their data, it becomes clear they have merely listed the losers or most impacted from World War II, the losers/most impacted from World War I, countries that have had revolutions, civil wars, and crazy dictators, the Great Depression, and lastly those that have taken IMF advice and/or were advised by mainstream economists (often native but taught, in US/European universities, to take on foreign-currency-denominated debt, that pegs are useful, etc.).

RR haven’t given us a statistical case for associating domestic debt with default. They have given us empirical data that make emphatically clear that unstable political regimes cannot maintain the value of their currency, moved off pegs, moved off the gold standard, and suffered general monetary, institutional, and governance chaos and bad advice in a multitude of ways. None of these cases is relevant to modern politically stable countries with non-convertible, free floating currencies.

1) Modern currency-issuers cannot suffer from illiquidity or insolvency.

2) Hyperinflation is always a political (or war-related) and/or foreign-currency-denominated-debt phenomenon. Relatedly: There are no cases where government spending has induced high- or hyper- inflation in modern peacetime politically-stable countries; it is theoretically possible but does not happen in practice. In modern peacetime politically-stable countries, a decline in the value of a currency is always either supply-side related, preceded by a decline in political stability, or (less commonly) tax-cuts in a boom (political).

3) “Financial repression” as related to interest rates does not work the way Reinhart and Rogoff think it does, indeed it cannot work the way they think it does. They demonstrate a shocking level of incompetence with their interest-rate financial repression claim.

4) The idea that current resource use incurs future financial constraints so that “taxes will be higher” is a non sequitur. Real-resource decisions never put any financial burden, whether current or future, on a currency issuer. The stock of saved currency (under the misnomer “debt”) is residual to balancing the real resources of an economy. Government money is an organizing tool created by the public for the public, and can only be judged on its effectiveness at achieving public goals; the liability side of the tokens themselves are completely meaningless to a currency issuer.


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Herndon, Thomas, Michael Ash, and Robert Pollin. 2013. “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff.” University of Massachusetts, Amherst, Political Economy Research Unit (PERI). Working paper no. 322.

Mitchell, Bill. 2010. “Hyperbole and outright lies.” Monday, March 1, 2010.

Nersisyan, Yeva and L. Randall Wray. 2010. “Does Excessive Sovereign Debt Really Hurt Growth? A Critique of This Time Is Different, by Reinhart and Rogoff” Levy Institute of Bard College, Working Paper No. 603.

Reinhart, Carmen and Kenneth S. Rogoff . 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press. (Note Part III of this contains a version of their Domestic Debt paper, thus the review by Mitchell, and Nersisyan and Wray, cover both the “growth” arguments, notably before the revelation of the bad RR stats in 2013 by Herndon et. al., and those reviews cover the domestic debt arguments by RR I revisit here.)

Reinhart, Carmen and Kenneth S. Rogoff . 2010. “Growth in a Time of Debt” American Economic Review: Papers & Proceedings 100 (May 2010): 573–578.

Reinhart, Carmen and Kenneth S. Rogoff 2008/2010/2011. “The Forgotten History of Domestic Debt.” NBER 2008, revised NBER 2010. 2011 in The Economic Journal, Vol. 121, No. 552, Conference Papers (May 2011), pp.319-350.

Reinhart, Carmen, Vincent Reinhart, and Kenneth Rogoff. 2015. “Dealing with Debt” Journal of International Economics 96, Supplement 1 (July): S43-S55.

Rogoff, Kenneth. 2014. “What have we learned from Argentina’s debt default?” World Economic Forum.

Rogoff, Kenneth. 2019. “Modern Monetary Nonsense.” Project Syndicate.

See also:

Wall Street Journal article and the “Database of Sovereign Defaults” (Clint Ballinger)

and The Autocorrelation of Hyperinflation (about 7 events, not 58) (Clint Ballinger)

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These maps illustrate 1) the robust (multiple measurements) correlation of weak states with the inability to maintain the domestic value of their tax-credit (currency) and 2) the high degree of correlation along lines of similar institutions, geographic/real resource constraints, colonial history, and IMF interference with poverty and post-1971 examples from Reinhart & Rogoff’s lists.

