Matt Stoller – On the nature of money and democracy

Well, there is always a first for everything. Here an interesting twitter thread by Matt Stoller concerning money, debt, and democracy

Matt Stoller is Policy Director at the Open Markets Institute


1. Ok, a quick thread on what I think was a very significant ideological fight that happened last week. The dispute was over something known as PayGo and while it appeared to concern boring government budgeting questions, it is actually about the nature of money and democracy

2. Money is a very weird thing. It is at heart a commodity that a group agrees is a medium of exchange. What gives money value is both a collective belief it does, and an enforcement trigger, ie taxing authority. Dollars have value bc the U.S. gov’t collects taxes in dollars.

3. The value of money is essentially the amount of money in circulation versus how much stuff the economy produces. If you have a bigger economy you need more money to match that increased trade. Money is permission to use resources, the more resources the more money you need.

4. There are two ways to print money. Banks print money every time they make a loan. That’s private money creation. And the government prints money when it runs a deficit (when it spends more than it taxes.) To simplify, both the government and Wall Street can print money

5. America has a long and contested history over who gets to create money. Benjamin Franklin was a strong proponent of paper money printed by the states. The rich hated Franklin for it. States would print money by creating public land banks and lending it against farm mortgages.

6. The founding era was rife with monetary debates. Alexander Hamilton sought to place money creation power in private hands, hence he’s the founder of Wall Street. William Hogeland´s Founding Finance is about this. So is Terry Bouton’s Taming Democracy.

7. ‘The Democracy’ was something of an epithet in the 1790s, a sort of radical term similar in some ways to Communist in the 1950s. The founding of the Democratic-republican Party was a response to Hamilton’s creation of Wall Street in the form of a privately owned national bank

8. The debate continued in the form of a contest over the gold standard in the 19th century (w/the ‘Cross of Gold’ speech by William Jennings Bryan in 1896). FDR finally repudiated the gold standard in 1933 and regulated the banks. The public took control of money printing.

9. During World War II, the government “printed” money by running deficits as large as 25% of GDP, roughly equivalent to $4 trillion today. FDR ordered the Federal Reserve to peg interest rates at 2%. Inequality collapsed as the U.S. served as the arsenal of democracy.

10. Public money printing by FDR was paired with a radical restriction on private money printing by banks. Credit controls and regulations stopped banks from creating money. That’s how inflation was kept low and banking power crushed. There was also direct price controls.

11. In the 1970s and 1980s, Wall Street took this power back from the public. They put in place a new gold standard. This is, of course, balanced budget orthodoxy and the argument that public money printing in the form of a large national debt led a nation to bankruptcy and ruin.

12. Private money creation was unshackled by removing public rules on private financiers, known inaccurately as ‘deregulation.’ Public institutions were no longer allowed to spend money without permission from financiers, aka deregulated bond and derivatives market.

13. What made private financiers able to print money wasn’t just the removal of public removals, but successively larger bailouts by government. The gov’t spending and taxing authority, no longer used for public social priorities, was quietly placed in service of financiers,

14. This isn’t some conspiratorial framing. Here’s a video of Ben Bernanke saying the Fed printed money to bailout the banks.

15. It’s not bad to print money. It’s necessary. The question is who does it? The democracy, aka a mix of our government through deficits and a regulated private financial system? Or purely Wall Street? This is the essence of the debate that happened this week over PayGo.

16. Both parties are largely in thrall to balanced budget orthodoxy, aka a belief the only legitimate creator of money is Wall Street. Trump is less so. He knows instinctively he can run the printing press and hand it to wealthy cronies. It’s a corrupt view, but not wrong.

17. The argument for balanced budget orthodoxy is essentially a giant intimidation game by men in suits. “No credible economist thinks that you can run big deficits forever…” or “long-term our debt is going to get us” kind of deal. No. We’ve had a national debt for 200+ years.18. Last week, two Democrats, Alexandria Ocasio-Cortez and Ro Khanna , refused to go along with this argument. They said they would vote down a House Rule with a provision requiring balanced budgets. Others, like Pramila Jayapal and Mark Pocan, agreed but cut a deal with Pelosi to weaken the rule.

19. There were bitter arguments about the best way to eliminate this rule, called PayGo, but they all agreed in the need to get rid of it. It’s not 100% clear that Democrats understand the reason to do so. Some think PayGo stops them from spending money on nice things.

20. Paul Krugman makes this argument. He says too much debt in the long-term is bad, but the Republicans are bad faith operators so it’s not worth constraining Democratic priorities. His argument is wrong. PayGo isn’t bad purely for political reasons.

21. The real question is who gets to create money, which is a political commodity underlying our markets, our commercial society, and our social relationships. A small elite of economists and bankers? Or the democracy? That is the actual debate.

22. It’s a scary debate, bc most politicians (and people) are not confident in their policy judgment or ability to wrestle with ideas when men in suits with PhD’s tell them they are wrong. But Alexandria Ocasio-Cortez, Ro Khanna, Pramila Jayapal, and Mark Pocan had the policy confidence to do that.

23. Anyway if you’re interested in the procedural and ideological disputes, I wrote it up here. Suffice to say, I think this argument was a big deal and will reverberate in important ways for decades.

Be the first to comment

Leave a Reply

Your email address will not be published.


*