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Fragile States Index, Fund for Peace

Political Stability and Absence of Violence/Terrorism, Government Effectiveness: Worldwide Governance Indicators (WGI), World Bank Group

Corruption Perceptions Index, Transparency International

Check out my new book “1000 Castaways: Fundamentals of Economics” 

A renegade band of Modern Monetary Theorists has overturned mainstream economics in part by emphasizing that there is not one, but two systems of modern money, the “vertical” and the “horizontal.” They conclusively demonstrate how unifying our understanding of these is crucial for grasping modern economics.

“the key to understanding Modern Monetary Theory is this vertical-horizontal relationship”

(Warren Mosler)

   1000 Castaways develops Mosler’s statement into a concise, book-length treatment that is accessible to all readers, starting from first principles and, step-by-step, leading the reader up to the complexities of the real world.

   Our one thousand castaways develop, before our eyes, a “perfect” economy, and demonstrate how the horizontal and vertical systems of money naturally emerge from even more fundamental organizational needs of a large society.

   1000 Castaways then contrasts the Island’s “economics” with real-world “economics,” in an enlightening illustration of the last few steps in our common economic understanding that we must take in order to run our modern economies in a way that maximizes wellbeing.

Paperback $9.99  Kindle $2.99 Hardback $21.99 Also available as Barnes and Noble Nook, Kobo etc.



MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited

Imagine you are an experienced mechanic. One day your neighbour comes home with a newly purchased used car. It is running terribly – sputtering and running slowly with little power.

You look under the hood. It is a four cylinder car in good condition, and you notice that one of the spark plug cables is simply unconnected. The only thing that needs to be done to make the car run smoothly and with 100% power is to connect that spark plug so that all four cylinders fire.

This is the case with economics and the economy. There are a minority of economists, MMT and Post-Keynesian economists especially, who actually observe the real properties and understand the fundamentals of how the economy functions (as opposed to the scholastic mainstream economics founded on make-believe assumptions).

These economists are sometimes accused of being “normative” and reply that they are merely describing how economies actually function. Unproductive debate follows.

The misunderstanding is that sometimes describing is inevitably prescriptive, as with the car.

Once the actual mechanics of the economy are understand it is impossible to look at the way the economy is currently managed and not suggest increasing spending for public projects such as infrastructure, healthcare, and employment. There are idle resources alongside desired projects; there is no downside to employing them, and almost innumerable upsides.

Just as with the mechanic, there is no way to look at an otherwise well-running four cylinder car that is running needlessly on 3 cylinders and not mention “Errr,,,you know…it would run amazing if you simply connect that cable back, which I can do for free in 10 seconds.” (Which actually improves the functioning by far more than 25% since a non-functioning cylinder messes up the entire timing/function of the engine, it doesn’t just reduce the power proportionately).

Another way to say this: In this case there is in effect a “free lunch”. There is almost no effort involved in plugging the fourth cylinder in, but a massive gain that is currently being foregone for no reason. A similar way to say the same and actually talking about lunch: If someone left a very nice picnic spread on a hot summer day, and you salvage it before it rots, you do indeed have a free lunch, a lunch that would not have existed except for your (minimal) actions. It would have been permanently lost and you would have had to eat something else, but by simply not letting it go to waste you have a free lunch. We are letting a good bit of our economy “rot” for no reason. This is a permanent reduction of wellbeing for us and future generations.

MMT is hardly being “prescriptive” or “normative” when they point out the loose spark plug cables of our economy. There are gains to wellbeing that are relatively easily achievable now that have virtually no downsides.

MMT economists aren’t saying “you should convert that street car, put some big knobby tires on it, and start doing off road derbies!” That would be a normative change in lifestyle and design with many trade offs for wellbeing. But simply plugging the fourth spark plug cable is a pure gain.

This analogy can be extended to think about some recent criticisms of MMT and developing countries. MMT insights help any economy run optimally. What they cannot do is make the fundamentals of a country better. In other words, there can be old Ford Pintos, 4×4 Jeeps, and Ferraris all with loose spark plug cables. All of them have a pure benefit from having those cables noticed and reconnected. However, the cars themselves have fundamental differences in capabilities. It is silly to expect the advice to make the Ford Pinto run like the Ferrari. But both will run much better than they did previously.


Decouple Spending From Bond Sales

Government bonds for funding are well understood to be an unnecessary, vestigial custom for currency-issuers.* There has been discussion of eliminating them as they serve no funding purpose.

An argument in favor of eliminating bonds is that they are the foundation for the widely held yet false belief that a “national debt” limits what public projects can be carried out. Eliminate bonds associated with “funding” and we achieve a more transparent, easy-to-understand system with no “national debt” for the media to discuss. This in turn enables the media and public to see the logic in optimizing spending up to the public’s own desired resource use for their own wellbeing (healthcare, education, a job guarantee) and in turn electing representatives who will do so.

Reasons often given for maintaining bond sales

The first objection to stopping bond sales is that bonds stop spending from being inflationary whereas direct spending would be inflationary. This is simply bad accounting.** That even “professionals” can fall for this highlights the need for making the system more understandable for the general public .

There are three further reasons commonly given for not eliminating government bond sales:

  1. government bonds have come to be relied on in pension programs

  2. it became customary to believe that their effects on interest rates are beneficial (stopping bond issuance would stop their “reserve drain” effect, causing base rates to fall permanently to 0 unless other government interest rate support policies were implemented, such interest on reserves, time deposits, or reverse repos)

  3. the accounting for spending with and without bonds is the same, it is just more complex with bonds. Thus the political capital needed to have the system changed is not worth the effort. It is better to use that political capital on trying to get the public to understand spending for the public purpose under the existing system. (Most “MMT” economists follow this approach.)  The political capital argument is also reinforced by (1) and (2); belief in both the utility of the pension fund purpose and interest rate effect of bonds each independently have immense support. Overcoming even one of these objections would be almost impossible, much less both of them at the same time.

So we soldier on with a byzantine system that allows the narrative that there is a “national debt” to impede us from spending more on healthcare, infrastructure, social security, pure research, and employment, and to dominate in the media and among the public. The public continue to vote for representatives (in all major parties) that promise to reduce a “national debt” and “balance the books” (even as I write, this popped up in The USA Today: The national debt wasn’t a big issue this midterm election, but it’s still a big problem” .)

Decoupling Spending From Bond Sales

There is no structural reason that the debate has to be either to maintain the system as it is or eliminate bond sales altogether. We could separate bond sales from the spending process without eliminating them.*** (This has been pointed out before; I am merely reiterating the usefulness of doing so).

This would allow the merits of each reason for bonds to be judged independently. (spending, interest rate policy, vehicles for safe savings).


This would allow for the transparent spending procedure many have argued for (direct spending of tax-credits, whether from the treasury or central bank, it makes no difference; Overt Monetary Financing is a common term for one method). It becomes obvious there is no structural limit as tax-credits are merely ledger entries and have nothing to do with annuity issuance.

It would become straightforward to explain to the media and public that the only limit is the real resources that they themselves decide to dedicate to public projects (via their representatives), best measured and limited by the price index. The current Fed/Treasury system is so complex in the US that it is almost impossible to explain clearly even to advanced economics students, and is widely misunderstood even by professional economists. With this complexity comes opportunity for those who do not want spending for public purpose. The revised system would be understandable in televised debates, popular political barometers such as USA Today, etc. The inherent logic of functional finance would be much easier to get across to the public and subsequently acted on in Congress.

No debates necessary with the entrenched interests and customary beliefs of (1) and (2) above

“Bond” (actually annuity) sales could remain the same in quantity and quality as now.***

However, separating them from “funding” is in line with the reality that bond sales have no real connection to funding decisions; it more accurately reflects the real accounting decisions involved.

It makes clear that “bond” sales are just boring annuities for willing savers.

That they are voluntary and there are no “bond vigilantes.”

There are potentially long-run advantages for pensions as well. For example, Richard Murphy argues we have far too few safe assets that pay interest (UK context), that there should be more bonds sold. That debate can happen based purely on the merits of bonds  for the pension system, uncoupled from debates on the budget. It becomes obvious that savers who buy annuities are just that – merely savers, funding nothing.

Once their role as primarily annuity and retirement vehicles is isolated, it also becomes evident that that system can be optimized. We could increase the amount or change the types of securities to better serve pensions, without becoming bogged down with discussions of funding. Eventually, it might be realized that using public bonds to back complex, often private pension plans isn’t the optimal system, but that can be an entirely separate, and future, debate. (Just one possible example: government tontines as discussed in The University of Pennsylvania Law Review, see here, here, and here as well).

Relatedly, there are many good reasons to believe that interest rate manipulation is not useful for improving the economy (e.g., here ****). But that debate can also be had entirely separately from the tax-credit spending system. My suspicion is that the low, steady interest rate structures that prove most beneficial to pension plans will prove to be the most beneficial for overall “interest rate policy” anyway.

Overall, there is no structural reason to bind together discussions of spending, government annuities, and interest rate support as we do in the current system. 

Those who argue that eliminating bonds would take too much political capital may well be right. However, the primary benefit (public understanding of spending) is achievable merely by separating funding, annuity issuance, and interest rate policy. This is relatively easy to achieve politically as doing so would not need to bring about opposition based on pensions or those who believe interest rate policies are useful. Simply allow Overt Monetary Funding, still sell annuities, and, independent of funding, allow whatever interest rate support methods are deemed desirable. There is much to be gained from this and no obvious downside, regardless of one’s views on spending, pensions, or interest rate policy.


* It is also vestigial that savers have access to tax-credits as cash, but not on ledgers, and cannot save and transact via ledgers in tax-credits($, £ etc). They are needlessly forced to convert savings to bonds if they wish to personally save tax-credits safely on ledgers. This is vestigial and easily fixed. The US Treasury, for example, already keeps accounts for savings-bond holders and could do so for tax-credits; the IRS easily tracks all the tax-credits in the nation; private banks have of course easily kept track of private debt for centuries; and public postal banks have existed in various countries. There is no technical obstacle to easily allowing the public to save and transact in real tax-credits (as opposed only in bank credit-money units) via a (digital) ledger system.

** This is based on the same bad accounting that allows the belief that bonds fund spending. Currency-issuers always spend by crediting accounts; the changing of already saved government tax-credits by savers into government bonds does nothing to change the impact of government spending. The buyers are already eager savers, and bonds can be liquified easily anyway, or used as collateral.

*** For currency-issuers, all spending methods shake out to be the same. So it might be argued that allowing bond sales to be continued under another name and separate from spending achieves nothing. And that if interest is paid on bonds (or interest rates are supported by interest on reserves, reverse repos etc.) then there is still a “national debt”. However, separating bonds from any discussion of funding better reflects reality. If the government voluntarily chooses to pay savers an annuity, that is clearly different than what the public now perceives as a “national debt” to private banks, foreign countries, and/or future generations, which is clearly what impedes much of the public now from voting for representatives who will fund “do-able,” publicly desired, welfare-enhancing projects now.

**** A few more reasons often given for why interest rate policy is not effective:

  • Changing saved tax-credits ($, £ etc)  into treasuries/gilts doesn’t affect the ability to spend since bonds can be liquified easily or used as collateral (I.e., there is no inflation control effect).
  • Interest rate effects are slower and less precise than fiscal automatic stabilizers
  • Business investment is inelastic to interest rates (although housing and consumption is not)
  • Interest rate policy is technocratic, by unelected officials, who further may have conflicts of interest
  • Protecting true small savers is relatively easily achieved in other ways; institutional investors should make their money and protect it in the market, there is no justification for “protecting” their savings from inflation
  • “Interest rate policy is used as an excuse to avoid the hard questions of taxing and spending; we shouldn’t let the government off the hook in making key decisions about economic policy”

Many of these issues are already laid out and usefully clarified by Brian Romanchuk and comments on Mosler, and by Neil Wilson and others, over at Bond Economics.


Forman, Johnathan Barry and Michael J. Sabin, 2015. “Tontine Pensions” University of Pennsylvania Law Review, Vol. 163: 755-831 .


The Myth of the Currency Hierarchy

(response to Coppola’s “The Myth of Monetary Sovereignty” and related discussions)


A) Properly understanding the macroeconomy allows countries to operate at their full real-resource potential, whatever that might be.

B) Understanding the macroeconomy does not change the real resource potential of countries. That is a more fundamental question concerning the improvement of the institutions and productive capacity of a nation.

Understanding monetary sovereignty helps with (A). Frankly, no one has achieved any clear solutions for (B).

(A) and (B) can be pursued simultaneously. They are in no way mutually exclusive.

Not working to achieve (A) in developed and semi-developed countries in no way follows from the lack of progress on (B) in the least-developed countries.


Frances Coppola supports her view based on three points:

1) balance of payments crises have happened to countries with floating currencies; this is because they borrowed; but they had to borrow because they are resource poor

2) weak/thinly-traded currencies are volatile

3) countries with weak institutions/capital markets have “hot money” flows

Regarding (1):  Balance of payments crises, of course, are only possible with a floating currency if there is foreign-denominated debt. Thus Coppola’s argument must immediately retreat to an argument that foreign-denominated debt is “inevitable” for developing countries, so they are in practice not monetarily sovereign.

At the international level (unlike the domestic level), the household analogy is true: If a country is unproductive and/or resource-poor, it can only sustainably take on foreign-currency-denominated debt that increases production, not debt for consumption. If it wants to import for consumption, the only sustainable way is with a current account surplus/reserves from export.** The constraint for developing countries is exports, not lack of monetary sovereignty. The proper economic focus on real resources, not finance, applies as always.

Leading scholars on financialization in developing countries, after much consideration, still manage to come to the exact same inescapable conclusion and policy prescription:

“Lending in hard currency should be available only to domestic borrowers with earnings in that currency, that is, exporters. Importers would have to find a way to obtain currencies, unless specific imports are deemed necessary for developing policy objectives.” (Bortz & Kaltenbrunner, 2018, p. 13) (and even these should be “for capacity-expansion objectives, ideally oriented to boost exports.”)

In other words, only import for consumption what you can pay for in the moment without becoming a foreign currency user (borrower).

The limit on these least-developed countries has nothing to do with monetary sovereignty and everything to do with the unresolved problem that the poorest countries are the ones that need more real resources yet have nothing to trade for them.

This is a real-resource issue. It is just plain silly to call it a monetary sovereignty issue.

Regarding 2) Weak currencies are volatile. True. (but…)

Regarding (3): Here we have a fundamental misunderstanding of monetary sovereignty from many sides.

Coppola rests her point on an Asian Development Bank paper that states “Emerging markets with naturally higher interest rates are swamped with hot money inflows.” (McKinnon and Liu 2013, abstract).

The dilemma Coppola and others highlight is that “hot flows,” due to higher interest rates, cause destabilizing inflows; yet developing countries can’t then respond by altering rates without causing further destabilizing swings. Relatedly, interest rates must be set high to “maintain demand” for their currencies but these higher interest rates cause private borrowers in the developing country to borrow in foreign currencies:

“the international currency hierarchy forces DEEs [developing and emerging economies] to adopt higher interest rates to maintain demand for their currencies. It is this policy, however, which encourages national agents to borrow in international markets, thereby increasing their foreign exchange exposure and adding to debt servicing outflows.” (Bortz & Kaltenbrunner, 2018, p. 14)

Coppola’s argument and the “hierarchy of currencies” and “hot money” literature is based to a large degree on the premise that developing countries must prop up their interest rates.

This is precisely what an understanding of monetary sovereignty shows to be false.

Monetary sovereigns run their economy by emitting domestic tax-credits, which are valued due to their sovereign (monopoly on force) ability to tax. The tax-credit unit in turn forms the unit-of-account for their private banking sector. These are the two fundamental traits of a monetary sovereign.

The idea that a currency-issuer must sell bonds at interest demonstrates a basic lack of understanding of how modern money works. If a currency-issuer “sells” bonds in exchange for their own tax-credit, then accounting-wise they have done nothing (swapping one government token for another government token temporarily, and voluntarily paying eager savers interest. This does not “stop inflation from spending” since the holders were eager savers anyway and sovereign bonds are highly liquid. Indeed, rates on bonds can contribute to inflation, not reduce it because 1) businesses price higher rates into prices and 2) the relentless injection of interest rate payments in high powered money into the economy has potentially large effects in the medium- to long-term).

Artificially propping up interest rates, in the belief that this must be done to sell bonds, is to not understand the capability of a modern monetary sovereign, regardless of their development level. (Vestigial bonds and their once-needed interest offering have in turn been encrusted by layers of epiphytic pro-interest arguments: saving against inflation, as a policy tool etc; all of these things are achieved more directly with no government interest-rate manipulation).

If rates are propped up in order to borrow, then the same real-resource constraints apply we have already discussed in (1). In other words, interest rate manipulation is no financial fix to any real-world constraint. There is no useful purpose served by artificially propped up interest rates above zero, nor does a monetary sovereign in any way need to pay interest on its tax-credits (via bonds) to “sell” them to manage its domestic economy.

The “hierarchy of currencies” concern for hot money issues is largely based on propped-up interest rates. Yet it is precisely a distinguishing feature of monetary sovereigns that they can run at zero interest. Forever.

This aspect of monetary sovereignty is still not widely understood. But that is an issue for another day.


Note: That it is interest rates driving the hierarchy is evident in the proposed solution: “Reform efforts should focus much more on international monetary harmonization that limits interest differentials” (McKinnon and Liu 2013,p. 11). Harmonizing at zero is the obvious natural choice.

**Countries indeed must roughly match imports with exports over time or inevitably suffer. Even if, like the US, you can export dollars like a commodity, doing so harms the long-term employment situation & manufacturing capacity of the country. Any useful discussion of international trade must deeply incorporate the role of trading in increasing vs decreasing returns industries to meaningfully discuss the full costs:benefits of exporting/importing.


Bortz, Pablo and Annina Kaltenbrunner (2018). “The International Dimension of Financialization in Developing and Emerging Economies.” Development and Change, 49: 375-393.

McKinnon, Ronald and Zhao Liu, (2013). “Hot Money Flows, Commodity Price Cycles, and Financial Repression in the US and the People’s Republic of China: The Consequences of Near Zero US Interest Rates.” Asian Development Bank, Working Paper Series on Regional Economic Integration.


The Guernsey £: A Pirate’s Tale

[Update: See PPS at the end]

OK, not exactly a pirate.

But close enough for modern times.

Jacques S. Jaikaran, M.D. was (he passed away this year) a Caribbean émigré-cum-doctor (via Leeds, England)-cum-Houston, Texas bank-board member & plastic surgeon (losing his license for issues “involving moral turpitude”)-cum-author (“Debt Virus”)cum-US prisoner for tax-evasion & fighting for renewed Independence for the “Republic of Texas” (he tried to arrange for the “Republic of Texas” to purchase a “four-story building, similar to a compound, included machine gun turrets, a bomb shelter and a surgical operating room.”)

Perhaps because Jaikaran was a Texas author, his book ended up on display at my Dallas County Community College in 1992, where I read this interesting & informative story [this passage is from Google books with two excerpts from a physical copy]:

DV 1.png
DV 2DV 3DV 4

DV 5.pngDV 6DV 7.jpg⁠—⁠DV 8


Jaikaran also mentions currency issuance in Swanenkirchen, Bavaria and the Worgl Shilling ( https://wiki.p2pfoundation.net/Worgl_Shillings ).

He also includes a short history of the Channel Islands worth reading. The Wikipedia entry is similar, worth a read https://en.wikipedia.org/wiki/Guernsey.

Issues regarding sovereignty and currency issuance are clear.

The opening of Jaikaran’s chapter:

Screenshot (61)

For the record, Jaikaran’s views include the usual Fed-as-conspiracy type and Goldsmith-type stuff, and he didn’t understand the role of taxes. Nevertheless, considering the availability of information in the 1980s/early 90s (no Bill Mitchell blogs, no Center of the Universe blog, etc) it is not a bad attempt at seeing where mainstream economics makes no sense regarding spending, monetary operations.

I have long argued that the types of people who sense the mainstream view of “money” is wrong, yet didn’t have the good fortune to stumble across MMT at an early stage and instead end up with “goldsmith”/fractional-reserve/”we can’t pay all the interest!” views, or anti-horizontal-money type views and/or (better) aligning with Positive Money, are at least on the right track. These views can be unified (some links in the comment section here). (“Rohan Grey’s ‘Banking Under Digital Fiat Currency’ Proposal – A Guest post by Richard Taylor”)

Clint Ballinger

Your comment is awaiting moderation.

I have been wanting to see PM and MMT unify on horizontal money for a while, nice to see this 🙂
E.g. “OMFG, MMT & Positive Money Get Along” http://clintballinger.edublogs.org/2017/11/02/omfg-mmtpm-get-along/
“To what extent can Positive Money and Modern Monetary Theory join forces?” https://positivemoney.org/2015/03/positive-money-versus-modern-monetary-theory/



PS Need to add this: “As soon as the £180 was received each year, 180 States’ notes were burnt…At the end of ten years not one of the notes issued to pay for the [market] was left, no interest had been paid..& there was a steady income of £180”

This makes clear where taxes go – they shrink the balance sheet.

DV Market.jpg

PPS  I first heard this story through Jaikaran although it has been floating around in general. I checked for sources and (surprise surprise) found none for that chapter in Jaikaran’s book. I see now that he basically lifted it from another work – he seemed to have traveled to The Channel Islands so I thought maybe there was some original research in there…I think not though.

See “Guernsey’s monetary experiment” which includes this….

Preface, by James Glyn Ford…

“This pamphlet, “How Guernsey Beat the Bankers”, is a reprint of one issued in 1958 by the Social Credit Movement. It tells how the Guernsey States from 1819-1836 manipulated the issue of notes to allow a number of public works to be carried out — including both the construction of the Guernsey Market and the rebuilding of Elizabeth College — without increasing public debt. The details are contained within the pamphlet itself….”

ISBN 85694 239 1 
Guernsey Historical Monograph No. 23 
General Editor: J. Stevens Cox, F.S.A. 


The story of how the Island of 
Guernsey created its own money, 
without cost to the taxpayer, 
and established a prosperous 
community free of debt. 









The Autocorrelation of Hyperinflation (about 7 events, not 58)

According to a CATO working paper (Hanke and Krus 2012), there have been 56 cases of hyperinflation. 58 if we include North Korea (they weren’t sure about the data quality) and Venezuela (which occurred after their paper).

There are several things I would like to point out that relate to recent twitter threads on hyperinflation but I will save for another day. However, I just thought it interesting to point out the very strong autocorrelation in these events. These cases are often discussed more or less singly, or by “type” (from war, regime change, supply shocks etc), and many lists are sparse, containing only a few well known events. The Hanke-Krus data is very complete, yet the list is constructed oddly – it is not in chronological, alphabetical, nor regional order. Re-arranging the Hanke-Krus list highlights something however: barring three outliers (France, 1795-1796, North Korea 2012, and Venezuela 2016-) there have actually been only five hyperinflation “events”, each associated with particular large, long-term global processes (involving war, decolonization, regime change, foreign denominated debt/currency pegs). The spatial and temporal clustering of these events is perhaps best expressed visually (Chile and Zimbabwe are temporal outliers within their cluster)
The re-arranged Hanke-Krus list:


Germany Russia post WWI, Bolshevik


post WWII


Latin America 1980s.JPG


Central Africa 1990s.JPG


Post Soviet, early 1990s


I have some more comments on this list, the autocorrelation in these cases etc in a future post.


Recently released (2019): 1000 Castaways: Fundamentals of Economics,  Ætiology Press.

“A renegade band of Modern Monetary Theorists has overturned mainstream economics in part by emphasizing that there is not one, but two systems of modern money, the “vertical” and the “horizontal.” They conclusively demonstrate how unifying our understanding of these is crucial for grasping modern economics.

“the key to understanding Modern Monetary Theory is this vertical-horizontal relationship”

(Warren Mosler)

   1000 Castaways develops Mosler’s statement into a concise, book-length treatment that is accessible to all readers, starting from first principles and, step-by-step, leading the reader up to the complexities of the real world.

Our one thousand castaways develop, before our eyes, a “perfect” economy, and demonstrate how the horizontal and vertical systems of money naturally emerge from even more fundamental organizational needs of a large society.

   1000 Castaways then contrasts the Island’s “economics” with real-world “economics,” in an enlightening illustration of the last few steps in our common economic understanding that we must take in order to run our modern economies in a way that maximizes wellbeing.”


March 31, 2019

Book free on Amazon for 48 hours! (Kindle)

Hello everyone- I am making a Kindle version of 1000 Castaways: Fundamentals of Economics FREE on Amazon for reviewers for a short time – but anyone here can take advantage of this and get their free copy.
It is free for the next 48 hours  (all day Sunday & Monday, Pacific time USA). You guys can help out immensely by posting a review on Amazon – good or bad!! – if you feel it merits it. Thanks! (on the reviews, you will be considered a “verified purchaser” even though the price was “0” https://www.amazon.com/dp/B07PWRXTF2
Even if you don’t usually read ebooks, you can read/review this by using Amazons easy free kindle reader for desktops/laptops.
(This is how I am doing the ARC [Advance Reader Copy] for the forthcoming paperback rather than try to mail/print galley copies around the world etc.)

UK website https://www.amazon.co.uk/dp/B07PWRXTF2

Canadian website https://www.amazon.ca/dp/B07PWRXTF2

Australian website https://www.amazon.com.au/dp/B07PWRXTF2